How Worsening Congestion at West Coast Ports Could Become a Boon to Off-Price Retailers
Increased demand, labor disruptions and equipment shortages have triggered a logjam at many of the nation’s ports, especially on the West Coast, which various industry tallies suggested could cost retailers millions of dollars this year. But for off-pricers, that stockpile of inventory could prove to be a treasure trove.
According to some experts, retailers like Ross Stores Inc., Burlington Stores Inc. and The TJX Companies Inc. could stand to benefit from the slowdown at the ports — mainly at Los Angeles and Long Beach in California, which account for nearly half of total United States imports from Asia. That’s because traditional retailers and department stores may no longer need those delayed products, and instead of returning them to their countries of origin, vendors might opt to sell rejected merchandise to off-price businesses and other discount chains.
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“We have some clients saying, ‘If I don’t get my goods pretty soon, it will show up in Ross [or other off-pricers’] stores,'” said Sue Welch, CEO of supply chain platform Bamboo Rose. “Standard retailers need to refresh their store shelves, so they can’t keep that old inventory. It’s cost-prohibitive to send that product back, and the last thing retailers are going to do is hurt their relationship with suppliers after leaving them high and dry when they canceled orders at the start of the pandemic.”
A number of businesses in the fashion and footwear sectors have already reported the negative impacts of such logistical hurdles: In its latest earnings report, Steven Madden Ltd. CEO Ed Rosenfeld forecasted that the gridlock at the docks could contribute to a $30 million hit in its first-quarter revenues, while Crocs Inc. CEO Andrew Rees told analysts in its recent earnings call that importing product from Asia is “really challenging right now.”
Meanwhile, some off-price chains have already forecasted favorable circumstances: During its own conference call for the fourth quarter, Ross CEO Barbara Rentler suggested that “in terms of the end state of availability from the disruption of the port, I think at some point there will be a bubble,” and “historically, when things start to self-correct, there’ll be a bubble of inventory … We would expect that at some point, that would back up and that there would be an opportunity.”
The issue lies in inventory as well as the cyclical nature of fashion: Unlike their full-price counterparts, some off-pricers — which are not as heavily dependent on a seasonal cycle and already tend to keep their inventories lean — could snap up trendy merchandise and sell them at significant markdowns.
“It certainly is an opportunity for off-price. It just depends on the retailer or vendor, it depends on the category and it depends on the seasonality of the product,” explained Gabriella Santaniello, founder of retail consultancy A Line Partners. “What percentage of their shipments is basic replenishment, because that’s year round, and what percentage is trend-driven or seasonal like for Easter or back to school?”
As the government ramps up COVID-19 inoculations and consumers anticipate a third round of stimulus checks, off-price retailers could see an influx of consumers willing to come back to stores and enjoy the “thrill of the hunt” experience that has played a huge part in their success during the years preceding the pandemic.
“Between vaccinations and people having some money in their pockets, shoppers are looking to return to stores, but they’re still looking for bargains,” added Welch. “For off-price retailers, the port congestion will give them all this great selection that’s fairly current, so they’ll be able to pick up even more consumers as things start to return to normal.”
But not all experts are convinced that the gridlock could benefit off-pricers. According to Hadar Paz, CEO and co-founder of AI-powered customer service solutions provider Powerfront, a surplus of inventory could end up burdening off-price retailers as cash-strapped consumers shift their spending away from discretionary goods.
“The people belonging to the socioeconomic status that are off-pricers’ customers are those who are most affected by the pandemic,” he added, “and therefore are unlikely to spend their money on these items anytime soon. Unfortunately, more stock does not equate to more sales.”
Looking ahead, shippers are finding ways to bypass the West Coast and invest in more vessels, but some experts pinpoint that the ports could remain overtaxed for at least the next several months. Others predict that, as the economy continues to reopen, consumers will end up spending their newly issued stimulus checks on travel, entertainment and dining — rather than apparel, footwear and accessories — which could contribute to less clogging at the docks.
“The turning point or improvement of supply chains is going to be people getting vaccinated and shifting their spend to services — going on vacations and taking road trips,” said Brian Whitlock, senior director and analyst at Gartner’s logistics and fulfillment team. “When that happens, there’s going to be a shift in spend, and there’s an expectation that it draws down demand on ocean freight services that will allow the ports to catch up and solve the congestion problems.”
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