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Off-price retailers to thrive in future

Off-price retail business will thrive in the coming days, when retailer giants are overwhelmed with unwanted inventory, stocks, significant order cancellations due to the ongoing US-China trade war boosting off-price business.

Off-price retail
Figure: There could be good inventory buying opportunities ahead for off-price retailers.

An off-price retailer can be defined as a retailer who provides high-quality goods at significant discounts, every day. The off-price ‘flywheel’ is effective inventory buys lead to market share gains, which leads to competitor store closures, which then leads to further effective inventory buys, says UBS equity.

Jay Sole, UBS Equity Analyst highlighted, “Tariffs are likely causing significant order cancellations from many full-price retailers, potentially creating opportunities for companies to buy inventory very inexpensively.”

One of the problems is that inventory has grown up faster than sales in recent years, a sign that excesses are piling up amid more uncertainty in the market.

Meaning, the retailers having more inventory than they need for the third quarter of this year, not to mention what they might still have accumulated from earlier in the year.

“Tariffs are likely causing significant order cancellations from many full-price retailers, potentially creating opportunities for companies to buy inventory very inexpensively.”

Jay Sole, UBS Equity Analyst

Tariffs heighten the inventory problem, said Sole explaining that many companies believe they need to raise prices to offset the tariff cost rise, but that would result in unit demand declines, which in turn leads to companies cutting back on unit orders.

Even if the trade war is a deterrent on the economy, it will not be adequate to push the consumer-focused US economy over into a recession.

Industry experts have opined as the general election is looming, a mere symbolic resolution to the trade battle between the U.S. and China, and another tax cut by the Trump administration to gain favor from the business leaders is likely.

Jason DeSena Trennert, Managing Partner and Chief Investment Strategist at Strategas Research Partners, thinks that perhaps the USA has ‘already won’ the war as numerous firms that wanted to get out of China have already moved.

Simultaneously, consumers who prefer off-price retail shops, are not driven by fashion, as it is for department stores.

In new research released by The NPD Group, global industry analysis and advisory services company said, Consumers aged 45 and older make up more than 50% of consumers shopping at off-price retailers. Older millennials (aged 25 to 34) represent another 16%, and this percentage is expected to rise in the future.

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