Even Off-Price Retailers Plan To ‘Aggressively’ Raise Prices This Year

Off-price chains like T.J. Maxx, Ross and Burlington see plenty of room to “aggressively” raise prices this year without alienating customers as long as they stick to one simple rule: Keep prices below mainstream competitors.

“I’m looking at this inflationary price increase as a major opportunity for us at TJX to get even more aggressive about adjusting our retails than we’ve been,” said Ernie Herrman, CEO of TJX, which operates T.J. Maxx, Marshalls and HomeGoods, on the company’s earnings call last week.

“We have already started to move up our prices, and we will get more aggressive in the coming quarters,” said Michael O’Sullivan, CEO of Burlington Stores, on its earnings call Thursday.

Retailers have been grappling with a sharp rise in costs, primarily in transportation and wages, that have weighed on profit. Many have taken steps to raise prices in an effort to recover margins and boost profits. To their surprise, they have found that the American shopper is accepting those price increases more readily than expected.

When TJX started raising prices, executives used the word “surgically” to describe their precise, careful approach. Then they began describing it as more of a “selective” approach. But customers didn’t balk at the higher prices. “It’s been extremely successful,” Herrman said. “No problems at all.”

That type of acceptance has given retailers confidence. “We were never going to be a leader in raising prices, but we’re certainly happy to follow when we see it working,” said O’Sullivan, who noted that he has been listening to other retailers’ earnings calls.

Despite the worst inflation in 40 years, consumers have benefited from stimulus checks and other government assistance, like the child tax credit and the pause on federal student loan payments. Plus, the pandemic cut into spending on travel and entertainment, freeing money for purchases. Wages have risen, too, especially among lower-income consumers, O’Sullivan said. Walmart, Target and McDonald’s are among the companies that have hiked hourly wages for their workers. The national savings rate has gone from 7.6% in 2019 to 12% in 2021.

Off-price retailers, which cater to bargain shoppers who like the treasure hunt aspect of its stores, must simply be able to show that they are offering value. And value is relative.

“I think the most important thing for us to remember is that, value to our customer, that real definition for her is the appropriate separation of price between ourselves and mainstream retail,” said Barbara Rentler, CEO of Ross Stores, on the company’s earnings call this week.

It’s common practice for Ross and other retailers to closely monitor prices across the industry to determine how to set their own prices. They may then decide they can raise prices on bath towels, for instance, but not on hand soap. “As off-price retailers, they believe they can raise retails while also still showcasing great value vis-à-vis other retailers in their respective industries,” said Chuck Grom, an analyst at Gordon Haskett.

So while the same goods are getting more expensive, the only thing that matters is that customers believe they are getting value. So far, it seems, so good. “We’re not seeing any degradation in value perception at all,” said Herrman of TJX.