The news
TJX and Burlington have each set out how they will handle cold-weather goods in a winter that forecasters expect to run warm. NOAA puts the chance of a very strong El Niño this fall and winter above 90%, with a 75% chance that it is the strongest on record.
Both CEOs described their plans on last month’s earnings calls, after analysts asked how the forecast was changing their fall receipts. Theirs were the only two of 12 retail earnings calls this cycle that described a plan for it, by The Conveyor’s count.
Burlington lost about four points of sales growth to coats in the 2015-16 winter, the strongest El Niño on record. Its holiday-quarter comparable sales rose 0.1%. Without coats and other cold-weather categories, they rose 4.0%, the company said at the time. Macy’s comparable sales fell 4.3% that quarter, while Ross grew 4% and TJX grew 6%.
What changed
Burlington changed what it buys, while TJX is relying on when it ships. Burlington CEO Michael O’Sullivan listed the moves.
Receipts: Burlington “deliberately planned down our outerwear businesses” for the back half and planned weather-neutral categories up. “Historically, we would not have been comfortable planning down such an important category,” he said.
Chase: New merchandising systems let the company start with a conservative plan and “react more rapidly if the weather does turn out to be cooler.”
Region: Warmer regions get more fleece and lightweight jackets and fewer medium and heavyweight coats.
Home: Burlington rebuilt a home assortment that had tariff-related gaps last fall, which O’Sullivan expects to lift sales whatever the weather.
TJX did not describe a change to its buy. CEO Ernie Herrman said the company holds goods on racks in its distribution centers and releases them to stores later, so a load of coats is not committed to a region before the weather is known. “Our goods don’t have to necessarily go straight to the lanes and go to the stores if we think there’s going to be an unusual weather pattern in a certain region,” he said.
Bain partner Dheera Anand described the practice to Supply Chain Dive as “hold and flow,” where part of the inventory waits on racks at the distribution center. He contrasted it with “flow through,” where goods go straight from the distribution center to stores on arrival. Seasonal and fashion goods, where demand varies most, suit the first, he said.
TJX’s spending is weighted toward those buildings. It put $851 million into offices and distribution centers last fiscal year, more than four times the $185 million it spent on new stores, according to its annual report.
The competition
Lowe’s is planning for a normal winter. Its second-half outlook “is based on expectations and normal weather trends, and we’re not baking anything in terms of expected events,” CFO Brandon Sink said on its call.
Macy’s is leaning toward coats. CEO Tony Spring has been raising the chain’s average selling price by shifting its mix toward items such as jackets and leather. He told analysts that coats lift average prices each fall.
Ross, the third big off-price chain, talks about weather after it happens. On its previous call, CEO Jim Conroy said January storms took one point off comparable sales. He also said outerwear was “a bigger business for us this quarter than it has been in the past.” Ross holds less stock than its two rivals: 56 days of inventory last fiscal year against 60 at TJX and 72 at Burlington, by The Conveyor’s calculation from company filings.
What’s next
Burlington’s third quarter runs through the late-September-to-November stretch O’Sullivan named as most exposed. The company guided comparable sales up 1% to 3% for it. Coats cost it about four points in the 2015 holiday quarter, so a result inside that range in a warm fall would show the smaller coat plan held.
At Marmaxx, TJX’s largest division, comparable sales growth slowed from 6% to 1% last quarter. Herrman blamed the company’s own merchandise allocation. The holiday quarter will show whether holding goods back puts the right ones in the right region.
