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Off-Price Retailers Fall Victim to COVID-19, but Long-Term Prognosis Good

Chains' recovery will eventually come; in the meantime, check out the full-price sale.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

America’s virtually instant transformation into a lazaretto will undo longstanding comparable sales growth streaks for off-price retailers in 2020, but the long-term factors underlying their narrow economic moats and ability to transcend their full-price counterparts’ more chronic woes remain in place. Also, we think strengthened balance sheets should provide ample ammunition for combating short-term turmoil. The near term is not without challenges; while a difficult-to-digitize business model protects TJX (TJX), Ross (ROST), and Burlington (BURL) long term, their limited e-commerce options are a liability at present. We think shoppers are likely to stay wary about lingering in stores for extended periods on a bargain hunt, particularly if social distancing efforts continue to limit work and social opportunities outside the home.

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Zain Akbari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.