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Ross Stores has more work to do on improving its branded merchandise mix as its low to middle income customer base continues to face pressure on discretionary spending.
Michael Hartshorn, Ross’ group president and chief operating officer, said the company will be monitoring tariff developments, noting that it is “too early” to determine what the potential impact could be on either Ross or retail in general.
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“Our focus in the case of a tariff increase would be to maintain a pricing umbrella versus traditional retailers and offer the best values to the customer. We will not be a leader in raising prices,” the group president emphasized to investors on the company’s post-earnings conference call.
Hartshorn also said that the planned closing of dollar stores near the Ross DD’s Discount banners shouldn’t have any impact since DD’s has a different merchandise mix, and he said there could be some potential upside depending on location.
The off-pricer’s executive vice president and CFO Adam M. Orvos said merchandise margin fell by 60 basis points, and the inventory checks showed shrink at a level that was better than expected. The margin decline was due to the company strategy to increase the proportion of quality branded merchandise into the mix.
Barbara Rentler, the vice chairman and outgoing CEO, said the company can do better on improving its merchandise execution. She explained that the move to increase brands is different for each category and not necessarily across the board. One area of focus is women’s apparel at its Ross Dress For Less banner.
As for how well they are doing in any one category, Rentler said the team can tell based on sales. “We own the right goods at the right value [then] it all turns very quickly. If we own the wrong goods, its doesn’t turn as quickly,” she said, adding that the company’s mission is to drive receipts not on inventory. “Churn is always on our mind….It’s really about the value you’re putting on the floor, the products and the value. It always come back to [that] and then it will turn quickly because the customer now is in the treasure hunt environment. If they don’t buy it, it won’t be there next week.”
In addition to weather related issues that impacted the quarter, Rentler said the off-pricer’s low to moderat income customers continue to face high costs on necessities that has pressured discretionary spending. That said, cosmetics, children’s and accessories did well in the third quarter and are expected to continue to be strengths in the fourth quarter’s gifting environment.