Where Do the Clothes at Discount Stores Come From?

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Sometimes when clothing retailers love bargains (and bargain shoppers) very much, they forgo the traditional department store route and venture off-price. Stores like Macy's buy clothing from manufacturers under a buy-back clause. If the merchandise doesn't sell, the manufacturers have to buy it back. Traditionally, off-price retailers then buy this overstock from manufacturers at a discount, slash prices, and give it a second chance at life.

Not all overstock merchandise is sloppy seconds. Overstock happens when department stores overestimate the demand for an item. Sometimes merchandise is unusual: say, a pair of pleather, cheetah-print overalls. It might also be irregular, with flaws ranging from a tag sewn upside-down or two pant legs with different inseams. Much of the clothing at Ross Dress for Less is irregular overstock from lower-end department stores, like JCPenney. Even if it's irregular, overstock merchandise is usually current or from last season, not years old. Department stores start selling next season's clothing early, hence those comical swimsuit displays in the middle of winter. So manufacturers often buy back merchandise from department stores and sell it to off-price retailers all within the same season.

T.J. Maxx, whose parent company also owns Marshalls and HomeGoods, is the biggest off-price retailer in North America. It claims that 85 percent of its merchandise is from the current season and less than 5 percent is irregular. Instead of solely buying overstock merchandise after department stores can't sell it, T.J. Maxx often buys from brands and designers at the same time as stores like Macy's. Department stores make a few big orders and buy in an array of sizes and colors, but T.J. Maxx buys new merchandise every week and can buy it piecemeal. So the same in-season, designer items can be found at higher-end department stores and T.J. Maxx at the same time, only the latter sells them for up to 60 percent off. (And no, T.J. Maxx is not sponsoring this post.)

T.J. Maxx can offer discounts because it's getting a better deal up front. It all goes back to the buy-back clause. Once T.J. Maxx—or any off-price retailer—buys merchandise, it's responsible for selling it. Items that don't sell at one off-price location might be sent to another store, or put on clearance. If they still don't sell, they're eventually donated to a thrift store.

Moral of the story: Don't pay full-price for those pleather, cheetah-print overalls.