Discount chains Ross, T.J. Maxx, and Burlington are planning to add more than 300 new stores. Here's why major retailers should be nervous about their growing off-price rivals.

• Off-price chains are likely to get a boost in the months ahead as shoppers seek low prices. 
• Ross Stores is planning to open 100 new locations this year, while T.J. Maxx plans 150 openings, and Burlington as many as 80.   
• Burlington is poised to be the standout, Morgan Stanley analysts say. The retailer reported strong fourth-quarter earnings and is making strides on its revamp strategy.

While several retailers have been cautious about the months ahead, a bright spot is emerging in at least one part of the market. 

2023 is looking like a strong year for off-price chains like Burlington Stores, Ross Stores and T.J. Maxx, as shoppers look to save money where they can. 

Burlington CEO Michael O'Sullivan said during the brand's recent earnings call that the "difficult and uncertain" economic environment should allow "off-price retailers to have a major opportunity to take share" away from full-priced chains. At the same time, he said, Burlington is "working to transform ourselves into a stronger off-price retailer."

Off-price chains could benefit from retail closures and bankruptcies

As other retailers close swaths of stores nationwide, discounters are expanding. Ross announced that it plans to open 100 stores in 2023, and Ross Stores President Michael Hartshorn said during a call with investors last month that while the recent financial troubles at chains like Bed Bath & Beyond and Party City haven't changed Ross' plans for 2023, "historically, any time there's retail bankruptcies, that's provided us opportunities for new store locations." 

T.J. Maxx saw a 5% increase in sales in its most recent quarter and said it plans to remodel 400 locations and open 150 total stores in 2023, both in the US and abroad. Parent company TJX also noted during a call with investors last month how the e-commerce decline and store closures at other retailers has been a boon for the discounter's business.

"All we have to do there is weather the storm and keep HomeGoods and our Marmaxx business going," Ernie Herrman, TJX's CEO, said during the call. "And we think we'd come out the other side here, and even a bigger player in fashion and home business than anybody thought we would be." 

Analysts see a banner year ahead for Burlington

Burlington may be the smallest of the major off-price retailers, but it's poised to have a big year. 

After misfires in 2022, the company delivered strong fourth-quarter results and is making strides in its "Burlington 2.0" strategy that could "unlock the full potential of the off-price model," according to a group of Morgan Stanley analysts led by Alex Straton and Kimberly Greenberger.

Burlington embarked on its 2.0 strategy in 2020 with the goal of finding its niche among its bigger, more profitable rivals like Ross and T.J. Maxx, CEO Michael O'Sullivan said at the time.

Burlington is now set up to "close the productivity gap to peers" through six key components of the strategy, the Morgan Stanley analysts wrote: 

• Investing in buying and planning through head count, training, and support
• Pivoting to chasing in-season inventory 
• Operating with leaner inventory levels
• Insuring operational flexibility through strong merchant relationships and supply chain management
• Utilizing smaller store footprints
• Challenging expenses across all areas of the business.

The brand has already made changes to its product array and store design. During the company's fourth-quarter earnings call on March 2, O'Sullivan said that Burlington was "able to take advantage of some incredible buys, especially on branded merchandise," in recent months, which have already ended up in stores or are "tucked away" for a later release. It's already led to customers buying more and the transaction sizes being bigger, he said. 

Burlington also plans to open 70 to 80 new stores in 2023. It's fewer than the retailer would like, due to construction-supply constraints and a lack of high-quality real estate locations, O'Sullivan said. Still, Burlington aims to open 500 or 600 new stores over the next five years. 

Indeed, Morgan Stanley labeled Burlington the "off-price stand-out" given that its earnings-per-share beat analysts expectations — by comparison, TJX saw EPS results in line with Wall Street's expectations, while Ross saw comparable sales decelerate in the fourth quarter compared to the year prior. 

Burlington's forecast for the year ahead is the "most attractive in our coverage," the analysts wrote, "as the business likely benefits from freight normalization, better inventory buys, trade down, as well as improved execution."