Off-price stores like TJ Maxx and Ross are completely shut down, and it's making things worse for desperate clothing retailers

• Clothing retailers are facing a massive inventory problem as most stores stay closed across the country.
• Making matters worse is that off-price stores like TJ Maxx and Ross are not currently taking unsold inventory.
• This could mean that brands will have to make some difficult decisions in the coming months.
• Visit Business Insider's homepage for more stories.

The spread of the coronavirus has left many retailers in a tricky position.

When nonessential businesses were forced to close across the country in March, clothing stores were left with a lot of inventory and no shoppers to purchase it. Many have been running unprecedented online sales to entice shoppers and, hopefully, lessen the blow.

One element making that inventory problem even worse is that off-price stores like TJ Maxx, Marshalls, Ross, and Burlington have also been forced to close amid the pandemic.

These retailers are typically an avenue for full-price retailers to offload products that haven't been selling well at their own stores. But, with off-price retailers not taking orders at this time, brands have been left without that option.

"Off-price retailers play an increasingly critical role in the retail ecosystem, allowing brands to clear non-selling product without hurting their brand image," Simeon Siegel, a managing director at BMO Capital Marks, told Business Insider. "With closed doors also closing their purchase orders, that adds further pressure to an already building inventory stockpile."

At the same time, TJ Maxx, Marshalls, Ross, and Burlington are not selling anything online.

The off-price store model typically doesn't lend itself well to a digital presence for a couple of reasons.

For one, it often doesn't make financial sense for a discount store to launch an e-commerce operation. Second, the treasure hunt experience that shoppers might love in stores can't really be replicated online, especially since there is no guarantee of a regular supply of whatever product they have for sale. Lastly, clothing companies often worry about the damage that could come to their brand if shoppers are hunting for a product online and see it listed at a deep discount with an off-price retailer.

"When a company discounts, there's the risk of diluting their brand, but that only happens if the consumers know that they're discounting," Siegel said. For example, stumbling upon a discounted item in a store is very different from finding it next to the full-price version from the brand's own website.

Working through a glut of inventory

The result of all of this is that full-price retailers are finding themselves with a lot of leftover product. Plus, by the time stores are able to reopen everywhere, those products won't be suited for the season.

Solving the problem won't be as easy as shipping inventory off to discount stores once they reopen.

There's the brand dilution problem to worry about, and companies don't want to be seen as aggressive with discounting.

According to Siegel, some retailers will have to ask themselves whether it's a better idea to send items to off-price retailers that can pack them away to be sold a year from now, or to try and do the same thing themselves. Off-price retailers often do this because the items they sell are less sensitive to trends and seasons.

Manny Chirico, CEO of Tommy Hilfiger and Calvin Klein owner PVH, addressed this dilemma in the company's April 2 earnings call.

"This is a completely different situation, and we have to have a completely different mindset, and I think a lot will depend on what the off-price promotional market looks like, how aggressive we would have to be in order to clear goods," he said. "If it is too aggressive I think we ... will pack and hold core that does not have a big seasonality to it."

Analysts are predicting a massive boom for off-price retailers in the coming months as consumers become more budget-conscious.

"Like in the last recession, the consumer will continue value-seeking behavior even as economic conditions improve," Credit Suisse analyst Michael Binetti wrote in a recent note to clients.

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