Closeout racks overflowing for the holidays

updated 9:27 p.m. ET Nov. 15, 2007

BOSTON - Paul Murphy went bargain hunting at a discount store called Building 19, and ended up with quite a find: A charcoal gray wool men's suit for $66 that he found priced at $329 at a major department store.

"I bought two of them — one for me and one for my son," the 62-year-old piano salesman from Scituate, Mass. said after a visit to a downtown Boston tailor to have the pants altered.

The suit was part of a windfall of closeouts that discounters are snapping up as department stores and wholesalers unload a glut of fall and winter fashions. Unseasonably warm early fall weather and shoppers worried about the economy left stores with unsold merchandise taking up sales floor space heading into the crucial holidays.

Off-price retailers are feasting on overstock of cool-weather clothing at prices far below what traditional retailers originally paid — deals expected to help discounters boost their profits. And they may pass on some of their benefits to consumers in the form of steeper-than-usual discounts and a fresher apparel selection.

Building 19 initially planned to offer the $66 suits for $79, but went with the lower price out of expectations that traditional retailers' oversupply of cooler-weather clothing would grow, leaving shoppers with a wealth of discount opportunities.

"There are always bargains around, but this is unusual," said Jerry Ellis, who co-founded the 14-store New England chain, a self-described "bottom of the barrel" retailer of salvage merchandise, in 1964. "The traditional vendors are almost desperate."

Although retailers have become increasingly sophisticated at adjusting merchandise to fit demand, their predictive powers were no match for the unseasonably warm early fall, coupled with high energy and food prices and a slumping housing market, said Stephen Hoch, head of a retail studies program at the University of Pennsylvania's Wharton School.

"The whole supply-chain system is clogged up, and it could take four to six months for all this to clear up," Hoch said. "It's kind of like plumbing."

Off-price retailers, he said, "are seeing a big influx of better inventory than they might normally have."

The situation isn't a guaranteed bonanza, since the discounters may have to extend deeper-than-usual price cuts to win business from consumers anxious about economic factors.

"Consumers see apparel as a discretionary purchase, and coming into the holiday season, they know they are going to need their dollars for gifts," said Phil Rist of the market research firm BIGresearch.

Analysts say the off-price retailers are clearly having an easier time than department stores and mall-based apparel vendors that have been scaling back holiday sales expectations. J.C. Penney Co. slashed its fourth-quarter outlook Thursday and reported third-quarter profit fell 9 percent. Chairman and Chief Executive Myron E. "Mike" Ullman III said the holiday season would be marked by lots of price-cutting.

Twice as many major retailers missed Wall Street's expectations compared with those who beat projections in their October sales. The list of those missing included such names as Macy's Inc. and Nordstrom Inc., and it was the slowest October for U.S. retail sales growth in 12 years, according to a tally by the International Council of Shopping Centers-UBS.

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