TJX Still Has Plenty of Runway for Growth

Company sees opening for significant addition of stores

Author: Andria Cheng

May 16, 2017

The divide between winning and losing retailers has become stark in 2017. TJX, which posted first-quarter results on Tuesday, is clearly on the winning side.

In a quarter that has seen declining comparable sales at big department stores, and yet another apparel retailer, rue21, becoming the latest to seek bankruptcy protection, TJX CEO Ernie Herrman reiterated the company's long-term global potential to open 5,600 stores, up more than two-fifths from nearly 3,900 stores currently.

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The TJX Companies

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What’s more noteworthy, in the company’s largest and home market, the US, TJX still sees room to open more T.J. Maxx and Marshalls stores to a total of 3,000, up more than a third from 2,230 at the end of fiscal Q1. For its HomeGoods unit in the US, it also sees room to increase the store count by two-thirds to 1,000 stores from nearly 600.

We have “tremendous opportunity to gain additional market share,” Herrman said on a call Tuesday. “When many other retailers are closing stores, we are at a great position to be opportunistic to take advantage of the great deals available.”

Herrman also explicitly called out the company’s international stance, calling TJX “a global sourcing machine.” TJX has buying team that numbers more than 1,000, working with some 18,000 vendors in over 100 countries.

The company doesn’t take goods just when there are department store cancellations or when a manufacturer makes too many products it needs to get rid of. It tracks consumer tastes and has products specifically made for it, whether blown glass from Poland or cashmere clothing from Italy.

TJX’s 1% Q1 comparable sales gain fell short of expectations (the company blamed “unfavorable” weather in the US that hurt spring merchandise demand), but Herrman said demand picked up as the quarter progressed and weather turned warmer. The company’s two biggest chains, T.J. Maxx and Marshalls, contributed 64% of its total sales in the quarter.

"TJX doesn’t have the same problems as the rest of retail"

“TJX doesn’t have the same problems as the rest of retail,” said Cowen & Co. analyst Olive Chen in a note, adding its strengths include the global buying team and relationships and growing vendor dependence on the “increasingly more attractive” off-price model. “We also view TJX as Un-Amazon-Able given that customers engage in an in-store treasure hunt. Many brands have preferences to not be online, and average ticket and prices are sufficiently low relative to shipping costs of $5 or more.”

(At a time when free shipping offers are all but imperative for most retailers selling online, TJX, which said its products are usually priced 20% to 60% below department store and specialty retail’s regular prices on comparable merchandise, charges $8.99 on standard shipping of purchases up to $74.99 at TJMaxx.com.)

To be sure, Amazon’s growing fashion ambition and TJX’s relatively low online sales, which industry watchers have estimated still only make up a low single-digit percentage of sales, is a worry for some.

“Amazon has proven to be very adept at making itself look like the lowest price retailer in virtually every category it sells,” Retail Metrics President Ken Perkins told eMarketer Retail. “I have no doubt that they will inexorably expand their apparel offerings to compete more directly with TJX, Ross and Burlington. There will be a segment of their customer base that is pressed for time and appreciates the convenience of one- or two-day delivery coupled with all the other ancillary benefits Prime members receive. TJX would be unwise not to watch Amazon very closely.”

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TJX has picked up share since the Great Recession as consumers, millennials in particular, focused on bargain hunting. Mark Cohen, a Columbia Business School professor and a former top retail industry executive, said in an interview recently that many of his students consider T.J. Maxx and Marshalls among their favorite stores—and many said they don’t shop at department stores, unless it’s those chains’ off-price concepts like Nordstrom Rack. 

“We don’t live in a world where people celebrate full price,” Cohen said in the interview. He also said the off-price formats at department stores such as Macy’s and Nordstrom will only hurt their own regular-priced store sales, different from TJX’s “all-in-one” strategy.

TJX also said it has benefited from a store setup that doesn’t have walls between departments, allowing it to easily change setup to respond to trends and feature what’s in demand. While department stores and many traditional apparel retailers struggle to reduce so-called cycle time, the company ships several deliveries to its average T.J. Maxx store every week. Because the stock changes all the time, shoppers may make regular visits to find new items.

The strategy has paid off. TJX has outperformed both the apparel and department store sectors in same-store sales for most of the past 10 years, Retail Metrics data showed. Between 2011 and 2016, while US apparel and shoe sales rose an annual average of 2.7%, sales at the off-price segment including TJX rose 6.9%, Euromonitor data showed.

In another telling sign, combined sales per square foot at T.J. Maxx and Marshalls totaled $455 in the latest fiscal year, outpacing retailers including Macy’s, Nordstrom and Saks on the department store front and Gap and Abercrombie & Fitch on the apparel front, according to eMarketer Retail company database. 

TJX also may be poised to take share from home goods sector as it opens more home goods chains and expands the assortment of home goods in its apparel-oriented stores.

Our home goods customers “are truly going after the most impulsive treasure hunt experience that’s out there,” Herrman said. “It’s not just a matter of utilitarian product. We have so much fashion driven home products. Home is a driver for TJX. There’s such untapped potential.” 


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