TJX/off-price retailers: US retail bargain hunters buck ecommerce trend

Conventional wisdom dictates that in order to survive, bricks and mortar stores must move online. Not so in the world of off-price retailing.

US retailers TJX (owner of TJ Maxx, Marshalls, and HomeGoods), Ross Stores, and Burlington Stores have little to no online business. The off-price business model is all about the thrill of the chase. TJX and its peers buy excess inventory from top brands then resell it on the cheap. Bargain hunters flock to the stores in hopes of uncovering a hidden gem.

Constantly changing merchandise keeps shoppers coming back. But the unpredictability also means that it makes little financial sense for off-price retailers to launch an ecommerce operation. There is no guarantee of a regular supply of the products listed online.

Besides, a focus on the in-store “treasure hunt” has served the sector well. TJX is one of the biggest retailers in the US, with more than 3,300 stores. The $41.7bn in annual sales it pulled in before Covid-19 were almost equal to those of Nordstrom, JC Penney and Gap combined. Its $84bn market value dwarfs that of Macy’s by 17 times. 

Like all retailers, discount sellers took a hit at the start of the pandemic, when non-essential stores were forced to close. Since reopening, however, business has recovered. In the fourth quarter TJX reported just a 3 per cent year-on-year drop in “open-only comp sales” — comparable-store sales adjusted to represent only stores opened. Macy’s reported a 17 per cent slide.

With $10.5bn in cash on hand, TJX is well placed to take advantage of struggling retailers and snap up unsold inventory on the cheap. Its decision to restart dividend payment underscores corporate confidence.

The result is a share price up nearly 85 per cent from its pandemic low which touched a new high in February. That puts TJX on 24 times forward earnings, a premium to the 22 times that Target — one of the pandemic’s biggest retail winners — trades at. The success story is easy to overlook in the scramble to write off physical retail as a legacy industry.

Our popular newsletter for premium subscribers Best of Lex is published twice weekly. Please sign up here