Earlier this year Ernie Herman, president and CEO of TJX Companies, focused on brick-and-mortar expansion. He said, “We have great confidence in the enduring appeal of our treasure-hunt shopping experience, with the vast majority of overall retail sales occurring in brick-and-mortar locations. Online retailers of all sizes are starting to open physical stores, but we are convinced that our four decades of experience operating stores and responding to consumer trends is a tremendous advantage.”
Herman is right. Some of the stores recently opened by online retailers like Amazon are a big disappointment. While they are frequently shopped for their novelty—such as not having cashiers or showing best-sellers without any merchandising focus—they fall short in contrast with TJ Maxx and Marshalls' focus on exciting merchandise presentations and special buys. The company has stated that its physical locations have seen a surge of millennial shoppers in recent months who love to discover special value buys.
In the second quarter of 2018, the company reported a comparable store sales increase of 6%; in the third quarter of 2018, TJX Cos. topped it by an increase of 7% in comparable store sales. That shows the strength of the company’s offering, and I believe the fourth quarter will again exceed expectations. This current quarter will see strong shopping traffic in every store with value offerings. Certainly, that’s just what TJ Maxx and Marshalls are all about, so they should top many shoppers’ lists.
Results so far support this. The company is experiencing strong customer traffic in its stores. That strength continues even as competitors—in all shapes and sizes—are trying to tap into store-shopping momentum.
Warby Parker for example has eight stores in the New York City area alone and a total of 86 stores in the United States. That is quite a switch from its original plan—when it was only an online retailer. Rent the Runway now has a flagship store in Manhattan and several other stores throughout the U.S. Similarly, Amazon’s purchase of brick-and-mortar food retailer Whole Foods underscores that many customers like to shop in stores. And while books are strong sellers online (a shopping experience started by Amazon), we see the very same Amazon now opening new book stores that cater to customers who do want to look at books before they buy them. I am happy that Shakespeare and Co. opened a new store in New York City and that this may mean more booksellers will flourish again.
Store-based retailers are stepping up, too. For example, The Home Depot has attracted shoppers by having experts to give advice on home improvements, while The Container Store has experts on organizing the home. And other retailers are finding way to attract customers with special events and services as well.
With all of this going on, I think it actually creates a positive attitude about in-store shopping that is good for everyone. Since TJX already stands apart with its "treasure hunt/discovery positioning" and strong merchandising plans, anything that motivates customers to shop in stores can help the TJX brands.
TJX earnings in the third quarter were above expectations and the company now projects fourth quarter earnings to be $0.66 to $0.67. For the full year, the company is expected to earn about $2.42. I think this is conservative. These results are despite a very low e-commerce participation (I estimate its internet business to be between 7% and 9%). Internet is a long-term opportunity for TJX Cos. In the meantime, it is the leader in off-price stores.
