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02/27/2019

Analysis: Economy is now in a sweet-spot for off-price leader TJX

While some retailers failed to meet expectations over the holiday period, TJX was not one of them. Although total sales growth was diluted by a shorter trading period compared to last year, TJX still managed to post an uplift in revenue despite the loss of a week. In terms of comparable sales, which provide a much more accurate reading of the company’s fortunes, TJX continued its run of robust growth with a 6% uplift on a company-wide basis.

In our view, there are several reasons for TJX’s relative outperformance.

First, the consumer segments that TJX serves ended the year in a good financial position, which gave them more spending power. However, among these groups, uncertainty about the future of the economy also increased. This meant that while they were willing and able to spend on apparel and homewares, their shopping habits remained very savvy. These dynamics drove them to off-price players, with TJX being the main beneficiary.

Second, TJX did a good job of promoting itself as a place where shoppers could find gift ideas and solutions over the festive period. Indeed, our data show that the number of U.S. consumers buying gifts at the various TJX formats was up over last year. Some of this is down to strong marketing, but some is also down to a view from shoppers that TJX’s stores are places where unusual and inspiring gifts can be found at a reasonable price.

Third, TJX did a good job of converting consumers making gifting purchases into buying things for themselves while in store. Once again, TJX’s ability to surprise and delight shoppers with unexpected bargains paid dividends. Moreover, by having a constantly changing assortment it instills urgency in shoppers who know if they don’t make an immediate purchase they may lose out on the product.

Looking ahead, we remain very favorable about the company’s prospects. A couple of factors give us optimism.

First, TJX's ongoing expansion program will help to lift sales. Although it is a sizable retailer, especially in the U.S., we still see scope for further store openings - especially the HomeGoods and HomeSense format. Outside of the U.S., expansion in Europe and other geographies still has a very long way to run before it starts getting near saturation. This should provide a nice upside to TJX's overall numbers for many years to come.

Second, the slightly tighter economy should drive more shoppers into TJX over the course of this year. Our data already show an increase in the number of consumers looking to save money by shopping around for bargains – this type of sentiment plays directly into the hands of the off-price players. In our view, the economy is now in a sweet-spot for TJX: strong enough to stimulate spending, but not so strong as to push people into trading up and buying at full-price.

Of course, there are potential challenges too. Other off-price concepts, including those from department stores, are growing. And more retailers will resort to price cutting and discounting as the economy tightens. That said, we maintain our view that TJX’s leadership in off-price, which includes its extremely successful buying model, will ensure it holds its own over the course of the new fiscal year.