Value mindset—even in good times—propelling TJX
Although the economy is doing well and consumers have more money in their pockets, most Americans remain value conscious and still enjoy seeking out a bargain. This dynamic shows in today's stellar results from TJX, which saw total sales rise by almost 12% and comparables increase by a very healthy 6%. On the bottom line, a lower tax provision and healthy margins helped to lift net income by over a third.
The value seeking mindset is an interesting one as it is often assumed that it is most prevalent during times of economic difficulty. However, our data show that it is now an underlying constant in terms of what consumers look for when shopping. This is both because of a perceived fragility to economic circumstances, which means households worry that their good fortune may not last for long, and because many people simply enjoy the thrill of snagging a bargain.
The net result of these trends is that the retail game is still being played firmly in TJX's ballpark, even during a period of better economic performance. Our data show no erosion of shoppers migrating elsewhere as their economic circumstances improve. Indeed, if anything the boost to consumer incomes over the first half of the year has encouraged existing shoppers to visit more often and spend more per visit, especially on apparel.
As well as getting more from existing customers, TJX has also been successful in growing its share of shoppers, especially among younger demographics. Positively, this shows that the concept is future-proof in terms of being relevant to younger cohorts and that there is headroom for further growth, even among digitally savvy consumers.
Customer dynamics aside, the uplift in performance is particularly impressive as it arguably comes at a time of increased competitive pressure for TJX. In our view, two unfavorable dynamics are at play.
The first of these is tighter inventory control and better sales at mainstream stores, which means buying opportunities for off-price are more challenging. While this might pose an issue for other off-price players, we believe that TJX's deep global buying network leaves it relatively unaffected by this trend -- something we think gives it a key competitive advantage. Indeed, the quality and variety of the assortment are as strong as ever.
The second unhelpful dynamic is the rise of new rival off-price players like Macy's Backstage. While the scale of this business is relatively small, it does have the potential to take the edge off TJX's performance, at least in growth terms. Fortunately, we have found that Backstage is better at cannibalizing Macy's own sales than drawing sales away from TJX. It is also the case that for attributes like the quality of the assortment and the range of brands available, satisfaction with Macy's Backstage remains well below the ratings received by TJX. In this sense, while we believe that the future growth of Backstage poses some risk, we do not see it as a major threat.
While TJX has performed well overall, we maintain our view that the home division, via HomeGoods and HomeSense, should be performing better. A 3% uplift in comparables sales at the banners is perfectly respectable, but it is soft compared to the market overall. A lack of change in the range and a perception that the stores, especially HomeGoods, do not provide a comprehensive home furnishings solution are, in our opinion, reasons for the relative slowness in growth. However, both of these things can also be seen as opportunities as well as weaknesses.
Overall, we remain confident about TJX and its future performance.
The value seeking mindset is an interesting one as it is often assumed that it is most prevalent during times of economic difficulty. However, our data show that it is now an underlying constant in terms of what consumers look for when shopping. This is both because of a perceived fragility to economic circumstances, which means households worry that their good fortune may not last for long, and because many people simply enjoy the thrill of snagging a bargain.
The net result of these trends is that the retail game is still being played firmly in TJX's ballpark, even during a period of better economic performance. Our data show no erosion of shoppers migrating elsewhere as their economic circumstances improve. Indeed, if anything the boost to consumer incomes over the first half of the year has encouraged existing shoppers to visit more often and spend more per visit, especially on apparel.
As well as getting more from existing customers, TJX has also been successful in growing its share of shoppers, especially among younger demographics. Positively, this shows that the concept is future-proof in terms of being relevant to younger cohorts and that there is headroom for further growth, even among digitally savvy consumers.
Customer dynamics aside, the uplift in performance is particularly impressive as it arguably comes at a time of increased competitive pressure for TJX. In our view, two unfavorable dynamics are at play.
The first of these is tighter inventory control and better sales at mainstream stores, which means buying opportunities for off-price are more challenging. While this might pose an issue for other off-price players, we believe that TJX's deep global buying network leaves it relatively unaffected by this trend -- something we think gives it a key competitive advantage. Indeed, the quality and variety of the assortment are as strong as ever.
The second unhelpful dynamic is the rise of new rival off-price players like Macy's Backstage. While the scale of this business is relatively small, it does have the potential to take the edge off TJX's performance, at least in growth terms. Fortunately, we have found that Backstage is better at cannibalizing Macy's own sales than drawing sales away from TJX. It is also the case that for attributes like the quality of the assortment and the range of brands available, satisfaction with Macy's Backstage remains well below the ratings received by TJX. In this sense, while we believe that the future growth of Backstage poses some risk, we do not see it as a major threat.
While TJX has performed well overall, we maintain our view that the home division, via HomeGoods and HomeSense, should be performing better. A 3% uplift in comparables sales at the banners is perfectly respectable, but it is soft compared to the market overall. A lack of change in the range and a perception that the stores, especially HomeGoods, do not provide a comprehensive home furnishings solution are, in our opinion, reasons for the relative slowness in growth. However, both of these things can also be seen as opportunities as well as weaknesses.
Overall, we remain confident about TJX and its future performance.