A TJ Maxx store in Pasadena, California.
Mario Anzoni | Reuters
Discount retailers such as TJX Corporation and Ross It’s still growing sales and taking market share from competitors, but not just because consumers are under pressure and looking for value.
Ongoing inflation and rising prices for essentials such as food and gas are driving shoppers to department stores, e.g. macy’s department store and Kohl’s Perfect for discount stores like TJ Maxx and Ross. But they’ve also become cooler places to shop, especially among younger consumers, and their assortments have gotten better, as brands increasingly view them as department stores shrink and lose share. as a growth pipeline.
“They have trusted brands at cheaper prices,” said Jessica Ramirez, senior research analyst at Jane Hali. “They are more on-trend, designer-led and tend to be in categories that customers are more interested in. “In terms of those that may not be They pull out of categories that resonate too much, and they have the ability to do that because of their… strategy. Department stores don’t have this capability. “
TJX and Ross both reported fiscal first-quarter earnings last week that beat Wall Street expectations, even as both companies posted big gains from a year earlier.
Sales of TJX, which operates brands such as TJ Maxx, Marshalls and Homegoods, rose 6% to $12.48 billion, compared with expectations of $12.46 billion, according to LSEG. That’s up from the retailer’s 3% sales growth in the same period last year.
According to LSEG, Ross, which operates Ross Dress for Less and dd’s Discounts, saw sales increase 8% and revenue reach $4.86 billion, above expectations of $4.83 billion. This is on top of a 3.7% gain in the same period last year.
Both companies have grown significantly since 2019 and reported strong results in 2023.
Last year’s particularly strong results had some Wall Street analysts questioning whether they could continue to deliver sales growth in more rigorous comparisons. They’ve managed to do just that – and the party isn’t expected to end anytime soon.
Consumers still prioritize value
As consumers deal with persistent inflation, rising debt and stubbornly high interest rates, they have been They are more selective about where they spend their precious discretionary funds. Value has always been the most important thing.
“We think the discount industry remains healthy, and we think this quarter’s results (TJX) and Ross both showed continued traffic-driven growth, which suggests consumers are still looking for value, and consumers are still looking for value.” Goldman Sachs analyst Brooke “We still think the business model of selling branded goods at great value is an attractive buying opportunity,” Brooke Roach told CNBC. ” She said that in addition to last year’s sales growth, she expects both companies to continue to grow this year.
Lower- and middle-income consumers are feeling the pinch more than their upper-income counterparts, but even shoppers with deeper wallets are turning to discount stores for not just essentials but also discretionary items.
In a conference call with analysts Wednesday morning, TJX Finance Chief John Klinger said the company saw comparable sales growth in areas with average household incomes above and below $100,000, something the retailer had been seeing last year. to the topic.
Ross Chief Operating Officer Michael Hartshorn said the company will also continue to appeal to a broad range of consumers of all income levels.
Even discount stores like it Walmart and dollar tree is benefiting from high-income consumers. Walmart on May 16 beat quarterly profit and revenue estimates, in part due to its efforts to win over more high-income shoppers. Earlier this year, Dollar Tree said its fastest-growing segment of the population earns more than $125,000 a year.
“We’ve become a cooler place to shop”
Consumers’ search for value certainly helped TJX and Ross boost sales last year, but both companies have grown steadily over time and tend to perform well in any economic cycle.
“It’s because they provide consumers with consistent value, and that’s consistent brand value at a discounted price,” Roach said. “So if you look historically, during strong economic times, these Enterprises are still the market share gainers and we see no reason for that to change.”
Simeon Siegel, a retail analyst at BMO Capital Markets, said part of the reason for the steady growth of discount prices is that consumers are starting to look at stores in a different light.
“We also need to recognize that (TJX) allows shoppers to believe that they are fashionistas and not cheapskates, which I think is a very powerful and potentially healthy mindset shift,” Siegel said. “They took something embarrassing and turned it into a badge of honor. They made a deal and turned it into an experience. It’s no longer about finding something and hiding it and wearing it and just Like you paid full price for it.
Segal said the growth of specials reflects not only consumer psychology and health, but also changing perceptions.
During TJX’s earnings call, CEO Ernie Herrman said the company has “become a cooler place to shop” and has made significant progress in attracting younger Gen Z customers.
“I think we’re the only retailer right now that can bring brand, style and quality to a scavenger hunt,” Herman said.
Siegel said the situation is somewhat different with Ross, which has more exposure to low- and middle-income consumers than TJX and is more competitive on price. In the fiscal first quarter, TJX’s growth was “entirely driven by customer transactions,” meaning more people shopped there. Ross said higher average sales prices were offset by lower numbers of transactions per transaction.
Brand’s best kept secret
In the past, the discount section was seen as a place for brands to sell items that were in stock from last season or that had failed quality control testing. Today, the chain has become a destination for companies looking to increase their wholesale revenue, even if they are not broadcasting.
“Companies will continue to talk about (reducing) their products At the same time they will probably send orders directly to them,” Siegel said.
Discount retailers’ aisles aren’t littered with own-label junk but household names that consumers know and love, such as Nike, adidasMichael Kors and ralph lauren.
For a while, many well-known brands tried to reduce the number of items sold in the discount channel (and wholesalers in general) in order to increase sales on their own websites and stores. But many brands are starting to abandon this strategy and increasingly see the value that various wholesale partners can provide.
“If you’re a big brand, you see department stores giving up share, you realize (direct-to-consumer) is no longer the holy grail you once thought it was, and the places where you can sell in bulk are shrinking units,” Siegel said. . “If you’re a big brand, you need to sell a lot of units.”
Siegel said that as brands see consumers changing their minds about discount stores, they are more willing to sell to chains like TJX and Ross, especially because they can do so “invisibly.”
For example, department stores like Macy’s have a large online presence and regularly launch promotions on name-brand merchandise, which can have a dilutive effect on brand equity. In contrast, TJX and Ross do most of their business in stores, so the price cuts aren’t as obvious or visible.
“As discounts become an important part of the U.S. apparel ecosystem, we’re seeing discounts become even more important to brands across the apparel and accessories industry,” Roach said. “(TJX) specifically talked about strengthening relationships with these brands and being a better partner, and they are an attractive partner because they are growing and these brands can grow with them.”
CEOs of both TJX and Ross talked about their strong supplier relationships and how they get better products at scale.
Ross chief executive Barbara Rentler said: “At a high level, merchants have improved the value they offer, whether it’s different varieties, wider variety, better quality, better product. “We feel like we have room for improvement, and if we continue to improve, even with this low-income customer, if we can keep her happy, we should do well. ”
TJX’s CEO put it more bluntly.
“More and more suppliers, they have more reasons to want to sell to us instead of other people because their products are now the best in our store,” Herman said. “They are dealing with a very direct procurement group and the company has the cash and is willing to pay.”
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