This incredibly popular store is one of the hardest to socially distance in

T.J.Maxx's business model is built on shoppers treasure hunting for bargains. Here's why the brand could be a rare retail winner after the pandemic.

Posted: May 29, 2020 4:31 PM
Updated: May 29, 2020 4:31 PM

TJ Maxx built its appeal on the "treasure hunt" shopping experience. Now it must persuade shoppers that it's safe to return to scavenging stores in the age of a pandemic.

It may not be that hard a task.

There are already early signs that many shoppers are eager to return to reopened TJ Maxx stores, despite lingering fears of the coronavirus. At the 1,100 stores open for at least a week in states that have reopened around the world, sales have risen above last year's levels, the company noted.

In fact, TJ Maxx has stopped reopening stores back up to customers for the first time on Saturdays because too many customers showed up and it was hard to practice social distancing.

"We have opted to not do Saturday openings because we're getting so many customers and it was difficult for our associates to manage," Ernie Herrman, chief executive of TJ Maxx parent TJX, said on an earnings call last week. He noted that there is a "pent-up demand" from shoppers.

Now, stores are opening back up on Mondays.

The chain hasn't been immune to turmoil in the retail industry in recent weeks. Last week, TJX, which also owns the chain Marshalls, said it lost nearly $900 million last quarter. In the United States, sales at TJMaxx and Marshalls collapsed 53% during the quarter.

But analysts predict TJ Maxx will emerge from the crisis a winner, thanks to consumer appetite for discounts that is only likely to accelerate as people become more cost-conscious.

Buying clothes on the cheap

Prior to the coronavirus outbreak, TJX was on a tear.

It expanded its physical footprint even as customers shopped more online and brick-and-mortar rivals closed stores or tumbled into bankruptcy. The company has added more than 300 TJ Maxx and Marshalls stores in the United States since 2015. Today, it has upwards of 2,400 US outposts.

TJX proved durable against competition from Amazon and big box chains such as Target and Walmart. The company grew sales by attracting shoppers across income groups looking for bargains and found a niche among millennials, retail analysts say. TJ Maxx sold clothing and home decor at 20% to 60% below full-price retailers.

The chain used a flexible business model to draw shoppers. When brands produced too much clothing or department stores canceled orders, TJX swooped in to buy the extra inventory and sell it on the cheap. That approach allowed it to constantly rotate in a new lineup of brands and styles on the shelves to draw shoppers to its no-frill stores.

But the coronavirus pandemic has bruised the US retail sector, choking off demand and forcing hundreds of thousands of stores to close temporarily. Clothing chains have been among the hardest-hit companies during the pandemic. Sales at clothing and accessories stores fell a staggering 78% in April, according to the Census Bureau.

Macy's sales at stores open for at least a year plunged by as much as 45% during its most recent quarter. Sales at Kohl's dropped off 43%. Already struggling clothing and department store chains such as JCPenney, Neiman Marcus, J. Crew, Stage Stores and others filed for bankruptcy protection.

TJX closed stores in March and shut down an already limited online operation.

"This rapid change to our business underscores the challenges that very healthy companies with strong foundations like ours have faced over the last couple of months," Herrman told analysts on an earnings call last week.

'Pent-up demand'

But TJ Maxx is poised to benefit from several economic forces.

First, with more than 30 million Americans out of work, shoppers will be searching for low prices.

"As many consumers emerge from this crisis, their willingness to pay full price for apparel will be reduced," said Neil Saunders, managing director of GlobalData Retail. "This plays right into the hands" of TJ Maxx.

Second, some competitors are permanently closing stores. Victoria's Secret will close 250 locations. JCPennny will close nearly 200. UBS predicts that 100,000 retail stores may close by 2025. This will push more shoppers to TJMaxx and help the company gain market share, analysts say.

"TJX will continue to be a beneficiary of the disruption in the sector," said Jamie Merriman, analyst at Bernstein.

The vast majority of TJ Maxx's stores are also standalone locations located in strip malls, an advantage over indoor malls during a pandemic. Many stores are next to supermarkets, offering shoppers convenience as they venture outside less frequently.

"With its off-mall real estate exposure, this presents a key asset as customers feel safer [versus] enclosed malls," said Kate Fitzsimons, analyst at RBC Capital Markets.

TJX may also be well positioned to scoop up the glut of clothing that has been sitting on retailers' shelves and in warehouses as the economy shut down. As companies try to clear out their excess inventory, they'll offload some merchandise to TJ Maxx and other discount chains.

"The marketplace is loaded with inventory, and I am convinced that we'll have access to plenty of high-quality, branded merchandise to offer consumers," CEO Herrman told analysts.

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