You can probably count on one hand the number of retailers that have been as successful as TJX Companies (TJX 0.32%) at thwarting Amazon.com (AMZN -0.59%) from upending their growth plans. By featuring name-brand goods at great values, the off-price chain has grown sales, earnings, and margins even as stalwart department store chains stumble and fall.
Now it's looking to expand again, opening another off-price home goods chain. It's quite possible the move will cause TJX to lose its Midas touch.
Everything is golden
Here in the U.S., customers are familiar with TJX's stores T.J. Maxx, Marshall's, and HomeGoods (and to a lesser extent, Sierra Trading Post), but in Canada, consumers know it as Winners, HomeSense, and Marshalls, and in Europe, as T.K.Maxx and HomeSense. It's the HomeSense chain that TJX wants to bring to the U.S., and it will open its first stores here later this summer, but there's not any "sense" that what the market needs is yet another discount home decor chain.
HomeGoods alone generated $4.4 billion in sales in fiscal 2017, 13% of TJX's total $33.2 billion, and more than the combined operations in Canada and Europe. It also enjoyed some heady growth, with comparable-store sales up 6% for the year, better than even T.J. Maxx and Marshall's. With five times as many stores in operation as HomeSense, HomeGoods has been a big hit for TJX, but it has decided to dilute the offering by introducing a new name, yet one close enough to the original as to muddy the waters.
First hinted at during TJX's fourth-quarter earnings conference call with analysts back in February, President and CEO Ernie Hermann fleshed out the idea a little bit more in May, when he said HomeSense would complement HomeGoods just like T.J. Maxx and Marshall's play off of each other, noting that "HomeSense will offer consumers a different mix of home fashions from HomeGoods, but at the same grade value."
Certainly, TJX has witnessed extraordinary growth in its chains at a time when it would seem unlikely. When almost all of retail is in a tailspin, T.J. Maxx and Marshall's seem to grow and grow, yet the home goods market is becoming saturated, and TJX risks cannibalizing sales at HomeGoods just as competition in the space becomes more intense.
Nowhere to call home
Rival home decor superstore operator At Home (HOME) beat analyst expectations the other day by growing sales 23% in the first quarter on a near 6% rise in comps, allowing it to raise both top- and bottom-line expectations for the full year, and though it has just 133 stores now in 32 states, it's looking to eventually expand to 600 stores.
Wayfair (W 0.12%) is taking the opposite approach as an online-only retailer and proving in the process it's possible to successfully sell furniture and home decor via the internet. It's not yet profitable, but it is on the right path, all the while growing out sales.
Still, there may be limits to all this expansion. Bed Bath & Beyond (BBBY 3.78%) just reported first-quarter earnings that were a disaster. Net sales were flat as comps fell 2% and margins narrowed as store traffic continued to fall. With a base of over 1,500 stores, CEO Steven Temares noted that over the past few years, the retailer's pace of store openings has slowed, while closures accelerated, and if trends continue as they are, Bed Bath & Beyond will further accelerate the number of stores it closes.
Let's not forget Amazon, which is also nosing its way into the furniture market, with plans to open brick-and-mortar furniture stores as well as construct four new warehouses dedicated to the furniture and appliance market. It has deals with Ethan Allen to sell its furniture as well as with Cloth & Company and Apartment Therapy to sell a line of home furnishings.
Analysts expect the online global furniture and furnishings market to grow at a 15% compound annual rate through 2020, to hit $220 billion, but that doesn't mean there isn't room for more home decor stores from TJX. However, introducing a same-but-different HomeSense concept in addition to what its customers already know and love could be too much of a good thing that tarnishes its golden reputation.