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Why These Discount Retailers Will Continue to Grow in 2020

By Jennifer Saibil - Jan 26, 2020 at 11:15AM

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Discount is thriving in the declining and confusing retail environment. These three companies are among the winners.

Why pay retail prices? That's what some of the most successful consumer goods companies ask of their customers every day, and customers are responding. In the current troubled retail market, some of the biggest winners are the ones that can offer great deals to their customers.

Shopping has changed drastically since the digital era began, and one of the trends is discount pricing. There's an overflow of available merchandise in a competitive marketplace where customers have many options, and with rising standards and quality control, "you get what you pay for" is no longer necessarily true. Three companies benefiting from their ability to charge lower prices are Walmart (WMT 0.25%), Target (TGT -0.65%), and The TJX Companies (TJX -0.76%).

Walmart store in Arkansas.

Image source: Walmart.

1. Walmart's advantage: bigger is better

As the largest retail outfit in the U.S. in terms of sales, Walmart has the scale to request more competitive pricing from product distributors while still delivering on quality and, well, delivery. Walmart is a no-frills shopping experience where the benefit comes in the form of product, and the appeal of a well-priced product that fits your needs drives sales for this massive entity, which claims it "helps people around the world save money and live better." 

Walmart's muscle has pushed back many smaller sellers and changed the retail landscape. There's no reason to fork over extra cash on goods that aren't qualitatively better if there's a Walmart down the block or at your fingertips. 

Walmart is Amazon's biggest competitor, and while customers look for competitive pricing on Amazon as well, one of Walmart's advantages against its best rival is its consistently low pricing, which is one of the reasons it pulls in more than double Amazon's revenue. 

Marc Lore, president and Chief Executive Officer of Walmart eCommerce U.S., said the three-prong strategy for moving forward is "nailing the fundamentals, leveraging our unique assets to play offense, and innovating for the future."

Some of the innovations going forward are:

  • Delivery unlimited, which provides free grocery delivery for an annual fee through 1,400 stores, which the company plans to grow.
  • InHome delivery services, where Walmart staffers stock the customer's fridge.
  • "Check out with me" and Dotcom store services, where customers can avoid lines in-store by digital checkout.  

Walmart's seeing results from its heavy efforts in grocery, with a 41% increase in e-commerce sales in the third quarter of 2020. As for the fundamentals, the same quarter saw a 5.4% decrease in operating income that adjusted for an impairment charge would have been slightly increased. Total revenue for the quarter was $128 billion, an increase of 2.5%.

2. Target's feet are on the ground

Target is a smaller operation than Walmart, with 2018 annual sales of $75 billion versus Walmart's $500 billion. But it distinguishes itself with a fun, customer-centered approach that makes for a pleasant shopping expedition both online and in stores. No longer is discount a drag or an embarrassment; it can be a feel-good experience in which quality and customers matter. 

In recent years, Target has made a turnaround from what was a declining business in 2016. And not to take away from the company's formidable efforts to effect that change and also make discount an acceptable choice, but the retail environment was ripe for this pathway.

One of Target's highest-grossing categories is apparel, where it offers private-label clothing that competes in the same space as other mass-produced apparel companies but at a lower price point. So as the discount trend grows, Target is part of the movement that's ravaging other retailers.

While Target's holiday sales came in below expectations, its new purchase options, comprised of Shipt, order pickup, and drive up, grew by 50%. This is where the company is heading, and why it will continue to grow in 2020.

3. TJX Companies is the budget answer to designer goods

With an overabundance of retail merchandise flooding large outfitters, The U.S. store brands that make up The TJX Companies -- TJMaxx, HomeGoods, Marshalls, HomeSense, and Sierra -- have been able to give customers better brands at lower prices. As the global retail market figures itself out, TJX has a clear and compelling agenda, and customers flock to its stores to get deals they won't find elsewhere.

In fact, TJX's enterprise goes against everything we know about current retail activity. Its sales happen in stores, and those are growing, with comps for the 2019 third quarter up 4% year over year and ahead of expectations. Its e-commerce offerings are sparse and its stores turn over inventory quickly, thus offering a "treasure hunt experience" that encourages shoppers to return regularly to see what new discounted items are available. What this tells us is that when it comes down to what customers want, it's value. 

TJX is seeing excellent opportunities in overstock, with a wide variety of available merchandise. It's also strengthening its loyalty program and looking to continued growth in international markets, with U.K, Europe, and Australia as growth markets, and a recent investment in Russian off-price retailer, Familia.

Future growth

These discount retailers all have solid business models that demonstrate their solid understanding of the marketplace and their ability to carry out plans that extract significant revenue from it. As a result, they all saw rising share prices in 2019 that roughly matched or significantly outperformed the S&P 500, with Walmart up 27.6%, Target up 94%, and TJX stock up 36.5%.

Discount will continue to be a factor in sales for retailers in 2020 as consumers keep seeking out greater purchasing power from their limited resources, and these companies are positioned to benefit.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$124.03 (0.25%) $0.31
Target Corporation Stock Quote
Target Corporation
$149.44 (-0.65%) $0.98
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$59.78 (-0.76%) $0.46

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