The internet changed everything for the retail sector, with technology giants like Amazon completely altering how consumers shop. Retailers have had to adjust, opening their own online stores to be where customers are shopping -- offering a so-called omnichannel experience. TJX Companies (TJX -0.06%) is no different from other retailers in this regard.
But the discount retailer just made clear that all stores don't belong online.
The retail world is different
When Amazon came onto the scene as an upstart online bookseller, the normal way for consumers to get books was to browse through a physical bookstore. Buying a book online was easier and less expensive and could be done from home. Many small booksellers (and even some large ones) were eventually forced out of business. Even bookstore giant Barnes & Noble ended up resetting its business. Although the impact on other retailer sectors hasn't been quite as dramatic, the advent of online shopping has radically changed the retail picture. It's now almost mandatory to talk about being an omnichannel retailer.
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That explains why TJX operates the T.J. Maxx, Marshalls, Homegoods, Sierra, and Homesense brands and tjmaxx.com, marshalls.com, and sierra.com. Essentially, it's attempting to meet its customers where they shop, whether that be in a store or from home on the internet. It's the only way to compete over the long term, even if the company's physical stores are the main top-line driver. And investors simply expect online to be part of the story for most retailers today.
But there's something missing from that list of online stores. Homesense and Homegoods don't have online components. In fact, the company just shut down its Homegoods online business. There was a notable impact from that decision, as the company reported that it lowered earnings by $0.03 per share in the third quarter of 2023. Earnings in the period totaled $1.03 per share, so the hit was roughly 3%. That's not huge, but it isn't insignificant, either.
Not a big business and not likely to be profitable
During the retailer's third-quarter conference call, it was clear that online sales are a small part of the overall TJX business. The company was also pretty specific about the potential for the Homegoods.com operation. Essentially, management didn't think it could ever turn the online version of the store profitable. At that point, it was a pretty simple decision, since throwing good money after bad is a terrible investment choice.
The problem boils down to the store's business model. Many of the things Homegoods sells are large and not necessarily easy to get a sense of online from a few pictures. But there are other online retailers that sell large items, like furniture, with reasonable success. The key for Homegoods is what might be called the "thrill of the hunt." Essentially, going to a Homegoods store is kind of like exploring for a hidden treasure. It's hard to replicate that experience online in the same way with the items it sells.
Given the modest size of the online business at TJX, investors probably shouldn't be too worried about the shutdown of Homegoods.com. In fact, the contrary view is probably more appropriate. Investors should be happy to see the management team make the hard call to shut down an online business that just wasn't working so it could focus more of its attention on businesses that are working -- like physical Homegoods stores.
In the third quarter, TJX's overall same-store sales rose a strong 6%. But sales at Homegoods were up 9%, meaning it's outperforming relative to other nameplates the company owns. And that improvement was entirely driven by an increase in traffic, which means more people are choosing to shop at the store. When you see that, management should probably be applauded for pulling the plug on the money-losing online version of the store.
TJX is well-positioned
To be fair, there's a trend in the retail sector right now that plays right into TJX's strongest attributes. Consumers are increasingly looking for ways to save money, and shopping at the off-price retailer's stores is a great way to do that. So there's an outside tailwind helping Homegoods' same-store sales. But that trend obviously wasn't benefiting the online version of the store enough to make it profitable to run. If you own TJX, the pruning of a less desirable business isn't a problem; it's a sign of a strong management team.
