In an industry where single-digit sales growth is the norm, retailers have pulled in double-digit growth from online stores, which makes e-commerce one of the hottest trends in retail. That makes TJX's (NYSE:TJX) online abstinence a bit surprising.
Maybe its less surprising when we consider that the company tried and failed in its first attempt to bring its off-brand strategy online. TJX's ever-changing assortment of clothing and home items proved too big a challenge for the company to tackle in cyber space in 2005. As a result, TJX shuttered its first online store after just one year and $15 million in operational losses.
TJX's brick-and-mortar focus
Since abandoning e-commerce, the company has focused on building stores, expanding its TJMaxx, Marshall's and HomeGoods brands throughout the U.S., Canada and Europe. That focus has helped the chain expand to over 3,100 stores comprising 90 million square feet, including 337 stores in Canada and 355 in Europe.
TJX isn't done yet, either. The company thinks it can grow its store count 50% from here. There are still 100 territories in the U.S. where TJX operates a TJ Maxx or Marshalls but doesn't yet have a HomeGoods. In Europe, there's significant opportunity, especially in Germany where the company operates 50 stores and thinks it can eventually operate 300.
All of those retail stores combined generated $6.4 billion in sales during the second quarter, up 8% from last year. In the first half of 2013, TJX's sales topped $12.6 billion, also up 8% year-over-year. For comparison, TJX's sales were just $4.3 billion in the second quarter of fiscal 2007.
Too big to ignore
Despite growth from traditional stores, e-commerce presents potential that appears too great to ignore. The retail-store market is more penetrated with discounters than it was 10 years ago and shoppers are increasingly shifting online.
In August, the Census Bureau released its e-commerce sales report, which showed that shoppers spent almost $65 billion online in the second quarter; nearly 5% more than they spent in the first quarter and 18% more than a year ago. For comparison, total retail sales were up a more tepid 4.7%. Importantly, there's plenty of room for growth because e-commerce accounts for just 5.8% of total retail sales.
"We see e-commerce as another opportunity for long-term growth. We are on track with our plans and expect to launch our T.J. Maxx website in a controlled mode by late fall," said CEO Carol Meyrowitz during the second quarter conference call.
This presents a substantial opportunity for TJX, particularly since its competitors, including Ross Stores (NASDAQ:ROST), have similarly avoided e-commerce. Like TJX, Ross operates a large chain of traditional discount-retail stores.
Since 2010, Ross has grown its store count from just over 1,000 to 1,250 locations. Sales at stores open for at least one year rose 4% year-over-year during the second quarter. The company hasn't discussed plans for an online strategy. It wouldn't be surprising if Ross is considering one, however, given its low-to mid-single-digit comparable-store sales.
Contrast the absence of TJX and Ross online with the success enjoyed by Macy's (NYSE:M). Macy's saw online sales increase 40% in 2011 and 41% in 2012. The company's online strategy leverages over 300 of its 850 stores for online fulfillment, boosting inventory turn and reducing margin busting clearance sales.
If TJX can meet its goal of bringing its new e-commerce store online before the holiday season, it could grab a significant head start over competitors like Ross. To meet its fall launch target, TJX acquired off-price online retailer Sierra Trading Post in December, 2012. That deal gives TJX a successful online infrastructure to build upon.
"We see their deep e-commerce experience, scale and infrastructure as great advantages as we continue to develop TJX -- tjmaxx.com," said Ms. Meyrowitz.
One of the most compelling reasons supporting the online channel is the sheer size of the addressable market. TJX believes that 75% of consumers in the U.S. haven't shopped the company's brands in the past year. A convenient channel helps TJX reconnect with consumers who haven't visited its stores recently and consumers who are unfamiliar with the brand. The company is taking a measured approach to its upcoming online store. That's smart given the previous failed attempt.
"While we are excited to be nearing the launch, we are continuing with our deliberate approach. We plan to do e-commerce profitably and most importantly, not disappoint our customers. Grow smart is our motto. I want to reiterate that while we see e-commerce as a significant long-term opportunity for TJX, we view it as a strategy in offense," said Ms. Meyrowitz.
By leveraging Sierra's online experience and controlling investor enthusiasm, TJX may be better able to stick with its e-commerce strategy during the early growth pains. If so, TJX may end up delivering significantly more growth over the next few years as its Internet channel matures.
Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.