Taking stock of TJX
The retail business is not the first place I would go to look for companies that grow and prosper in tough economic times.
But the success of the TJX Cos. over the past two and a half years is hard to miss. Sales grew and profits expanded at the Framingham company that owns T.J. Maxx and Marshalls, among other retail businesses. The stock price climbed sharply higher and rests near an all-time high today. There were good reasons why TJX jumped to the very top of this year’s Globe 100 list.
Today’s question: How will the retailer that performed so well in recession manage in better times? The answer is more complicated than you may think.
To look forward, step back a moment. Consumer value, as opposed to simply low prices, was an important selling point for retailers through the recession. Attractive, even trendy, wares at bargain prices were big sellers.
That was good news for TJX, which sells off-price clothing and other merchandise. But that consumer value pitch is no guarantee more business would walk through the door.
Target Corp., a much different kind of retailer also known for consumer value, should have benefited from the same dynamic but it didn’t. Same-store sales at Target increased by just 2.5 percent through the first four months of the company’s current fiscal year, while retailing in general staged a comeback. TJX same-store sales were up 8 percent over those four months.
Target’s same-store sales the entire previous fiscal year were down 2.5 percent while TJX recorded a 6 percent gain. A year earlier, in the worst of the retail slump, Target’s same-store sales fell 2.9 percent, while TJX posted a 1 percent gain.
Why such different results? Part of the answer lies in Target’s substantial sales of consumables and a growing emphasis on products that don’t fit so neatly with the idea of chic consumer value, notes retail analyst Patricia Edwards of Storehouse Partners LLC. Food and household essentials, like paper and cleaning products, now account for about 39 percent of Target’s sales totals.
Another part of the answer is about merchandise and how it found its way into stores. TJX and other off-price clothing retailers have been in the ideal spot at the right time as manufacturers unloaded an avalanche of excess inventory over the past 18 months. A first-line retailer like Target, which also sells many in-house brands, did not have the same kind of advantage.
TJX and one other company, Ross Stores Inc., dominate the off-price apparel market, accounting for 67 percent of the sector’s $30 billion in sales and 61 percent of its 4,370 stores, according to Brian Tunick, an analyst at JP Morgan.
Not so surprisingly, the two companies report almost identically rosy same-store sales growth over the past 28 months. Both made hay when department stores and other full-price retailers acted desperately to shrink inventories in their stores.
“Skeptics argue that TJX’s outperformance during the downturn was solely driven by the de-stocking at department stores and specialty retailers,’’ Tunick wrote in a report earlier this month. “Over the past 18 months, the ample amount of excess inventory has clearly given the off-price channel more attractive buys, helping drive [same-store sales] growth. But what happens when retailers begin to restock?’’
That moment may be happening right about now. It would clearly diminish the advantage TJX has enjoyed and adjust the prospects for the company’s continued sales growth.
TJX has gone through cycles like this before. The company has recorded big same-store sales increases through previous recessions, and history suggests the immediate future may be relatively tepid but not terrible.
After recent recessions, TJX has improved its sales performance in the early stages of recovery, according to Tunick. He forecasts same-store sales growth slowing to 2 to 3 percent by the next fiscal year.
TJX has a few advantages to exploit. The company is still the biggest buyer in the off-price market, and that puts it first in line for almost every opportunity. TJX also operates several other much smaller retail businesses that may contribute sales and earnings growth.
But the extraordinary merchandise opportunities that TJX seized are fading away. The company that did so well in hard times is going to have to a tougher time in an improving economy.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 
