As most traditional brick-and-mortar retailers scramble to stave off competition from e-commerce, one retailer is thriving: HomeGoods.
HomeGoods, which is owned by TJX (TJX), is consistently a top-performer in chain-store retail. The home-fashion merchant posted comparable store sales growth of 7% in the second quarter, a number that marks a high across all of retail. This comes on the heels of three consecutive years of noteworthy performance—HomeGoods posted a 7% annual comp in 2014, 8% in 2015 and 6% in 2016.
“HomeGoods’ strength has been helped by the strong housing market combined with consumers’ appeal for value and a treasure hunt experience,” Bloomberg Intelligence Senior Retail Analyst Poonam Goyal told Yahoo Finance. “Consumers, and specifically millennials, are spending money on experiences and they’re also spending to update their home, whether they are owning or renting.”
As Yahoo Finance has reported, two brick-and-mortar categories have been largely immune to online competition: off-price retail and home retail. HomeGoods crosses both categories.
High single-digit growth may not look very sexy in this era of red-hot tech startups. But it’s very impressive in brick-and-mortar where e-commerce growth and shifting consumer preferences have meant pain across the rest of the industry. Macy’s (M) just reported a comparable store sales decline 2.5%, JC Penney (JCP) reported a decline of 1.3%, and Urban Outfitters (URBN) a decline of 4.9%. Even department store stand-out Nordstrom (JWN) only managed to eke out just 1.7% comparable store sales growth.
HomeGoods’ results even outshine non-apparel retailers that have been marked as more immune to Amazon (AMZN), including Home Depot (HD) which just posted comps of 6.3% and Starbucks (SBUX) which posted comps of 4%.
More HomeGoods growth ahead
HomeGoods, which currently has 619 stores in the US, has the potential to reach 1,000 locations, according to TJX. So while HomeGoods represents about 15% of TJX profit today, its influence is set to grow.
TJX is also introducing HomeGoods in many of its MarMaxx (TJ Maxx and Marshalls) locations. Meanwhile, it’s also investing in a new home concept in the US to build on the success: HomeSense.
The first HomeSense store will open in Framingham, Massachusetts this week.
“HomeSense is rooted in inspiration and discovery, and will complement HomeGoods by offering expanded categories such as large-scale furniture, lighting and art,” CEO Ernie Herrman said on the TJX second-quarter earnings conference call. “It will also include new departments like a general store which will offer organization and hardware items, all with an element of fashion. We are extremely excited about some of the new categories and surprises for this concept, and believe our customers will be delighted.”
HomeGoods helped by TJX overall strategy
TJX’s HomeGoods division is benefiting from the success of its parent company’s strong execution in the off-price category.
“TJX’s business model continues to resonate with customers and this is evidenced by TJX’s store traffic growth and higher merchandise margins vs. negative comps and traffic at most full-price department store peers,” according to Cowen’s Oliver Chen.
Bloomberg Intelligence’s Gooyal added that the company’s constantly-changing merchandise, particularly in the HomeGoods division, keeps consumers coming back for more.
“TJX and specifically HomeGoods constantly refreshes and keeps you looking for more,” she said.
CEO Herrman also highlighted this strategic advantage on the conference call.
“We offer consumers an eclectic merchandise mix that is ever-changing…We see our treasure hunt shopping experience as an advantage,” Herrman said. “As today’s shoppers spend more on personal experiences, particularly millennials, they construct their dollars further in our stores in both our apparel and non-apparel categories.”
This may be the secret sauce behind the outperformance for HomeGoods and more broadly for TJX, which posted a respectable 3% comp in the latest quarter.
“The customer is clearly telling us that brick-and-mortar retail continues to be an essential part of the shopping experience, and certainly when this is executed right with the right values,” Herrman said on the conference call. “I believe the growth of online retail overall has heightened the visibility of our off-price values for consumers.”
Nicole Sinclair is markets correspondent at Yahoo Finance
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