Marshalls looks online for growth
Later this year, visitors to Marshalls.com will actually be able to buy something.
Off-price retailers like those in TJX Cos.' stable have remained steadfast brick-and-mortar players, expanding their footprints at a time when other retailers are shrinking theirs, and giving short shrift to digital sales.
TJX in particular, which calls its "Marmaxx" unit (the combination of T.J. Maxx and Marshalls) "the largest off-price retailer of apparel and home fashions in the U.S.," is the leader in the space, and its fourth quarter and full year results, released Wednesday, "are very unlikely to change the consensus view that TJX is a structural winner and essentially 'internet proof,'" according to a note from UBS analyst Jay Sole emailed to Retail Dive.
Like off-price sibling T.J. Maxx, which launched its e-commerce site in 2013, Marshalls will sell different merchandise online than it does in stores, Ernie Herrman, CEO of parent TJX Cos. told analysts on Wednesday. (The company also runs online site Sierra Trading Post, which will be rebranded to Sierra, Herrman also announced Wednesday.)
"Our strategy is to maximize multi-channel engagement and drive incremental sales," he said, according to a transcript from Seeking Alpha. He later added that, "a high percentage of our mix is differentiated from online versus what's in the stores. And we find that that is the number one reason that we can get an incremental build off the business and not have cannibalization or lose visits to the store because we look at it as complementary and we want marshalls.com to be very complementary."
That stymies the ability to offer click and collect services, which the company will do in the U.K., although U.S. stores will take online returns, he also said. "Conversions, customer awareness, returns to stores, conversion rates have been healthy for us ... We've learned a lot with tjmaxx.com," he said.
Until now, the retailer seemed to have little to gain — but also little to fear — from e-commerce, as shoppers flocked to stores in good economic times and bad alike to dig up designer apparel, accessories and home goods finds at low prices.
Customer traffic to stores was the "primary driver" of the company's 6% overall fourth quarter comp sales increase and the 7% increase in that metric at Marmaxx, where quarterly net sales rose to $6.9 billion from $6.7 billion a year ago. But even its limited e-commerce operations (which weren't factored into comps) have become an increasingly important channel, according to CFO Scott Goldenberg.
"Our e-commerce businesses had another year of double-digit sales growth," Herrman said. "In the U.S., tjmaxx.com added new categories and well over a thousand new brands."
At the very least, the maneuver is an acknowledgement that e-commerce must factor more fully into the company's strategy, according to GlobalData Retail Managing Director Neil Saunders. "I think their decision to play more heavily in e-commerce is a recognition of the fact that more sales are now migrating online and they need to play in that space if they want to continue to drive growth."
But it also looks to be a defensive play, he said. "One of the reasons for the move is also likely to be the rise of resale players like thredUp and the Real Real," he said in an email to Retail Dive. "These operators are growing really fast and while they are too small to pose a major threat to TJX, the company can't afford to ignore that growth."
TJX has forged a formidable supply chain, famous for having savvy buyers who grab on-trend goods, sometimes in limited supplies, from department stores overstock and other sources to fill its stores.
That system isn't necessarily conducive to e-commerce, according to Wedbush analyst Jen Redding, who in a recent Off-Price Retail report expressed long-term confidence in the model but warned of upcoming headwinds like "freight costs, higher wages, and adverse currency impacts." She said her team will be keeping an eye on how well TJX does as it expands its digital sales.
"Off-Price buying operations do move fast, and in a way do act as a hurdle to capitalizing on e-commerce. High inventory turns for new merchandise are the secret sauce behind the beloved Off-Price treasure hunt," she told Retail Dive in an email. "It's a challenge to constantly offer new merchandise online and turn it similar as off price does it in physical stores. A lot of brands aren't agreeable to sharing discount prices online as well, another prohibiting factor for off price as it pushes into Ecom. TJX can do it, but it'll take a unique strategy."
Saunders agrees, though he said that other apparel retailers — notably those resale sites — have mastered it and serve as a model. "The flexible inventory model is a challenge and it's something that TJX will need to overcome," he said. "However, a lot of players with non-standard buying processes are now making this work."
Follow Daphne Howland on Twitter