TJX and Ross won’t be slowing down anytime soon — here’s why

Off-price retailers like TJX Companies and Ross are still posting sales gains and taking market share from rivals, but it’s not just because consumers are under pressure and hunting for value. 

Persistent inflation and rising prices for essentials like food and gas have pushed shoppers to trade department stores like Macy’s and Kohl’s for discounters like TJ Maxx and Ross. But they’ve also become cooler places to shop, particularly among younger consumers, and their assortments have gotten better because brands increasingly view them as a growth channel as department stores continue to shrink and lose share. 

“They have trusted brands at a cheaper price. They’re more on-trend, they’re designer-led, they lean into categories that the customer is much more interested in,” said Jessica Ramirez, a senior research analyst with Jane Hali & Associates. “In terms of categories that maybe are not resonating as well, they pull back from them and they have that ability because of their … strategy. A department store doesn’t have that.”

TJX and Ross both reported fiscal first quarter earnings last week that came in better than Wall Street expected, even as both companies lapped outsize growth from the prior-year period. 

TJX, which runs brands like TJ Maxx, Marshalls and Homegoods, saw sales grow 6% to $12.48 billion, compared to estimates of $12.46 billion, according to LSEG. That’s on top of the 3% sales increase the retailer saw in the prior-year period. 

Ross, which runs Ross Dress for Less and dd’s Discounts, posted an 8% jump in sales, bringing revenue to $4.86 billion, compared to estimates of $4.83 billion, according to LSEG. That’s on top of the 3.7% gain it posted in the prior-year period. 

Both companies have grown substantially since 2019 and posted banner results throughout 2023.

The particularly strong performance last year led some Wall Street analysts to wonder if they’d be able to continue to grow sales up against tougher comparisons. They’ve managed to do just that – and the party isn’t expected to end anytime soon. 

As consumers contend with persistent inflation, rising debt and stubbornly high interest rates, they’ve been more selective about where they’re spending their precious discretionary dollars. Value has been top of mind. 

“We think that the off-price sector is still healthy and we think that results this quarter, both for [TJX] and Ross, are showing consistent traffic-driven comp increases, which indicate that the consumer is still looking for value and the consumer still finds off price’s business model of branded goods at value prices as an attractive buying opportunity,” Goldman Sachs analyst Brooke Roach told CNBC. She said she expects both companies to continue to grow this year, on top of the sales increases they saw last year.

The low-to-middle income consumer has been feeling the burn a bit more acutely than their higher income counterparts, but even shoppers with deeper wallets have been turning to discounters for not just necessities, but also discretionary items. 

During a call with analysts on Wednesday morning, TJX’s finance chief John Klinger said the company is seeing comparable sales increase in areas where the average household income is both above and below $100,000 – a theme the retailer has seen consistently over the last year. 

Ross’s Chief Operating Officer Michael Hartshorn said the company is also continuing to attract a broad array of consumers across a variety of income levels. 

Even discounters like Walmart and Dollar Tree are making gains with high-income consumers. On May 16, Walmart beat quarterly earnings and revenue expectations in part because of the work it’s done to win over more high-income shoppers. Earlier this year, Dollar Tree said its fastest growing demographic makes more than $125,000 annually. 

The aisles at off-price retailers aren’t filled with private label junk, but instead, the kinds of household names that consumers know and love like Nike, Adidas, Michael Kors and Ralph Lauren. 

For a while, many of those big names tried to cut the number of items they were selling in the off-price channel — and through wholesalers overall — so they could grow sales in their own websites and stores. But many brands are starting to retreat from that strategy and are increasingly seeing the value that wholesale partners of all varieties can offer. 

“If you’re a large brand, you’re watching department stores give up share and you realize that [direct-to-consumer] is no longer the Holy Grail that you thought it once was, there are shrinking places to sell a lot of units,” said Siegel. “And if you’re a large brand, you need to sell a lot of units.” 

As brands have seen consumers change how they view off-price stores, they’re more willing to sell to chains like TJX and Ross, especially because they can do so “invisibly,” said Siegel. 

Department stores like Macy’s, for example, have a massive online presence and regularly blast out promotions on name brand items, which can have a dilutive effect on brand equity. In comparison, the bulk of TJX’s and Ross’s business is done in stores, so the markdowns aren’t as obvious or visible. 

“As off-price becomes a bigger part of the U.S. apparel ecosystem, we’ve seen that off-price has become more important to brands across the apparel and accessories sector,” said Roach. “[TJX] specifically has talked about strengthening relationships and the ability to be better partners with those brands, and that they are an attractive partner because they are growing and those brands can grow with them.” 

The CEOs of both TJX and Ross talked about their strong vendor relationships and how they’re getting access to better products at scale. 

“At a high level, the merchants improved the value offerings that they had, whether it’s different assortments, broader assortments, better quality, better products. So I think we’ve taken our first step forward there,” said Ross CEO Barbara Rentler. “We feel like there’s room for us to improve and if we continue to improve, even this low-income customer, if we can satisfy her, we should do fine.” 

TJX’s CEO put it a bit more bluntly. 

“More and more vendors, they have even more reasons to want to sell us versus others because their goods in our store now hang with the best,” said Herrman. “They’re dealing with a buying team that’s very straightforward and a company that has cash and will be paying.”