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Why TJX is reemerging stronger from the lockdowns than Ross Stores

May 27, 2020, 2:00 PM UTC

For TJX, home is not only where the heart is, but it’s also where the sales and its competitive edge lie.

The owner of T.J. Maxx, Marshalls, and HomeGoods is seeing business rebound after weeks of store closings in the U.S. more quickly than its rival Ross Stores is in large part because of TJX’s advantage in one key category: home furnishings.

The CEOs of the two leaders in off-price retail, which has won legions of devoted customers in the past decade by selling designer brands at low prices, struck different notes in describing business since they’ve started reopening stores. As of last Thursday, Ross has reopened 700 stores and TJX has reopened 1,100, with both planning to be fully operational by late June.

TJX CEO Ernie Herrman last week noted to Wall Street analysts “the very strong sales we have seen in stores where we have reopened so far” and that “sales overall have been above last year.”

Meanwhile Ross Stores chief Barbara Rentler said, “There’ll be a negative impact on consumer demand throughout the remainder of the year” and noted, “We don’t know how quickly the consumer will return to our stores.”

Both companies have taken a big beating from their stores being closed for weeks. In the first quarter, sales fell by just over half at both Ross’s and TJX’s U.S. stores. Both Ross, which had its first quarterly loss in 30 years, and TJX expect pressure on profit to continue from having to increase staffing at cash registers to move people through the stores faster, needing to limit the number of shoppers in stores at one time, and spending more on cleaning supplies.

But TJX looks poised to recover more quickly than Ross for a number of reasons. Its biggest advantage over its smaller rival is that it gets a much bigger percentage of sales from home furnishings: 33%, compared with 25% at Ross. Its HomeGoods chain is booming: It took in $6.4 billion in sales and is growing more quickly than its sister chains. Herrman said, “In our early results, we are seeing very strong demand at HomeGoods and in our home categories across all of our banners.”

Home furnishings are less subject to the whims of fashion and therefore have a longer shelf life and don’t need to be cleared at the end of a season as much as apparel does. They can also simply be boxed up and sold next year if they are a bit seasonal. What’s more, TJX tends to have more desirable, higher-end brands than Ross.

“In contrast, Ross has a reasonable assortment with a more limited selection of brands,” said Neil Saunders, managing director of GlobalData Retail. He added that Ross’s recovery is likely to be “shallower and more protracted than that of its bigger off-price rival.”

That makes Ross more dependent on apparel, where sales fell even at chains that were open throughout the lockdowns like Walmart and Target. And Ross carries far more ordinary clothing brands than T.J. Maxx, which sells names like Michael Kors and Under Armour, meaning it will compete more directly with lower-tier retailers trying to unload a ton of inventory. Ross took a $313 million noncash charge on inventory it expects to sell at a loss—most of it apparel.

Both Ross and TJX are being careful about buying right now, waiting to see how consumer spending recovers, but also how effective brands are at packing up seasonal merchandise they couldn’t sell this year and trying to sell it next spring, rather than clear it through off-price stores—which could dampen the “treasure hunt” aspect of shopping at those stores that is so central to their business model.

Still, both companies have a strong enough business model and finances to emerge stronger from all this, albeit at different speeds. After all, Cowen expects Ross Stores to rebound 20% next fiscal year.

As detailed in a Fortune article last month, shoppers’ appetite for good brands at a discount will likely get stronger from this crisis, department store rivals will get weaker, and brands will get more desperate to sell at growing retailers like TJX’s chains and Ross.

Rentler said Ross would be cautious when it comes to buying, but she still sees an opportunity to win some new, better brands for the company. And TJX sees its hold on top labels also strengthening.

“We will probably be even more important to the vendors,” Herrman said.

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