If you have a great fondness for department stores, be careful what you read these days. For many months now, the newspapers have been increasingly full of tales of woe, coming especially from the British retail sector.
The ‘rescue‘ of the House of Fraser is just the latest news bulletin from a beleaguered sector that is struggling to come to grips with the impact of the internet. But as most people‘s granny will have wisely said at one time: “God never closes one door, but he opens another.”
The same customers who are deserting the luxury goods counters in the old high-street department stores are flocking to the shops where these same (well, similar) luxury brands are selling at a discount.
Our company this week, the US group TJX, owner of TK Maxx, has been to the forefront of this trend.
Founded in the 1970s, it is a holding company for a number of retail chains and online shopping sites.
TJX has both thrived and been a worthwhile investment. It sells apparel, footwear, jewellery and home goods at between 20pc to 60pc below the full price.
Last year, customers ‘treasure-hunting‘ for clothing and footwear accounted for 53pc of sales. Jewellery and accessories represented 15pc of turnover, while home products accounted for 33pc.
TJX‘s value business model works. Since it opened its first store in Framingham, Massachusetts, 41 years ago, in only one year did it fail to increase its revenue.
Today, it has more than 4,000 stores on three continents, employing a quarter-of-a-million people.
It has a market value of $67bn (€57.6bn), sales of $36bn, net income of $2.6bn and is ranked 85th among the Fortune top 500 companies.
Sourcing products at a discount is critical for TJX. To achieve this, it has more than 1,000 worldwide buyers dealing with 20,000 companies in 100 countries across four continents.
Its buyers take advantage of opportunities as they arise and keep a close eye on order cancellations, manufacturing over-runs, previous years‘ designer fashions or brand closures.
The US is its largest and most profitable division, with sales of $22bn and operating profits of $2.9bn.
The business has 2,300 stores for its retail chains trading as TJ Maxx and Marshall. Sales last year of its 670 Home Store operations exceeded $5bn for the first time and generated profits of almost $1m per store.
The Canadian operation is much smaller than the US one, with 450 outlets, but shows the highest profit at $1.2m per store.
The group‘s international segment is Europe and, recently, Australia.
Europe accounts for 95pc of the business. It trades as TK Maxx in six European countries, including Ireland. Its 520 stores contributed $5bn to group sales but profits of $250m disappointed.
The group has seen some interesting trends. Sales have increased by $2bn each year over the last five years and net profit shows a similar trend, increasing by $0.2bn each year over the same period. These results have been driven by more than 200 additional bricks and mortar stores each year.
It must concern competitors that the company plans to increase its store numbers to 6,000.
Surprisingly, its e-commerce business contributes less than 2pc to group sales but, according to the company, it is an important complement to its retail outlets.
TJX has a healthy balance sheet and one of the strongest rating (A+) in the retail sector. Its share price at $106 is just below its yearly high and shows an increase of more than 50pc on the year.
The group also generated $3bn in cash from operations, has a price earnings multiple of 25 and earnings per share of $4.
US President Donald Trump‘s tax cuts were beneficial to the company, which used them to increase its dividends and share buybacks. But then the group is committed to increasing its dividend and has been doing so for over two decades.
However, while the group and its brand continue to be successful and the share is attractive, I would still worry about online disruption in the longer term.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.