TJX Cos. shouldn't discount the lessons learned from the demise of American department stores. Chief among them: Building too many brick-and-mortar stores can be a dangerous way to stoke growth.
On Wednesday, the parent company of TJ Maxx, Home Goods, and Marshalls talked about its plan to grow its off-price store count by 50 percent over time, adding 1,800 stores to its current base of 3,800 stores around the world. About 1,300 of them would be in North America. CEO Ernie L. Hermann sounded downright giddy when he told Wall Street analysts he "didn't close a single store last year" despite the retail Armageddon unfolding all around the seller of discount goods.
It seems out of touch to be so flippant about opening stores at a time when Macy's Inc., Sears Holdings Corp., and most of America's retailers are going in the complete opposite direction. They're either slowing new store growth (like Wal-Mart Stores Inc.), nearly halting it altogether (like The Home Depot Inc.) or closing locations that have been hit the hardest by declining shopper traffic and competition from Amazon.com Inc. and other e-commerce players.
Yes, unlike the struggling department stores from which TJX has stolen market share, the off-price chain continues to attract shoppers looking for a bargain. Annual sales at established TJX stores have risen for 21 straight years.
But TJX ignores the history of American department stores at its own peril.
Like TJX, there was a time when Sears ruled the retail roost. Ditto for Walmart, which grew to more than 4,600 U.S. stores, and Macy's, which was seen as the retail winner after the 2008 financial crisis. But as these retailers chose to cram the country with new stores, fueling sales growth for a time, the overbuilding eventually led to cannibalization. The sales increases didn't keep up with the store growth. Spending on store construction and less-profitable online sales bit into profits. Stock prices fell.
TJX should kick its addiction to opening new stores, and instead think about getting bigger by acquiring other off-price brands such as Burlington Stores Inc., Ross Stores Inc., or Tuesday Morning Corp. Quirky, bargain-hunting websites such as Overstock.com Inc. or Etsy Inc. could help fuel TJX's online growth.
There's also plenty of room for expansion in international markets. Right now, 87 percent of TJX's annual revenue comes from the U.S. and Canada.
If there's one thing America doesn't need, it's another thousand more big-box stores.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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