Shoppers are still addicted to discounts, and TJ Maxx is thriving

Business Insider/Mary HanburyTJ Maxx is known for its treasure-hunt shopping experience.
  • TJ Maxx‘s parent company, TJX Companies, reported stronger-than-expected sales numbers in its second-quarter earnings on Tuesday.
  • The off-price retailer is proving that customers are still obsessed with the bargain-hunt shopping experience, and that the model isn’t only popular in tougher economic times.
  • Customers are hooked on discounts, and it’s bad news for brands wanting to sell their products at full price.

TJ Maxx’s parent company, TJXCompanies, blew past Wall Street’s expectations for its second-quarter earnings, reporting a 6% increase in same-store sales and its sixteenth consecutive quarter of growth, sending its share price up to a record high on Tuesday. Same-store sales at Marmaxx – TJ Maxx and Marshall’s – were up 7% in the quarter.

TJ Maxx, and the off-price sector in general, have become known as one of the few bright spots in retail over the past few years while other stores have faltered. Though struggling department stores have seen somewhat of a comeback in recent quarters, TJ Maxx’s consistent growth throughout proves that bargain-hungry shoppers are still biting, regardless of whether the economy has healed or not.

“The value-seeking mindset is an interesting one as it is often assumed that it is most prevalent during times of economic difficulty. However, our data shows that it is now an underlying constant in terms of what consumers look for when shopping,” Neil Saunders, managing director of GlobalData Retail, wrote in a note to investors on Tuesday.

He added: “This is both because of a perceived fragility to economic circumstances, which means households worry that their good fortune may not last for long and because many people simply enjoy the thrill of snagging a bargain.”

Bargain hunting may have been a product of the recession, but it’s now ingrained in the way we shop, which is bad news for full-price retailers who are looking to wean customers off of discounts.

Discounts to woo shoppers

Heavy discounting has been the flavour of the past decade as retailers try to appeal to price-conscious consumers scarred by the recession. As a result, many consumers have become hooked on discounts and usually aren’t willing to pay full price.

Some brands, including Michael Kors, Coach, and Ralph Lauren, have been vocal about their commitment to cut back on markdowns, believing that they are detrimental to the brand’s perception among consumers.

In August 2017, Ralph Lauren CEO Patrice Louvet said the store would be pulling back inventory stocked in underperforming department stores, which is vulnerable to discounting. Louvet is following in the footsteps of former CEO Stefan Larsson, who stepped down earlier that year but had initiated attempts to make the business more efficient.

Larsson said that heavy discounting was damaging to the brand and its profits. He said to investors in 2016 that shoppers would only spend money on “exciting” apparel, and “exciting isn’t selling a generic product with more and more discounting.”

But Gap, one of the biggest discounting offenders of all, doesn’t seem to have reined in its discounting at all. The 40%-off signs are still a mainstay in its stores and online. Art Peck, the CEO of Gap Inc., which oversees Gap, Banana Republic, and Old Navy, likened reducing promotions to a “game of chicken” in 2016.

Attitudes towards bargain hunting are unlikely to change anytime soon, Saunders said, which will make it even harder for retailers to scale back, but puts TJ Maxx in a strong position for the future.

“The retail game is still being played firmly in TJX’s ballpark, even during a period of better economic performance. Our data shows no erosion of shoppers migrating elsewhere as their economic circumstances improve. Indeed, if anything the boost to consumer incomes over the first half of the year has encouraged existing shoppers to visit more often and spend more per visit, especially on apparel,” he wrote.

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