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What you need to know for 12/11/2017

Kennedy: Department stores losing out to discount retailers

Kennedy: Department stores losing out to discount retailers

2017 a tough year for many chains
Kennedy: Department stores losing out to discount retailers
TJX said it expects to add about 100 HomeGoods stores this year.
Photographer: Shutterstock

It’s no secret that 2017 has been tough on retailers, with Macy’s, Sears and JC Penney closing stores and a handful of specialty chains filing for “Chapter 22” — their second trip through Chapter 11 bankruptcy reorganization.

Last week, though, Moody’s Investors Service repeated a refrain heard frequently this year: Off-price apparel retailers continue to outperform their brethren.

The off-price stores, which deliver name brands at significant discount, “are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand,” reported Christina Boni, Moody’s vice president and senior analyst.

Moody’s, a credit-rating, research and risk-analysis firm, said it expected operating income in the U.S. off-price sector to grow 6.9 percent this year and 5.4 percent in 2018.

For department stores, it sees a less rosy picture: operating income declining 9.3 percent this year and 2.7 percent next year.

The report followed on the heels of another by Moody’s over the summer that took a longer, five-year view. Among its predictions was that off-price would take a larger share of overall apparel sales over the period through new store development and healthy same-store sales gains.

Both reports also noted a sweet spot for these retailers in the home category, which Moody’s said “has been pivotal to fueling sales growth, as well as diversifying their portfolios.”

The category has gotten a big embrace from TJX Cos., parent of off-price apparel chains T.J. Maxx and Marshalls. The company, which entered the home category through HomeGoods in 1992, now is wading in even deeper with Homesense.

While many HomeGoods stores co-locate with a TJX apparel store, Homesense stores are stand-alone and offer a broader array of “home fashions,” including full-size sofas, beds, dining room tables, rugs, window treatments, lighting and art.

Three Homesense stores opened in August and September, the first in TJX’s hometown of Framingham, Mass., and two in New Jersey. A fourth will open in November south of Boston.

A spokeswoman declined this week to talk about 2018 plans. “We have not announced any further stores at this time,” she said by email.

But TJX executives took time in the company’s fiscal second-quarter earnings call in August — just as Homesense debuted — to say they were “very excited” about the store and were confident that “shoppers are going to love” the new concept.

That’s not to say that HomeGoods will fade away.

TJX said it expects to add about 100 HomeGoods stores this year — more than the 80 originally expected — and now projects sales for the stores at $5.1 billion for the fiscal year that ends in February. Sales at HomeGoods last year were $4.4 billion.

“We believe an enormous opportunity remains for us to gain additional share in the U.S. home market,” CEO Ernie Herrman said on the August earnings call.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.

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