Devotees shop at the TJX Companies, Inc. (NYSE: TJX) stores for the thrill of finding department and specialty-store labels at 20-60% off. Although the company’s stock price has since climbed after hitting bargain-basement lows last year, it still trades below the 20x earnings of many of its big-box retail peers. We suggest you think like a TJX shopper and recognize a good deal when you see one.

The Framingham, MA-based company is emerging as a true category killer, commanding a 50% share of the off-price retail market. With 1,493 total stores, it towers over its closest competitor, the 411-unit Ross Stores (NASDAQ: ROST). TJX's combined volume gives it considerable clout with vendors. In addition, the company boasts an experienced management team that knows the off-price business inside and out.

TJX's divisions include: its core Marmaxx division (T.J. Maxx and Marshalls); HomeGoods, an off-price home fashions chain; and A.J. Wright, its newest vehicle that targets a lower-income customer. TJX also operates Winners in Canada and T.K. Maxx in the United Kingdom and Ireland, both of which are patterned after Marmaxx. This year the company plans to expand its HomeGoods concept with the debut of seven HomeSense stores in Canada.

TJX is thereby putting its eggs into various merchandising, socioeconomic and geographic baskets without straying from its off-price roots. Consumers in Canada and the United Kingdom are embracing value retailers in general, and Winners and T.K. Maxx have posted higher comps than Marmaxx for the past two years.

This year TJX plans to increase its store base by 12%, with the largest growth rates in its HomeGoods, T.K. Maxx and A.J. Wright divisions, and sees the potential to eventually reach a total unit count of 4,000.

Management has such faith in the company that they have repurchased $750 million of common stock and plan to buy back another $1 billion over the next few years.

So far, so good—so what gives?

In addition to new store expenditures, TJX is investing heavily in its distribution network in order to keep growing pains and freight costs at bay, and is unlikely to see ROI or significantly boost shareholder value this year.

The validity of off-price retailing has also come under some scrutiny, as department stores have become more promotional and mass merchants have improved their softgoods assortments.

But there are customers who prefer labels like Ralph Lauren and Calvin Klein over Kathies Ireland and Lee Gifford and who don't want to fit department stores' sales dates into their schedules.

Due to TJX’s size, any hits at the off-price sector are likely to be sustained by the smaller players. TJX could also gain market share as department and specialty stores go under or close unprofitable units.

TJX may not be this year’s hottest retail stock but one you take out of your closet in a few years and find is really in style.

Retail Intelligence Group, 2001

Copyright© all text 2004 by Ela Schwartz