Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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TJX makes more Money Lays off Workers

Even though the TJX Companies (NYSE: TJX) have evaded the effects of retail apocalypse it is still laying off workers.

The department store operator is eliminating 300 global information technology (IT) positions as part of a restructuring, The Framingham Source reported. The jobs are being outsourced to a third-party provider. It is unclear whether the jobs will move elsewhere or by replaced by new technology.

Disturbingly, the layoffs at TJX come as the discounter is enjoying some very good times. TJX’s revenue increased by $2.198 billion; or 15.77%, during 1st Quarter 2018, Stockrow data indicates.

That gave TJX a net income of $877.28 million, an operating income of $1.116 billion and a gross profit of $3.1132 billion for 1st Quarter 2018. Such figures are tremendous because they come at a time when another department operator, called the Bon-Ton Stores is being liquidated by a bankruptcy court.

TJX also has quite a bit of money in the form of $3.264 billion in cash and short-term investments reported on February 2, 2018. There was also $1.096 billion in operating cash flow, and a free cash flow of $866.11 million on the same day.

Why is TJX laying People Off?

So what is going on here, why is TJX laying people off at a time when it is making money? The answer can be summed up in one word: Amazon (NASDAQ: AMZN).

TJX management is scared to death that Amazon is coming for their customers so they are trying to get as lean and as mean as possible in preparation for that eventuality. The fear is that Amazon; which is on the verge of becoming America’s largest fashion retailer, will be in a position to undercut TJX’s prices and offer a higher level of customer service.

A major threat to TJX is same-day day delivery through Amazon Prime Now. That can allow customers to order items, try them on, and send them back if they do not fit all in the same day. This enables customers to try on clothing at little risk which is one of the main attractions of department store shopping.

An equally dangerous threat is Walmart (NYSE: WMT) doing the same thing. Like Amazon, Walmart might be in a position to use fashion as a loss leader to undercut TJX’s prices.

How TJX is cashing in on the Retail Apocalypse

TJX plans to counter this by reinvesting as much money as possible in merchandise, inventory, and stores. Investment at TJX includes expansion, TJX now operates 4,000 stores – a footprint that rivals Walmart’s US operations in size and scope.

The company has entered the furnishings business through its Home Sense brand. Like TJX’s other offerings; Home Sense is very flexible, it can be adapted to urban and suburban locations. Home Sense is equally at home in a strip mall, a mall, or an inner city neighborhood. The current plan is to roll out 400 Home Sense stores around the US, Architectural Digest reported.

A major goal of Home Sense is to capitalize on the demise of traditional department stores like Bon-Ton and the collapse of Sears (NASDAQ: SHLD). Part of the force driving the Home Sense expansion is all the stores vacated by the retail apocalypse.

The Retail Apocalypse is good for TJX

The demise of the Bon-Ton Stores and the continuing collapse of Sears; which is auctioning off stores will fuel more growth at TJX.

TJX will be in a position to buy empty up vacant Sears and Bon-Ton locations and move in. TJX can also buy whole stores from Sears and simply take them over. After Sears, there are plenty of other declining department store brands out there. A major target will be retail zombie JC Penney (NYSE: JCP).

An obvious catalyst for the breakneck expansion is the desire to fill the void left by competitors’ demise before Amazon does. The hope is to get the new stores up and running before the old occupants’ customers simply switch to Prime.

The question investors need to ask is how long will this model of vulture capitalism be sustainable? My guess is it is it can go on for several more years, until around 2022 or so, but eventually, TJX will hit the limits and need to adjust its business according.

By then TJX will be America’s dominant department store and a pretty good value investment. The experience at TJX proves that retail apocalypse is actually good for some brands. One has to wonder why more retailers are not copying TJX’s business model of deep discounting and taking over from dying competitors.