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Ross Stores, Inc. (ROST): Did The TJX Companies, Inc. (TJX) Finally Figure Out E-Commerce?

In an industry where single-digit sales growth is the norm, retailers have pulled in double-digit growth from online stores, which makes e-commerce one of the hottest trends in retail. That makes The TJX Companies, Inc. (NYSE:TJX)’s  online abstinence a bit surprising.

The TJX Companies, Inc. (NYSE:TJX)

Maybe its less surprising when we consider that the company tried and failed in its first attempt to bring its off-brand strategy online. The TJX Companies, Inc. (NYSE:TJX)’s ever-changing assortment of clothing and home items proved too big a challenge for the company to tackle in cyber space in 2005. As a result, The TJX Companies, Inc. (NYSE:TJX) shuttered its first online store after just one year and $15 million in operational losses.

TJX’s brick-and-mortar focus

Since abandoning e-commerce, the company has focused on building stores, expanding its TJMaxx, Marshall’s and HomeGoods brands throughout the U.S., Canada and Europe. That focus has helped the chain expand to over 3,100 stores comprising 90 million square feet, including 337 stores in Canada and 355 in Europe.

The TJX Companies, Inc. (NYSE:TJX) isn’t done yet, either. The company thinks it can grow its store count 50% from here. There are still 100 territories in the U.S. where The TJX Companies, Inc. (NYSE:TJX) operates a TJ Maxx or Marshalls but doesn’t yet have a HomeGoods. In Europe, there’s significant opportunity, especially in Germany where the company operates 50 stores and thinks it can eventually operate 300.

All of those retail stores combined generated $6.4 billion in sales during the second quarter, up 8% from last year. In the first half of 2013, The TJX Companies, Inc. (NYSE:TJX)’s sales topped $12.6 billion, also up 8% year-over-year. For comparison, TJX’s sales were just $4.3 billion in the second quarter of fiscal 2007.

Too big to ignore

Despite growth from traditional stores, e-commerce presents potential that appears too great to ignore. The retail-store market is more penetrated with discounters than it was 10 years ago and shoppers are increasingly shifting online.

In August, the Census Bureau released its e-commerce sales report, which showed that shoppers spent almost $65 billion online in the second quarter; nearly 5% more than they spent in the first quarter and 18% more than a year ago. For comparison, total retail sales were up a more tepid 4.7%. Importantly, there’s plenty of room for growth because e-commerce accounts for just 5.8% of total retail sales.

“We see e-commerce as another opportunity for long-term growth. We are on track with our plans and expect to launch our T.J. Maxx website in a controlled mode by late fall,” said CEO Carol Meyrowitz during the second quarter conference call.

This presents a substantial opportunity for TJX, particularly since its competitors, including Ross Stores, Inc. (NASDAQ:ROST), have similarly avoided e-commerce. Like TJX, Ross Stores, Inc. (NASDAQ:ROST) operates a large chain of traditional discount-retail stores.

Since 2010, Ross Stores, Inc. (NASDAQ:ROST) has grown its store count from just over 1,000 to 1,250 locations. Sales at stores open for at least one year rose 4% year-over-year during the second quarter. The company hasn’t discussed plans for an online strategy. It wouldn’t be surprising if Ross Stores, Inc. (NASDAQ:ROST) is considering one, however, given its low-to mid-single-digit comparable-store sales.

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