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Target, TJX Tops in Value Retail

Discounters, off-price and value retailers are in a good position to win with today’s consumer.

Continued headwinds from inflation and supply chain challenges are seen to favor retailers such as Target and TJX, as well as the dollar stores. That’s due in part to the shift in consumer shopping and their mindset, helped by a sizable U.S. closeout market.

Excluding retail returns, the U.S. closeout market was $38 billion in 2020 to 2021. The estimate for 2022 is $32 billion, reflecting a contraction, with a mix of $7 billion to $9 billion in food and consumables and the balance in non-consumables, according to Howard Jackson, founder of HSA Consulting.

“The merchandise mix has changed significantly. We’ve seen $6 billion increase in apparel and soft goods and a significant decline in consumables,” Jackson said in a recent call hosted by Jefferies specialty and discount retail analyst Corey Tarlowe. HSA’s clients include warehouse clubs and discount retailers, among others. Jackson said the growth in apparel inventory is “temporary.”

Target vs. Walmart

Cowen’s retail and luxury analyst Oliver Chen has “Outperform” ratings on the stock of both companies, but said his firm favors Target because it believes the discounter “will be better positioned to work through inflationary challenges over the coming quarters, benefits from a more resilient consumer, balanced category mix, broad-based market share growth, and trades at a more modest valuation.”

Chen said his firm’s analysis of SimilarWeb data indicates that traffic decelerated at Target in December, while it only slowed modestly at Walmart. Yet, Target appears to have the more clear path for improvement, helped by upside to comparable store sales because of physical and digital marketing share growth across categories.

In contrast, “we think Walmart’s valuation may remain range-bound in the near-term as investors assess the retailer’s ability to work through inflationary pressures with a more elastic customer.” Chen also said senior management turnover at Walmart should be monitored because the changes could lead to a shift in strategies. Of note, CFO Brett Biggs is leaving the company on Jan. 31, 2023, U.S. chief merchandising officer Scott McCall is retiring, chief customer officer Janey Whiteside resigned for family reasons, and chief omni-strategy and e-commerce officer Casey Carl departed on Feb. 1 less than 18 months after joining the discounter.

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Separately, a report from took a look at how the two retail giants performed in late 2021 and early 2022. While both retailers saw “very strong numbers” relative to other retailers, also gave the nod to Target.

Walmart saw slight declines in visits during November and January, at down 2.5 percent and down 3.1 percent, respectively and a 0.3 percent increase in December, when compared with the same periods in 2019 and 2021. And while Ethan Chernofsky,’s vice president of marketing, said Walmart’s results were impressive, he also noted that Target’s results “were even more exceptional.” Results were up 3.8 percent in November, 5.2 percent in December and 6.2 percent in January, when compared to the same 2019 and 2021 periods.

“Target’s omni-channel strength and unique understanding of its audience all helped drive visits during this period,” Chernosfky said. While both retailers compete in the discount category, the “two retail giants do not appear to be on any sort of direct collision course, and instead seem to be finding unique ways to complement each other for the wider consumer audience,” he added.


Data tracked by Jefferies’ Tarlowe indicated that traffic to TJX banners  such as T.J. Maxx, Marshalls and HomeGoods “is strong, up 20 percent quarter-to-date at T.J. Maxx.” Inventories appear well-positioned post-Holiday, with TJX set to benefit from the migration toward off-price, he added.

“Additionally, we believe Home and international expansion represent unique growth opportunities for TJX,” Tarlowe said. Moreover, the retailer had healthy in-stocks in pillows and decor, furniture, bed and bath, and kitchen and tabletop in a recent visit. Apparel inventory levels seemed relatively strong, although footwear was one category that appeared light versus past visits. “We believe TJX’s value-oriented positioning, especially in apparel, positions the company well to continue to gain market share over time,” Tarlowe said.

Value stores

In the call hosted by Tarlowe, Jackson said the “extreme discount market” has performed exceptionally well over the past 24 months by same-store sales metrics, with grocery the warehouse clubs and dollar stores “faring particularly well.” However, the value segment has battled sourcing difficulties in the past half year, reducing on-shelf stock and eroding gross margins thanks to “exploding logistics costs and deteriorating exchange rate,” he added.

Despite the challenges, store outlet growth hasn’t slowed down and the deep discount channels “clearly represent the major area of brick and mortar growth in the United States,” Jackson said. “If you map out their growth in the past five years, you will see continued significant sustained growth.”

Dollar General has seen 30 percent growth in its store base in just the past five years, he pointed out.

While rising transportation costs remain an issue and are impacting fourth quarter gross margin and comp growth, Jackson said some value retailers have been using alternative sourcing methods to offset shipping-related issues. Private-label goods are taking up more space in dollar store assortments and retailers in this segment could scale the merchandise segment to sell items at beneficial margin rates.

Dollar General has been able to source items from alternate channels, and is becoming a bigger purchaser of goods from Mexico. In contrast, Dollar Tree has about 45 percent of its overall inventory imported from Asia, and its overall mix is more seasonal.