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TJX CEO on the Pre-Pandemic Headwinds That Haven’t Gone Away

The retail sector’s banking on success with vaccine rollouts, a scenario that would resurrect fashion from last year’s doldrums.

On Wednesday’s earnings call, TJX president and CEO Ernie Herrman said though the company can’t control Covid’s effect on consumer behavior, it’s “very confident” about buying, merchandising and store operations and expects not just to rebound but to take market share, too.

Even better, Herrman told analysts exactly when he believes apparel sales will begin to bounce back.

The CEO anticipates “a surge in apparel [sales]” to materialize as the second quarter, which starts in May, gives way to the Q3, a time when more of the population is likely to be vaccinated and “people start to circulate out there more.”

Herrman isn’t worried about not getting the right clothing products into stores, noting that “apparel is pretty plentiful on the market.” The problem now, he said, is that “consumer demand isn’t there as great as it has been.”

Home and beauty categories have done well during the pandemic, while apparel categories have lagged in comparison.

“The buying environment remains excellent as we continue to see a terrific selection of inventory from both existing and new vendors. We are very pleased with the improved seasonality and mix of merchandise at our stores as our buying teams have done a great job, aggressively sourcing branded product across good, better and best categories,” he said.

Last year TJX buyers “opened thousands of new vendors across good, better and best brands and sourced from a universe of approximately 21,000 vendors around the world,” he said. “We believe all of this puts us in an excellent position to keep offering consumers an eclectic mix of branded merchandise at amazing values.”

While the CEO said there can be “pockets” where some departments lack merchandise options, sometimes transportation issues were to blame for why TJX couldn’t access goods..

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“There’s more—definitely more—apparel out there than we would want to use across most every category,” Herrman said. At the moment, TJX “feels really balanced in the way our inventory levels are right now heading into February and into March across every division.” Europe remains a problem “because clearly we have inventory there and we can’t do anything in terms of selling it,” Herrman said, lamenting temporary store shutdowns across the EU.

The tidal wave of retail bankruptcies and brick-and-mortar closures could work to TJX’s benefit.

“We also believe this will lead to greater availability of inventory from both new and existing vendors. Lastly, we continue to aggressively pursue the significant opportunities we are seeing in the home category just as we have for decades. This includes increasing the HomeGoods divisions’ long-term target to 1,500 stores and our plans to launch e-commerce on later this year,” he said.

For the quarter and full year results, chief financial officer Scott Goldenberg noted increased costs related to Covid, as well as higher supply chain costs. “This was due to a lower average ticket and processing more units, as our merchandise mix continued to shift to a non-apparel categories, expenses related to additional distribution capacity and wage increases at our distribution facilities. As for inventory, our teams are doing a great job procuring merchandise and adjusting logistics to get it to a distribution facilities and stores. As a result, our store inventory position is close to where we want it to be. To reiterate, availability of merchandise in the marketplace is excellent,” the CFO said.

However, the “headwinds of freight, wage and supply chain that existed pre-pandemic have not gone away,” he said. “In fact, each of them has gotten worse in the current environment. On freight specifically, we continue to see capacity constraints and driver shortages, which has led to higher rates. We’re also experiencing incremental freight costs due to our lower average ticket and moving more units through our supply chain.”

Goldenberg said the off-price retailer plans to add 122 new stores in fiscal year 2022, bringing its year-end total close to 4,700 doors. Plans call for 30 new Marmaxx stores for the T.J. Maxx and Marshalls nameplates, 34 net HomeGoods stores and 12 Sierra locations. The company plans to add 22 net stores in Canada, 15 locations in Europe and nine in Australia for its international business. Over the long term, it sees potential to grow to 60 to 75 stores globally, as well as increase HomeGoods by 100 stores.

“But a lot will depend on when we get back to our sales because we still have to recapture a lot of the sales that we lost last year [and] hopefully surpass where we were going to be,” Goldenberg said.