When I read books related to the retail industry, I am astounded by how much retailers use neurological insights in selling an item. In one such insight, Robin Lewis and Michael Dart write that “the potential of not getting what you want ... will produce dopamine, which actively drives behavior.” This is what makes TJX and Ross Stores tick, with their rapidly moving inventory that maintains newness in the store week after week. Unlike in the past when consumers chose to blindly pay for an item to be able to flaunt it within their social circle, customers today are demanding real value. TJX and Ross Stores offer just that. And this is why if there’s a sweet spot among brick-and-mortar retail chains in the apparel industry, Ross Stores (ROST) and TJX Companies (TJX) are undeniably in it. Recently, though, detractors have argued that as copycats emerge, these chains will find it difficult to replicate the blistering pace of growth they once enjoyed in the past. Alright, I am willing to give them that benefit of doubt. After factoring this argument, I still managed to emerge with a favorite. I’d say TJX is still a bargain and is a better bargain than Ross Stores.
Of discounts and value
When compared to retail stores in the apparel industry, TJX and ROST are easily some of the most expensive stocks out there. This does not reveal a lot though. Growth rate is the most crucial factor that determines the multiple at which a stock should trade. Both these value focused stores are expected to grow at a rate much faster than the industry, so there’s nothing fishy here. Between TJX and ROST, TJX is the one that trades at a discount. On a cursory look I was expecting a much wider divergence than the one seen in the table.
