Both TJX Companies and Ross Stores have a very deliberate brick and mortar footprint. In fact, Ross has stated on public investor calls that they have no plans to pursue an e-commerce format. Their model, which we believe to be one of their competitive advantages, is successful despite the misconception that e-commerce means the end of all brick and mortar. Ross management has explained how the transaction economics of the shopping experience Ross provides simply would not work online. 90% of their product are priced under $30, with the average unit retail closer to $10. With online retail, product return rates are substantially higher than for in-store purchases. In addition, by the time products are returned, they are potentially out of season. Add on to this the fact that these online sales are likely being offered with free shipping. The culmination of all of these factors, means that providing the value experience Ross offers would not be sustainable in an e -commerce format. To be profitable, online retail pricing is much more in line with that of department stores. This allows Ross to offer the same value proposition – delivering more for less – as usual, successfully.
We added to our position in Ross (NASDAQ:ROST) in the quarter as the Company continues to grow same-store sales and improve margins. Further, valuation levels were very attractive as we saw the stock price trade down during the quarter with the previously mentioned general concerns in the retail space. The Company plans to open 80-90 new stores each year in new and existing markets, providing a long path for growth that offers a differentiated retail model that insulates them from the disruption we are seeing with many standard brick and mortar retailers.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners 3rd quarter shareholder letter.
