Will These Retail Companies Succeed in Gaining Major Market Share?

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When analyzing a company’s growth potential, one of the key things to consider is its industrial growth. The department store market is expected to grow by 21.7% between 2011 and 2015. Operating in a business-to-consumer environment, these stores have a direct impact on human lives. Department store growth is fueled by consumers' increasing needs. These stores are also compelled to modify their operations to increase the speed and convenience with which they can deliver goods to the consumers. Here are three retail companies grappling with how to address the changing needs of their customers.

A company seeking turnaround

J. C. Penney’s (NYSE: JCP) customers have rejected the mobile checkout facility that it introduced in 2012. The mobile checkout would have allowed the company to replace cash registers with salespeople carrying mobile checkout devices. J. C. Penney introduced this to reduce the rush at the sales point of transaction but instead of facilitating the customers, it proved to be an inconvenience.

The company's merchandise includes diverse apparel and footwear options. These products require a stationary area where salespeople can remove hangers, fold apparel and properly pack products. Such an area is not available with mobile checkout as it was when there were cash registers. The mobile checkout devices were also prone to regular failure, adding to customers’ frustration.

J. C. Penney had a loss of $985 million in the 2012 fiscal year. Its revenue was $13 billion, down 25% year-over-year. This revenue is expected to decline further, sliding to $12.37 billion in 2013.

The home goods segment, which includes bedding, cookware and furniture exclusively designed by expert architects and designers, is a key revenue driver for J. C. Penney. This segment contributed 15% of the company's $17.3 billion revenue in fiscal year 2011, but decreased to $1.56 billion in 2012 from $2.6 billion in 2011. In June 2013, the company launched a new home goods section in 505 of its total 1100 stores. Analysts believe that the customers will like the appeal of the products. The company is banking on its home goods section to bring a turnaround in its fortunes. Sales per average square foot in the company’s stores were $28 in the first-quarter of 2013. As a result of this initiative, the sales per average square foot are expected to increase to $35 in the fourth quarter of 2013.

A retailer banking on e-commerce

Market research firm Forrester has predicted that e-commerce is likely to generate $262 billion in sales for US retailers in 2013, up 13% from 2012. In order to tap into this growing market, Macy’s (NYSE: M) is using the omni-channel strategy. This strategy helps consumers to use online and mobile shopping channels simultaneously. The company had 292 such omni-channel stores out of its 840 stores in 2012. It expects to increase the number of such stores to 500 by 2013, focusing primarily on e-commerce growth. Macy’s expects its same-store sales to grow at about 3.5% year-over-year in 2013.

The expected free cash flow generation for Macy’s is $1.35 billion and $1.58 billion, in 2013 and 2014 respectively. This robust cash flow is allowing the company to aggressively pursue its share buyback program. It repurchased shares worth $360 million in the first quarter of 2013, and has increased its share buyback authorization by $1.5 billion. Macy’s expects to complete its planned buyback by 2015. A total of $2.6 billion of share buyback was outstanding at the end of first quarter of 2013; the company expects a share repurchase of $1.2 billion each in 2013 and 2014.

This free cash flow generation is also allowing Macy’s to attract income investors. The company announced a 25% quarter-over-quarter increase in the quarterly dividend rate in the first quarter of 2013. Macy’s increased the quarterly dividend to $0.25 per share, up from $0.20 per share in the previous quarter. This is the third dividend increase in the past two years.

A company spreading its wings

The TJX Companies (NYSE: TJX) is expanding its business in Europe and Canada. TJX is the only major off-price retailer in Europe. Off-price retailers sell branded merchandise at a price 20%-60% below regular stores. TJX had 343 stores in Europe in 2012 and plans to add 30 new stores by 2013. Revenue in TJX Europe went up to $1.1 billion in the first quarter of 2013, up from $892 million in the first quarter of 2012.

The company also plans to add 20 new stores to its existing 324 stores in Canada this year. It is a premier off-price retailer in Canada, and TJX Canada posted sales revenue of $856 million in the first quarter of 2013 which was an increase of 15% year-over-year.

Major growth opportunities still exist for TJX in Europe and Canada as the market is not fully saturated. TJX has the potential to open a total of about 700 stores in Europe and 430 stores in Canada in the next few years.

Global e-commerce sales are expected to be $1.3 trillion by 2013, a yearly growth of 18.3%. To tap into this growing market, TJX acquired Sierra Trading Post, an off-price online retailer, for $200 million in December 2012. Sierra’s management has great Internet retailing experience.

TJX has also built a strong e-commerce team of its own. The company plans to use these synergies to launch its own e-commerce website in the second half of 2013. TJX currently has static, information-based websites with about 4 million visitors monthly. The company will be able to tap a majority of these visitors when it launches its e-commerce website.

Conclusion

J. C. Penney’s investment into mobile checkout devices failed to have the expected impact, and the company’s revenue decreased significantly. The company is banking on its home goods segment to revive its fortunes. The company is in a revival phase. This stock is a "hold."

Macy’s has employed the omni-channel strategy profitably. Its free cash flow generation is allowing the company to aggressively pursue its share repurchase program. This stock is a "buy."

TJX has huge growth potential in Europe and Canada. It is also looking to launch its e-commerce website to leverage online consumers. This stock is a "buy."

J.C. Penney’s stock cratered under Ron Johnson’s leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

 


Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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