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November 15, 2023
Can HomeGoods Succeed Without E-Commerce?
According to Insider, HomeGoods abruptly shut down its e-commerce site.
Owned by TJX Companies, the discount home decor chain sent out an email blast to its customers last month explaining how its online shop would be permanently closed after Oct. 21. HomeGoods’ e-commerce store initially went live in 2021.
The email explained that the retailer is choosing to focus its resources on brick-and-mortar stores, and it will be “announcing many new store openings” in the future.
HomeGoods exists as an in-between discount retail chain and thrift store experience since each store’s inventory can be drastically different. Discovering a heavily discounted high-value item is a thrilling moment, similar to striking gold at a thrift store, and although a HomeGoods item won’t be a relic or a treasure, it will be brand new.
This move to shut down its online retail site comes after the company shared a quarterly report where less than 1% of its total sales were from its e-commerce division. According to the report, “Our HomeGoods e-commerce website, homegoods.com, represented less than 1% of HomeGoods net sales for both the second quarter and the first six months of fiscal 2024, and did not have a significant impact on year-over-year segment margin comparisons.”
In an August earnings call, TJX Companies CFO John Joseph Klinger stated, “As to e-commerce, overall, it remains a very small percentage of our business.” While the e-commerce site was active, the company added new merchandise often so customers could “see something new every time they visit,” but ultimately, it wasn’t valuable enough to the business. One potential reason for shutting the site down could have been shipping costs, which are high for large items like the ones HomeGoods sells.
Klinger also noted in the earnings call “that TJX planned to open about 125 new stores in fiscal 2024. TJX’s second quarter net sales were $12.8 billion, an 8% increase compared to the same quarter last year.”
In an interview with Yahoo Finance, Bloomberg Intelligence Senior Retail Analyst Poonam Goyal said, “HomeGoods’ strength has been helped by the strong housing market combined with consumers’ appeal for value and a treasure hunt experience.”
Additionally, Yahoo Finance explained that “two brick-and-mortar categories have been largely immune to online competition: off-price retail and home retail,” and HomeGoods falls into both of these categories. As a result, HomeGoods has increased from 619 stores in 2017 to over 900 in 2023.
While the move to cut e-commerce seems like it might not have a big effect on HomeGoods’ sales, some shoppers have taken to social media and expressed their disappointment. For example, one person posted on the HomeGoods Facebook page about how they will no longer support the retailer because they cannot drive over 40 miles to their closest HomeGoods.
Regardless of how customers are reacting to the initial news, it seems that HomeGoods has proven that it’s possible for physical retail stores to exist without an online shop in this day and age.
Discussion Questions
Do you think shutting down its e-commerce site will be more of a benefit or a detriment to HomeGoods? Can being an exclusively physical store be part of a retailer’s appeal? How can companies strike a balance between physical and online retail to meet customer preferences?
Poll
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John Lietsch
CEO/Founder, Align Business Consulting
Melissa Minkow
Director, Retail Strategy, CI&T
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Online is insignificant for HomeGoods and always has been. Currently, the channel accounts for about 0.6% of overall sales. The profit derived from online is even lower as a proportion of the total. Consumers have clearly voted with their feet and HomeGoods is right to adjust accordingly. Yes, online is important in retail; but different retailers have different levels of exposure due to their business models. HomeGoods works best in store because of treasure-hunt and discovery. Trader Joe’s performs exceptionally well despite not being online. Primark largely falls into the same category.
Online represented less than 1% of HomeGoods sales – this says it all. Despite the lack of a strong e-commerce business, it’s clear that banners like HomeGoods, and the off-price, treasure hunt category in general can thrive despite the lack of online sales. While some shoppers will always want an e-commerce option, TJX clearly isn’t too worried about some shoppers defecting to other online sellers if that’s what they want. TJX knows where to place it’s bets and for their HomeGoods banner it’s not online. Companies can and must strike the right balance of physical and online, just as TJX has demonstrated.
HomeGoods made a logical business decision to stop online sales, but they might have been using discount logic in how they communicated this to customers. Their live site is still up, but the online store has gone the way of George Orwell’s “memory hole.” It just disappeared. Period. Why not answer former e-commerce shoppers’ questions starting from the homepage? One click takes them to a landing page that explains what has changed, why, and why it’s actually better for them when shopping in HomeGoods stores. Then give them a perk for going to a store soon. Just an idea. Poor communication has probably already ruffled too many customer feathers already, but there’s still time to make nice.
Let’s face it. Off-price retail is an even harder business to operate than “regular” retail. It isn’t like traditional retail where you order products from a vendor/manufacturer that provide all the product detail needed for online. HomeGoods sells mostly clearance and close-out products that don’t have standard UPCs or electronic data interchange (EDI) where product information gets exchanged between vendors and retailers. So, HomeGoods has to create this information from scratch, including photos for all products. That’s a lot of work for 1% of sales—and likely not profitable at all. Perhaps moving to a smaller, curated subset of product could work, but what was available online before might have already been that.
Ken, your last paragraph capsulizes the situation and accurately. All that work for 1% of total sales and smaller margins to start than full-price retail makes this look like a good decision. Not to repeat that a store visit is much more interesting than an Ecommerce Website.
While this feels counter-intuitive, for HomeGoods, this is the right move. As Yahoo Finance points out, there are two factors at play here. First, HomeGood’s value prop is the treasure hunt. Customers like the experience of walking the aisles with an “I’ll know it when I see it” shopping pattern. Secondly, in off-price retail, with special purchases and one-offs, many SKUs are not replenished. This is a massive challenge for retailers who want to offer items across multiple channels. They made the right decision to walk away, and given the tiny part of their business done online, it’s the right thing to do.
Well it will allow them to focus more on brick and mortar operations. I would imagine the cost savings far outweigh the revenue upside, so a tip of the hat to leadership making this decision!
In the push toward Omni channel we forget that a singular channel can still work well if positioned properly. For Home Goods the brand experience is positioned around a discovery experience, for which brick and mortar is the better channel. Wandering a store is more fun than scrolling a website. Add to this the financial benefits of not having to support an expensive home goods delivery infrastructure and you can clearly see the logic. The business they lose from not having eCommerce is more than offset by doubling down on the in-person experience.
I am usually a big proponent of having an ecommerce destination, but in the case of HomeGoods, this move makes perfect sense. The way they merchandise lends itself best to an in-person hunt, and that’s how shoppers are used to interacting with this brand.
It has been a very insignificant part for them and I do not think they will miss it. This is a treasure-hunt retailer- the fun is finding a different assortment every time you go. The stores are clean and fairly organized.
Shutting down an e-commerce site seems counterintuitive in 2023. Yet HomeGoods’ numbers prove almost all customers care more about its stores than Cyber Monday deals.
The e-commerce site may have struggled to reflect each store’s highly localized assortment. Being exclusively brick-and-mortar differentiates HomeGoods in a quaint and experiential way.
Measuring demand across channels helps retailers find the right balance of physical and digital to satisfy consumers.
While a traditional online business model doesn’t work for HomeGoods, there is potential to test a different strategy; increasing their addressable market by reaching those who want to shop with them, but can’t because their stores are too far away or won’t because they don’t like the treasure hunt aspect. Focusing on smaller, and higher ticket, higher margin items that can only be found online might be an interesting approach. Similar to what Goodwill is doing with GoodwillFinds where they put luxury and unique items online. I would start by talking to consumers to understand their needs, wants and expectations for HomeGoods online and start testing!
It takes a lot of courage and commitment to stop selling products that aren’t performing so I applaud what is definitely the much more courageous move to kill an entire channel in an age where every “expert” believes retailers must have an online presence. This is a gutsy move that seems to be backed by solid data, that is better aligned to its product mix and that should allow HomeGoods to focus on its core competency. However, the question that only time will answer is whether its lack of success online was due to its inability to execute a competitive online strategy and whether its target market will remain “digital.” Inflation is like COVID – it can drive business that disappears as quickly as it appears..
Never bet against TJX.
This is a great reminder about both the process of discovery and the importance of physical retail. An open ended search that begins with, “Gee, I’m not quite sure what I’m looking for…” is very different than a search for a specific article. When there are more Unknowns than Knowns, physical retail can answer all the questions for all the 5 senses. When the search has more Knowns than Unknowns, ecomm works just fine.
HomeGoods did the necessary, required experiment. Turns out that physical retail is alive and well.
While I don’t doubt there are retailers for whom online doesn’t work, I’m not sure this is one of them; and the reasoning – it wasn’t doing much anyway – seems bizarre. I’ll give this a quetion mark until shown otherwise (tho since they’re discontinuing it, I don’t know how “otherwise” would manifest itself).
HomeGoods shut down its online store, stating less than 1% of sales came from e-commerce. The company plans to open 125 new stores in fiscal 2024, reflecting its growth. Despite some disappointed customers, HomeGoods proves physical stores can thrive without an online presence.
Ken Morris made a valid point that off-price retail, like HomeGoods, is challenging due to unique products lacking standard details. Creating online info and photos for clearance items is labor-intensive. Simplifying with a smaller curated selection might help, but challenges persist.
Yes, being exclusively physical can enhance a retailer’s appeal, as seen with HomeGoods. It offers a unique, treasure-hunt experience, benefiting from the off-price and home retail categories, and remaining immune to online competition.
The question we should be asking is not whether eCommerce IS important to HomeGoods, but instead SHOULD IT BE?
The answer of course is “yes”, it should be. An online bargain-hunting site should be a killer solution for their customer base if done right. It would also allow them to make some channel-specific buys to drive the online store that perhaps isn’t big enough to distribute to stores.
A strategic blunder, in my view.
Although a quality eCommerce experience is critical for most brands in today’s market, it’s also important to meet your customers where and how they want to shop. This is an example of a brand evaluating customer data and acknowledging these habits. HomeGoods’ customers indicated that they largely prefer to shop in-store rather than online, due in large part to the nature of their inventory. Being a cross between a retail chain and a thrift store, and having very localized inventory as a result, can make online inventory more challenging. By shutting down its eCommerce platform, the brand can now focus more of its efforts and attention on its brick-and-mortar strategy. In this case, a physical shopping experience, hunting for that perfect deal or hidden gem, is the store’s appeal to consumers.
For Home Goods, the balance between online and in-store shopping was skewed. For other brands, striking a balance between physical and online retail might look very different and should be taken on a brand-by-brand basis. Even if their customers choose to shop in store, many consumers now utilize their phones as an in-store resource to search for deals, check inventory status or confirm aisle location. In these instances, a quality eCommerce experience is still an important part of securing an in-store sale.
These off price retailers continue to shun online sales. It isn’t profitable. They’re making the right decision.
Ross, Burlington, long made this decision.
I’d like to see them have some core items sold online, and some premium non store items sold online, then note they have a bigger better ever changing assortment in store. But they can always set something like that up in the future.
The bigger question is how many other retailers are in a similar position with online? Taking a lot of resources relative to the sales generated?
And it would look worse if you asked what percent of total profits the online sales generated.
Pretty clear that the overhead was not worth the 0.6% of overall sales it represented. Not growing. Discount offerings don’t provide margin like others in the category. Return rates probably too high on top of it. Smart move to focus on what matters. If your counter argument against the move is “one person on Facebook said …,” then you are doing the right thing!
Shutting down HomeGoods’ eCommerce site could be both a benefit and a detriment. On the positive side, focusing on physical stores aligns with their discount and treasure hunt appeal, which is strengthened by the in-person experience. However, some customers who can’t easily access these stores may feel let down.
In my opinion, striking a balance between physical and online retail is crucial here. While a strong in-store presence is vital for certain brands, maintaining an online option caters to a wider audience. Ultimately, it’s about understanding the customer preferences and adapting strategies accordingly, to ensure accessibility without losing the unique charm of in-person shopping.
As others have noted, it makes sense for HomeGoods to shut down its e-commerce site given that less than 1% of recent net sales were derived from online purchases. In order to continue to be successful, HomeGoods would be wise to lean into data analytics and its loyalty program to better understand customer preferences and tailor marketing strategies accordingly – especially for those customers who may be upset about the online closure initially. HomeGoods has built its business around an experience – one that appeals to a specific subset of customers. In order to continue to maximize its in-store experience, the retailer should consider leveraging technology, such as implementing digital displays, augmented reality, or virtual reality to make the physical shopping experience more exciting and modern. Staying flexible and responsive to changing market trends will also be key to ongoing success. This includes regularly assessing customer feedback and preferences to adjust the balance accordingly.