Photo by Jorge Aguilar on Unsplash
June 11, 2024
Is TJX Companies’ Expansion Into Mexico a Good Move?
The TJX Companies, a premier off-price apparel and home fashions retailer in the U.S. and across the globe, has announced a strategic joint venture with Grupo Axo, S.A.P.I. de C.V., which operates global brands in Mexico and South America. This partnership aims to expand TJX’s reach into the Mexican market by leveraging Axo’s established presence and retail network in the region.
Ernie Herrman, CEO and president of TJX, expressed enthusiasm about the partnership, highlighting the potential to expand TJX’s successful off-price retail model into Mexico. “With TJX’s decades of experience as an international, off-price retailer, and Axo’s established base of over 200 off-price stores and 30 years of operating experience in Mexico, we see excellent potential to grow in another region and deliver our value proposition to a growing population of fashion- and value-conscious consumers in Mexico,” Herrman said.
Andrés Gómez, co-founder, chairman, and CEO of Axo, echoed this sentiment, expressing confidence in TJX as an ideal partner. He emphasized the opportunity to enhance and innovate the off-price retail experience in Mexico through this collaboration.
Under the agreement, TJX will hold a 49% stake in the joint venture, while Axo will own 51%. The collaboration will encompass Axo’s off-price physical store business in Mexico, which includes over 200 stores operating under the Promoda, Reduced, and Urban Store banners. The transaction, anticipated to close later this year, is pending antitrust clearance in Mexico and other standard conditions. Financial details of the deal will be disclosed upon completion.
Despite the strategic importance of this partnership, TJX does not expect it to significantly impact its sales, profit, or earnings per share guidance for the current fiscal year 2025. This cautious outlook underscores the company’s focus on long-term growth and market penetration rather than immediate financial gains.
Grupo Axo is a prominent multi-brand and multi-channel retailer, known for its extensive portfolio of apparel, fashion accessories, footwear, beauty, and personal care products. The company operates over 6,900 points of sale in department stores and more than 970 boutiques across Mexico, Peru, Chile, and Uruguay.
TJX Companies Inc. saw a significant rise in its stock price following a strong earnings report last month. The retailer, which includes T.J.Maxx, Marshalls, and HomeGoods, reported a 22% increase in first-quarter earnings for fiscal 2025, reaching 93 cents per share. This exceeded analysts’ expectations of 88 cents per share, marking the seventh consecutive quarter of earnings growth.
Following the earnings report, TJX stock initially surged by 6.5% to new record highs but closed with a 3.5% gain, just below the 102.04 buy point in a 13-week, double-bottom base. The stock edged lower the following morning.
Net sales rose 6% to $12.48 billion, matching forecasts and continuing a six-quarter growth streak. Consolidated comparable sales increased by 3%, with U.S. HomeGoods stores and Canadian TJX locations each seeing a 4% rise.
Despite strong quarterly results, TJX’s future guidance was more conservative. The company projected 2% to 3% growth in comparable sales for the second quarter and fiscal year 2025. Expected earnings for Q2 were forecasted between 88 cents and 90 cents per share, below the analyst consensus of 94 cents. Full-year earnings were projected to be $4.03 to $4.09 per share, slightly under the expected $4.11 per share.
As of May 23, TJX stock has risen by 7.8% so far this year, demonstrating investor confidence in the company’s resilience and growth strategy in a competitive retail landscape.
Discussion Questions
Considering TJX’s joint venture with Grupo Axo in Mexico, how should the off-price retail model be adapted to suit Mexico’s cultural and economic landscape, and what challenges and opportunities might arise from this adaptation?
Given TJX’s strong earnings growth yet cautious future guidance, what strategies can the company use to sustain its momentum and manage investor expectations?
With Grupo Axo’s significant presence in Mexico and Latin America, how can TJX leverage Axo’s local expertise to improve market penetration and customer engagement, and what potential synergies could redefine the off-price retail sector in these regions?
Poll
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Bob Amster
Principal, Retail Technology Group
Pamela Kaplan
Principal, PK Consulting
Gwen Morrison
Partner, Candezent & Retail Cities Consultant
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Given TJX has been successful with its various international expansion ventures, it makes sense to make a play in Mexico. That said, expanding from scratch can be tough so the fact TJX is buying a stake in an existing business – Axo’s off-price division – gives it a running start. Axo is a solid retailer, and it has some credible formats in the off-price space which are popular. However, results have been somewhat patchy because the business sometimes struggles to get hold of good quality inventory. This is an area where TJX, with its brilliant buying skills, should be able to improve very quickly.
Having worked in a totally new expansion into Mexico, I will tell you this is definitely one of the most difficult roles in my retail career. Conducting business in Mexico is a challenge. The fact that that are partnering with Axo will definitely help . TJX will have to adjust their American processes to work in Mexico.
Agreed, which is why a partnership approach is sensible. TJX will not be learning all of this from scratch. And they already have global buying experience, which is what they bring to the party.
TJX is making all sound move by entering Mexico . Mexican shoppers are very fashion forward and price sensitive. Many take shopping trips to the US and are familiar with the format. Having Axo’s support will facilitate real estate, logistics and other local market factors.
To adapt TJX’s off-price retail model in Mexico, the company should localize product offerings, consider pricing strategies suited to local purchasing power, and focus on logistical efficiency. Challenges include navigating regulations and competition, while opportunities lie in expanding market reach and leveraging Axo’s network. TJX should prioritize strategic expansions, product variety, supply chain optimization, and cost control. Clear communication of growth plans will help manage investor expectations.
By leveraging Grupo Axo’s local expertise, TJX can tailor inventory to regional preferences, optimize store locations, and utilize Axo’s supply chain. This approach could enhance brand recognition, customer loyalty, and operational efficiency, redefining off-price retail in Mexico and Latin America.
This is a solid business decision for TJX to expand into Mexico. Many luxury brands have done the same thing in the last decade. It’s especially smart to partner with a local company like Grupo Axo’s who already has a customer base and understands how to do business locally. With TJX’s experience and momentum in the US today, this should be a slam dunk.
It’s a good move, but there’s a large learning curve ahead. Groupo Axo is a good operator and has done well with US Brands. However the positioning of TJX in Mexico – if it’s to go in mass will be a bit of a thread the needle exercise. Low price retailers in Mexico are really low priced. Premium brands even at premium prices have a good following as well. The Mexican market is growing, and there’s a good audience for better products. Exactly where TJ fits into that mix will be the magic.
I think Peter makes an excellent point here – will TJX be considered a low priced retailer by Mexican peso standards? Or will it occupy more of the mid-tier range, a bit aspirational for some but still a discount for others? I’d be curious if they segment their stores differently, more by price point. Time will tell…
This is one deal with lots of promise and a long runway. Partnering with a domestic, successful operator like Grupo Axo gives the foray a much greater probability of success. México is the second largest economy in Latin America. There is plenty of opportunity for an off-price retailer like TJX.
Big new market. They might stumble at first however this is a risk worth taking. Godd luck to them!
My first thought: Everyone wants a good deal! That’s what TJX gives it’s customers. They have international experience. Moving into Mexico and partnering with Axo gives them a running start. Having Axo as a partner might eat into some profit but also minimize risk. That’s a balance the TJX leadership team must evaluate now and in the future.
Although the growth of the middle class has slowed under the current administration, it is still present and TJX will slide into a profitable space with a audience asking for retailers like them. If done properly, the retailer launch will own the off-price retail sector in Mexico in less than a year.