T.J. Maxx's small presence on the web is giving Shein and Temu a big advantage

• E-commerce is coming after off-price retailers that sell brand names at discounts.
• Analysts said that rivals like Shein and Temu pose "major threats" to brands like T.J. Maxx.

T.J. Maxx has tread carefully into e-commerce, but growing competition from brands like Shein and Temu is posing a major threat to the beloved off-price retailer.

That's according to a new report from analysts at UBS, who said in a Thursday note that they expect TJX Companies, which owns T.J. Maxx, Marshalls, and HomeGoods, Sierra, and HomeSense, to face more competition as customers shift to online shopping.

"Our view is as these rivals find new, more effective business tactics, this could be diminishing TJX's value proposition in the minds of consumers, especially since TJX's business model isn't evolving," the note said. The analysts added that they view new retail companies like Shein and Temu "as major threats to Off-Pricers," or stores that offer designer goods and brand-name merchandise at discounted prices.

Sales from TJX's e-commerce platforms made up less than 3% of the company's total sales, according to TJX's 2022 annual report – at a time when Gen Z consumers like shopping online at least as much as shopping in person.

In a call with investors in May, TJX's Chief Financial Officer John Klinger said that while the company continues to add new brands to its sites, e-commerce remains "a very small percentage of our business."

T.J. Maxx's website, where customers can browse through products and order items directly to their homes, or in some cases get delivered to a nearby store location for pickup, appears to emulate the "treasure-hunt shopping experience" that the company is known for in real life.

Searching for some brands — like Nike, Calvin Klein, or Gucci — will lead customers to a page that reads "Some Of Our Brands Can Be A Bit Shy" along with an explanation that certain designers aren't searchable by name and need to be found by scanning through categories or departments.

When customers browse categories like sportswear or dresses, select designer names are also hidden behind a button that reads "reveal designer," mimicking the way a shopper might come across an item in real life and look for the label to see which brand it was from.

"We are confident that our relentless drive to bring consumers an exciting treasure-hunt shopping experience, both in stores and online, and an ever-changing mix of excellent brands at outstanding values will continue to be a winning strategy for us," TJX CEO Ernie Herrman told investors in a May 2018 earnings call.

But it's unclear whether that strategy is enough to stave off competition from digital-first brands like Shein who have garnered the attention and dollars of millennials and Gen Z shoppers.

E-commerce is just a small part of TJX's business

Shein and T.J. Maxx share a similar customer base. The vast majority of shoppers at both brands are women, and while Shein's popularity and image is most associated with a trendy Gen Z base, its average shopper is almost 35 years old. T.J. Maxx's main customer base is aged between 35 and 54, according to a UBS Evidence Lab survey.

In May 2020, after TJX relaunched its e-commerce sites, TJX's Herrman made clear that the company looked at e-commerce as a small part of its larger business.

"Strategically, nothing will change in terms of the total TJX," he told investors at the time. "We will not look to e-commerce as our major leveraging point to get us through COVID and out the other side. It'll be complementary, as it always is."

A representative for TJX declined to comment when Insider asked about the growing competition from companies like Shein and Temu and whether TJX plans to expand its online presence.

The research note cites UBS Evidence Lab's survey of 1,000 consumers across the US. Customers said that they liked shopping at T.J. Maxx because the brand offers good value for money and a chance to hunt for good deals. However, customers who didn't shop at the store mentioned inconvenient store locations and limited selections — issues that either don't exist or are less prevalent for e-commerce companies like Shein and Temu.