Goldman Shuffles Consumer Focus List: Cuts Mead Johnson, Adds Dollar Tree And TJX Cos.

Goldman Sachs’ Aaron Ibbotson added US retail firms Dollar Tree, Inc. DLTR and TJX Companies Inc TJX to the global GS SUSTAIN Focus List, saying that the strong financial performance of the two companies demonstrates their ability to prosper in a more competitive world.

Analyst Aaron Ibbotson removed Mead Johnson Nutrition CO MJN from the Focus List, citing increased competition ahead and the company’s limited capacity to respond. He believes that Mead Johnson is witnessing increased headwinds in its core infant milk formula business in China.

“We remove infant formula manufacturer Mead Johnson from the Focus List as we believe that increasing competition within China increases the risks of lower volumes and/or lower pricing & margins for the larger incumbent market participants,” Ibbotson commented.

Traditional Retailers Can Still Win

Despite growing challenges posed by online retailers, there are some categories in which offline retail could still win, Ibbotson pointed out. These include small, time-sensitive and fragile products in which case a store visit is more convenient, when the product creator may not wish to display the item online like in the case of off-price retailers and when consumers prefer the personal attention of an in-store shopping experience to the anonymity of its online equivalent.

Ibbotson believes that Dollar Tree and TJX are the two companies that have managed well to face the challenges posed by online retailers to date. The business models of these two companies are defendable against online competition and have resulted in good reasonable shareholder returns since 2010.

Dollar Tree continues to benefit as its offers cannot be replicated online. The company’s stores aim to offer the best possible value on basic and everyday needs at a $1 price point from convenient locations. This is liked by consumers and has boosted the company’s sales per square feet by 2.2 percent per annum over 2005-2015, the Goldman Sachs report noted.

“We believe these advantages are enhanced by the merger with the Family Dollar chain that is currently being integrated into the business,” Ibbotson added.

TJX is a discount retailer helping suppliers sell excess inventory. The company sells apparel and home fashions at prices typically 20-60 percent below department store levels. The company’s strong USP has allowed it to grow sales per square feet at 3 percent per annum from 2005-2015.

“TJX is well-positioned to continue to grow earnings in future, as we believe customers will continue to be focused on value,” Ibbotson wrote.