By Suzanne Kapner
Traditional retailers are in crisis, damaged by rapidly shifting
consumer tastes, technological change and cut-throat price
competition. And then there's TJX Cos., which is defying gravity
with the simple idea that under the right circumstances people
still like to shop in stores.
The owner of T.J. Maxx and Marshalls has seen sales at stores
open at least a year rise for 33 straight quarters. Its annual
sales exceed those of Nordstrom Inc. and J.C. Penney Co. combined.
The company's market value is almost seven times that of Macy's
Inc., which was once the more valuable company.
TJX gets almost all its sales from its roughly 3,800 physical
locations and plans to open 250 stores this year. Its revenue and
profits are climbing and it envisions expanding to 5,600 stores
worldwide over time.
The Framingham, Mass. company isn't shifting business online or
using big data to figure out what shoppers want. Instead, it has
become one of the country's fastest-growing retailers by sticking
with a playbook from a vanishing era. It relies heavily on the
instincts of its merchandise buyers, many of whom have been with
the company for decades. TJX stores rapidly turn over limited
quantities of products that are all sold at bargain prices. The
result is a rarity in retail -- a constant treasure hunt.
"Fresh merchandise hitting the floor is key," said Paul
Sweetenham, a former senior executive at TJX's European division.
"It's a very simple business model, but it's hard to execute."
Little is known publicly about how the retailer executes its
strategy, and TJX declined to make current executives available for
interviews. The Wall Street Journal pieced together how the company
operates from conversations with former executives and people
familiar with its business practices. Debra McConnell, a TJX
spokeswoman, confirmed some facts about its strategy.
TJX is known as an off-price retailer because it offers
brand-name goods at 20% to 60% below regular retail prices. The
company takes an average of 25 days to sell its merchandise, a
quarter of the time it takes department stores like Macy's and
Kohl's Corp. to sell their inventory, according to research from
investment bank UBS.
"I like hunting for clothes," said 18-year-old Bailey Mizell,
who visits the T.J. Maxx near her home in Windsor, N.C. about once
a week. "If you find something, then you feel like you've scored a
deal." One of her favorite purchases this year has been a $250
Calvin Klein peacoat that she bought for $80.
Traditional retailers are struggling as shoppers shift spending
online and eschew brand loyalty in favor of low prices. Abercrombie
& Fitch Co. is up for sale, J. Crew Group Inc. and Neiman
Marcus Group Ltd. are struggling with heavy debt loads. Macy's,
Penney and Sears Holdings Corp. are closing hundreds of stores.
Amazon.com Inc. on Tuesday announced a new service that let's its
Prime members try on clothing before paying for what they choose to
keep, an attempt to wrest market share from department stores and
apparel retailers.
Off-price chains are not immune to these forces. Syms Corp.,
Filene's Basement LLC and Daffy's Inc. have gone out of business
since 2011. Some lacked scale and lost out to larger rivals.
Fashion retailer Loehmann's, after going through bankruptcy
proceedings, converted its business in 2014 to selling only
online.
TJX, which emerged a winner in the sector's earlier shakeout, in
May surprised investors when it said sales at stores open at least
a year rose 1% in the three months to April 29, versus a 7%
increase in the year-ago period. Analysts, who had predicted an
increase closer to 2%, attributed the shortfall to weak demand
across the retail sector and the tough year-ago comparison.
"We're approaching the end of the runway of easy growth for
off-price chains," said Steven Dennis, president of SageBerry
Consulting LLC, a retail advisory firm.
Designer brands including Ralph Lauren Corp. and Coach Inc. are
reducing shipments to off-price chains in efforts to protect their
brand image. Department stores are also expanding their own
off-price chains, such as Macy's Backstage, Saks Off 5th and
Nordstrom Rack.
TJX Chief Executive Ernie Herrman sees opportunities, not
threats. On an earnings call last month he said a "disruption" in
retailing is creating a glut of merchandise that TJX is scooping up
at bargain prices. Products become available when department stores
cancel orders or when companies manufacture too many items. Many
big brands also make some merchandise for TJX, typically by
recycling past seasons' best-sellers.
"We're actually having to hold ourselves back to ensure that we
don't buy too much too soon," said Mr. Herrman. He joined the
company in 1989 and rose through the merchandising ranks before
becoming CEO in January 2016. Each of the company's four CEOs came
up through the buying ranks.
TJX's roots date to the 1970s, when the first two T.J. Maxx
stores selling low-price clothing and home furnishings opened in
central Massachusetts. A reorganization of the chain's parent in
the 1980s resulted in the formation of a new company named TJX that
went on to launch the HomeGoods furnishings chain and acquire other
off-price retailers including its rival Marshalls and sporting
goods company Sierra Trading Post.
In expanding overseas, the company named its European stores
T.K. Maxx, differentiating the brand from a British discount chain
called T.J. Hughes. TJX is launching another home-furnishings chain
in the U.S. this summer called HomeSense.
Central to TJX's success are its merchants. The company employs
more than 1,000 buyers who buy apparel and other goods from more
than 18,000 suppliers around the world. Each buyer controls
millions of dollars and has authority to cut deals on the spot,
unlike most department stores, which can take weeks to review and
approve orders.
Buyers undergo intensive schooling. Trainers travel with new
buyers for their first three years on the job. Buying techniques
are codified at TJX University, an in-house training program that
teaches employees how to identify value. Staff learn to evaluate
products based on a formal formula that rates brand, fashion,
quality and price on a scale of one to four. A total score of 16 is
considered the perfect buy.
An oft-repeated anecdote in training sessions involves two dress
buyers in the early 1990s. All the hot dress styles were on the
West Coast, so the buyer on the East Coast assigned her purchasing
budget to the West Coast buyer.
"The best decision my dress buyer ever made was not to buy,"
former TJX CEO Ted English has told staffers. Mr. English was the
divisional merchandise manager for dresses when the incident
occurred. Because employee bonuses are awarded on the basis of
divisional and company performance, the East Coast buyer's
compensation wasn't hurt.
TJX is obsessed with getting merchandise to stores quickly. On a
recent afternoon in early May, a large New York manufacturer was
looking to unload several hundred thousand swimsuits. A TJX buyer
cut a deal.
The supplier shipped the suits to TJX's warehouses within a
week, and they were in its U.S. stores before Memorial Day weekend.
Merchandise often arrives at stores on racks that employees wheel
off trucks and move straight onto the sales floor. Products
arriving at stores in the morning must be displayed by the evening,
giving rise to an internal mantra, "Door to Floor in 24."
Stores typically get deliveries several times a week. The
schedule ensures a continuous stream of products to lure shoppers.
And because TJX doesn't purchase the full range of colors and
styles, stores have one or two items in a particular color or size,
giving customers an urgency to buy.
Consumers on average visit an off-price retailer about seven
times a year and a majority of them will purchase something,
according to Craig Johnson, president of consulting firm Customer
Growth Partners. Shoppers visit a department store four times a
year and a third buy something during those trips. TJX shoppers
have an average household income of roughly $72,000, the same as
those who shop at Macy's, according to Cowen & Co.
research.
Carole Cusa, 65, used to shop at Saks Fifth Avenue and Bergdorf
Goodman when she worked as a real estate broker in Manhattan. She
began shopping at T.J. Maxx after retiring. "At this point in my
life I'm not going to spend as much as I used to on clothes," she
said. Ms. Cusa recently bought a Lilly Pulitzer dress for $39.99
and a pair of Ralph Lauren jeans for $34.99.
TJX doesn't offer discounts or promotions. Items that don't sell
within a month are marked down and moved to clearance racks. Most
are sold after one or two markdowns.
Nor is it wedded to specific product categories. "It can be the
biggest retailer of Italian soaps one year and be out of that
business next year, " said Mr. Sweetenham, who held various roles
at the company from 1993 to 2012.
If the off-price model is underpinned by speed and agility,
traditional retailers are at the other end of the spectrum. They
tend to be locked into a group of suppliers and order goods months
in advance, which makes it harder to adjust to changing trends.
Macy's will carry Ralph Lauren, Tommy Hilfiger, Michael Kors and
other big brands -- whether or not they sell well. Large suppliers
guarantee Macy's a gross margin of around 40% even if retail prices
are marked down. Brands also pay to staff their own boutiques
inside Macy's stores and kick in money for advertising and special
events. That makes it harder for traditional department stores to
change their layout, because space is devoted to specific
brands.
TJX, on the other hand, can choose not to buy products from any
one brand if it doesn't like the styles. Its stores have no walls
between departments, so it can quickly reconfigure floor plans.
Similar clothes from different labels can be found on the same
rack.
Sales at U.S. T.J. Maxx and Marshalls stores average roughly
$332 a square foot, higher than that of Macy's and Kohl's, whose
store sales approximate $188 and $186 per square foot respectively,
according to investment research firm Evercore ISI.
A Macy's spokeswoman said the chain's newer stores have a more
flexible format, which enables them to better allocate space. She
declined to comment on margin arrangements with suppliers, but said
Macy's introduces dozens of new brands a year, many of which it
sells exclusively. The company is also working to reduce the amount
of time it takes merchandise to reach its sales floor after being
ordered. That lead time currently ranges from nine weeks to six
months for branded goods.
One area where TJX trails other retailers is on the Internet.
Nearly 18% of Macy's revenue comes from e-commerce, estimates
research firm eMarketer. That compares with just over 1% at TJX,
according to Ms. McConnell. It is hard to make money selling
inexpensive apparel online, where return rates can approach 40%,
according to Mr. Dennis, the retail consultant.
TJX rolled out an e-commerce site for T.J. Maxx in 2004, but
shut it down a year later. It didn't relaunch the site until 2013.
The online operation now has its own buyers to minimize overlap
with what is sold in stores.
Some brands won't let TJX sell their products online because
they don't want the items to be easily searchable at lower prices.
For certain brands that allow online sales, shoppers have to click
on items before they can see brand names. The restraints are
similar to those in the physical world, where some companies do not
allow TJX to advertise their brands. Advertising individual labels
is not part of TJX's marketing strategy, Ms. McConnell said.
Another complication: TJX's systems are designed to move
merchandise in and out of its distribution centers quickly, and not
to hold products until they can be packed for home delivery. Many
stores don't have stock rooms, making it hard to ship online orders
from those locations.
The company is "a bit tech phobic," said Mr. Sweetenham, the
former TJX executive. "But they do have a great business
model."
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
June 20, 2017 11:16 ET (15:16 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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