T.J. Maxx – Using Buyers & Suppliers to Cash in on Off Price Retail

The off-price retail chain T.J. Maxx (“TJX”) is a great example of a business that has been highly effective at driving alignment between both its operating and business model. TJX, headquartered in Framingham, MA, is an American department store chain (over 1,000 stores nationwide) that specializes in offering high-quality, brand-name and designer fashions at 20%–60% less than department and specialty store regular prices on comparable merchandise [1]. The TJX business model is straight forward. However, what is interesting, is how the company has used its operating model of educating and training buyers to cultivate strong and lasting relationships with buyers to drive the company’s long history of out performance in an increasing competitive business eco-system.

The business model is a win/win for both merchandisers and consumers. For merchandisers, TJX is a key partner to offload excess inventory when a vendor has over-produced or as a buyer to sell unused inventory to when retail stores buy too much and return the unsold merchandise or have backed out of an order all together. In addition, unlike department stores, when TJX buys merchandise from vendors it forgoes the ability to return the merchandise to the vendor [2]. As a result of this “no return policy”, vendors also produce excess inventory on purpose, hoping TJX will buy it [3]. Moreover, this policy allows the retailer to procure merchandise at a lower price point than department stores, squeezing vendors on price in exchange for their ability to de-risk the sale.

For consumers, TJX represents a great value channel, offering a compelling “treasure hunt” shopping experience and merchandise that resonates with all income brackets. For consumers, TJX offers a wide product and brand assortment of mostly in season items (less than 15% of the merchandise is last season [4]). However, the greatest value proposition for consumers, is the value itself, as consumers can find items such as a Michael Kors clutch that costs $198 at a department store for only $79.99 at TJX.

So that’s the business model. How has TJX designed its operating model to deliver the aforementioned value?

TJX University – Educating World Class Merchandise Buyers

TJX has what many members of the retail industry consider to be best in class merchandise buyers. TJX spends a significant amount of time and money educating its buyers through its robust training program – TJX University. At TJX University, TJX trains buyers on how to select the right products, how to develop advanced negotiation skills, and how to communicate with vendors [5]. TJX buyers focus much more narrowly than their department store counterparts; rather than be responsible for accessories, a TJX buyer might specialize in just handbags [3]. This specialization allows buyers to become experts in their category and cultivates the ability to develop strong and long lasting relationships with suppliers – which is key as TJX is dependent on vendors for inventory.

Further, TJX buyers are in the market weekly, unlike their peers whom purchase inventory seasonally. This weekly presence allows TJX buyers to constantly source new inventory, which in turn is what allows TJX to offer such a wide assortment of products and brands to consumers. The expertise attained by buyers fosters the ability to source merchandise for the lowest price in the market.

Scale & Door to Floor

With over 1,000 stores, TJX has the scale to execute a “buy everything” purchasing model that allows them to buy all of the excess merchandise that a vendor can offer. A one stop solution that gives the company a significant advantage over its competitors. In addition to scale, TJX recognizes that it is in a volume business – the key to profitability is selling a ton of goods and selling them fast. This belief is illustrated very clearly in its operating model, as the company turns over inventory every 63 days (vs 85 days for its competitors) and has a cash conversion cycle of 26 days (vs. industry average of 86 days) [6] [7].




Ultimately, TJX has done a remarkable job of creating an operating model built on strong relationships with suppliers, which is fostered through the implementation of a flexible and well informed army of buyers, which allows the company to procure a variety of products and brands at extremely low costs to both TJX and its loyal customers. Lastly, not only has this model been successful for decades, it has proven to be difficult to emulate, as illustrated by the fate of several ecommerce players, such as fab.com and gilt groupe. Further, TJX’s size and expertise has allowed it to continue to be best in class, as many stores, from Saks Fifth Avenue to Nordstrom go to market with competing off-price retail concepts.

[1] http://tjmaxx.tjx.com/store/jump/topic/our-company/2400014

[2] http://fashionista.com/2010/08/inside-the-world-of-off-price-retail-we-go-behind-the-scenes-at-marshalls-and-t-j-maxx-hq

[3] http://fortune.com/2014/07/24/t-j-maxx-the-best-retail-store/

[4] http://usatoday30.usatoday.com/money/industries/retail/story/2011-10-25/tjx-ceo-carol-meyrowitz/50916340/1

[5] https://hbr.org/2014/05/the-ceo-of-tjx-on-how-to-train-first-class-buyers/ar/1

[6] http://financials.morningstar.com/ratios/r.html?t=TJX

[7] https://www.sageworks.com/datareleases.aspx?article=299&title=Retailers%E2%80%99-Slower-Moving-Inventory-Is-Tying-Up-Cash-Longer&date=April-21-2015

[8] http://marketrealist.com/2015/04/department-stores-threatened-tjxs-off-price-model


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Student comments on T.J. Maxx – Using Buyers & Suppliers to Cash in on Off Price Retail

  1. Great write up Elliott! Very interesting analysis on their competitive advantage. Question for you – now that many brands are producing less inventory to better align with demand and tightening up their quality standards (which should lead to fewer “mistake” pieces like those that can be found at TJX), how will this affect TJX going forward? This has been a perpetual thorn for companies like Gilt and Fab, which you mention. For instance, Gilt has answered by producing private label goods and going down market to less exclusive brands. What is TJX’s response?

  2. I love this post! I agree that the buy-all approach has allowed TJX to stock very high end designers as well as lower end at a lower price point. Also, fresh inventory keeps the treasure hunt going! I know a number of entrepreneurs in developing markets are buying designer goods from TJX and bringing them back to their country in suitcases to sell at a premium. How do you evaluate their potential in international market? My first concern is pushback from clothes manufacturers as they usually go through exclusive distributors in emerging markets and would be concerned with brand dilution.

  3. Such an interesting post, Elliott! TJX is truly regarded as the industry leader in off-price. However, I worry with the growing presence of Nordstroms Rack, Off 5th, Bloomingdale’s Outlets, and particularly Macy’s Backstage, which just officially launched this fall. I have two main worries:

    1) As bigger retailers like Macy’s have their own off-price outlet offerings, they will transfer their slow-selling stock from regular Macy’s to Macy’s Backstage. Rather than jobbing it out to TJX for 1 cent/unit, they get a better return (think 3 cents/unit) for this channel stock-transfer. Also, holistically it is overall better for the total Macy’s parent business, presuming the Macy’s store stock being jobbed out is fitting for Backstage in the eyes of the Macy’s Backstage buyers. This will only deplete the amount of available inventory for TJX to purchase.

    2) I worry that the relationships with the vendor community will be challenged. When Macy’s Backstage becomes a larger business, they will become increasingly harder to say no to. Suppose there are only 800 units of a given North Face fleece jacket available. North Face could sell these off-price units to TJX or to Macy’s Backstage (but they don’t have enough stock for both). When Macy’s is one of their biggest omni-channel retail partners, how can North Face say no to them? Macy’s will have incredible buying power as they buy for both their retail and off-price businesses.

  4. Great insights! I think features such as forgoing return rights and TJX University are truly effective, and I’m sure those were hard-earned results from careful analysis and years of industry experience of the management team.

    I wonder how ecommerce companies would disrupt this model. Gilt has had its fair share of success/failure, but there are just too many future possibilities for internet based retailers. Maybe there will be a Trunk Club for TJX type of clothes? Maybe some VR experience will replicate the instore shopping experience? I don’t know. The threat is for every brick and mortar retailers, but TJX is very sensitive on volume, so they might get bitten first.

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