The TJX Companies: A Tried and True Model Continues to Drive Results
As the number of low cost retail outlets grows, TJX stands out from the crowd.
TJX serves customers a truly unique retail experience by offering brand name apparel and home product at prices 20-60% lower than department stores and specialty stores. As the company relentlessly pursues customer loyalty by offering the “wow” factor, it has also become a model of operational effectiveness. No other player in the off-price retail space is able to deliver value so consistently and at such a large scale as the TJX Companies.
Business Model: Exciting finds at great values define the customer experience and keep them coming back.
While TJX has been a powerhouse in the world of off-price apparel for decades, the company secured its place as the single most powerful buyer of off-price product in the 1990s through the acquisition of Marshalls in 1995 and the in-house development of the HomeGoods banner in 1992. The company has expanded internationally (albeit at a measured pace) and today has a significant presence in the US, Canada and Europe. Today, TJX boasts revenues of $29B across 3,389 stores and 7 countries, making it the largest off-price retailer in the world.
What makes the TJX store experience so powerful is its ability to drive foot traffic through rapidly changing assortments and the “treasure hunt” experience. While most retailers market product lines on a predictable schedule that turns over ~6 times per year, the inventory TJX offers at its stores changes on a daily basis. The best “finds” tend to disappear quickly, training shoppers to make opportunistic purchases or risk losing the item. Target customers (fashion and value conscious women ages 25-34) shop the stores often, with the most loyal shoppers visiting at least once a week. The business model is successful not only in terms of scale, but also in the way it appeals to an unusually wide demographic audience in terms of age, income, and location.
Operational Model: Investing in key infrastructure and driving steady returns is critical to sustained success.
The success of the business model and its ability to translate across different categories and geographies is driven by a core competency in opportunistic buying and aggressive inventory management.
Opportunistic buying is at the center of what TJX does. With more than 1,000 buyers on the payroll and a best-in-class training program for new associates, TJX invests heavily in its buying infrastructure to stay on top. Buyers are trained to evaluate potential deals across 4 criteria: Brand, Fashion, Price and Quality. Product is sourced from more than 17,000 vendors across 100+ countries, with the top 25 vendors comprising only 25% of purchases.
Long standing relationships are bolstered by the financial strength of the company, with TJX being viewed as a critical partner for companies to manage inventory across economic cycles. These established relationships are supplemented each year with new and exciting brands that keep customers engaged. Finally, while some buying is executed up to 12 months in advance of the sale, a large portion of the merchandise mix is purchased very close to need. This ensures the merchandise budget is flexible and open to last minute deals on opportunistic purchases. The goal for the buying team is to fill the store with on-trend, in season product that will be relevant to the fashion-conscious consumer.
Once the supply chain is sourced with a broad assortment of products, the company executes on merchandising its ~3,400 stores. TJX manages its inventory very closely to ensure product is turning quickly, which means the store will look different on any given day. This focus on freshness drives repeat foot traffic and delivers customers the “thrill of the deal.” Flexible inventory management also allows the merchandise planning team to stay nimble, adjusting assortments for unseasonable weather or new trends. This drives positive same-store sales through all seasons, geographies and economic cycles.
Alignment Drives Results: The alignment of operations with the customer promise at TJX is best demonstrated through its results: comp store sales have risen for 27 consecutive quarters as the company’s unique, globally sourced assortments and exciting in-store experience drive customer loyalty.
Sustained Competitive Advantage: The TJX model has proven successful throughout economic cycles and despite increasing competition for online. In the increasingly challenging world of brick and mortar retail, TJX has secured a distinct competitive advantage that appears defensible.
- The company’s longstanding reputation in the industry for scale, liquidity, and talent leads to strong vendor relationships, giving buyers the leverage to source the best product possible.
- The stores’ flexible layout and sourcing ensure merchandise in the store is appropriate to the location and season, giving managers flexibility to respond to customer demand in real time and test new initiatives with ease.
- The company’s continued global expansion is increasing brand recognition around the world as the company delivers outstanding values to a growing pool of customers.
- The company’s slow move into the online space is designed to complement the existing model, driving incremental sales to the brick and mortar business based on incremental foot traffic for in-store returns.
- TJX’s predictable financial returns not only makes investors happy, but also reinforces favorable lease negotiations with landlords and strengthens vendor relationships through the promise of long term stability.
Sources:
- http://www.tjx.com/files/pdf/TJX-101-2015.pdf
- http://investor.tjx.com/phoenix.zhtml?c=118215&p=irol-newsArticle&ID=2100900
- http://investor.tjx.com/phoenix.zhtml?c=118215&p=irol-newsArticle&ID=1769405
- https://hbr.org/2014/05/the-ceo-of-tjx-on-how-to-train-first-class-buyers/ar/1
- http://marketrealist.com/2015/05/tjx-companies-scores-great-deal-beating-1q16-earnings-estimates/
This is a great post. The most surprising aspect for me was the inventory management. I think that in the past I’ve always thought of bargain stores as simply buying leftover product, whatever is available, and putting that in the store. I never realized that they are able to both manage their inventory and turn it quickly enough to have the store looking different every day. I agree that the thrill of the deal is important, but only if customers know that there will actually be those diamonds in the rough they want. This means that TJX must not only provide a quick turnover on inventory, but it must also be interesting and fashion forward. It seems that TJX really has an operating model that complements its business model.