Fickle Fashion | Picky customers, bad publicity and an abysmal economy fail to dent TJX
The Great Recession was one of the worst times in generations to be in the retail business - that is unless you were Framingham-based TJX Cos. Inc.
TJX boosted same store sales by 8 percent year-over-year in May, and its sales actually accelerated during the downturn.
And with the economy now starting to brighten, TJX is looking to further ratchet up its growth, with plans to add more than 100 new stores, both in the United States and in Europe.
While casual observers might be surprised by TJX's sterling showing during one of the grimmest periods since the 1930s, for the executives at TJX's world headquarters between Route 9 and the Mass. Pike, it was just business as usual.
In fact, in its 33-year history, TJX has seen same-store revenues decline on a quarterly basis only once, and that was back in 1996.
The secret to TJX's success lies both in an ingeniously crafted pitch to penny pinching shoppers, and a ruthlessly efficient method of keeping its stores filled with the latest fashions and apparel.
As a result, TJX has morphed into a global retail powerhouse, bucking a trend that has seen the demise of a long list of New England-based retailers.
And along the way, it has also managed to firmly put behind it one of the worst crises in its corporate history, the massive theft of customer data by a group of computer hackers.
"Certainly they started here, but they had a national model whereas the other retailers were regional," said William Beckeman, president and chief executive of Burlington-based real estate firm Linear Retail Properties. Other retailers "hadn't been as forward thinking enough to think to expand before the big guys came and took them out."
Click here for a graph showing recent
sales at TJX as well as a timeline.
Breaking The Mold
The TJX success story is unusual for New England, which has seen once proud retail chains from Bradlees to Caldor go under.
But TJX, led in part by local retail legend Ben Cammarata, not only escaped the fate of other local retailers, but managed to transform itself into a global retail empire.Cammarata was brought on in 1976 to help TJX's precursor, Zayre Corp., launch the TJ Maxx brand. He still oversees the company as chairman, even as other top executives have come and gone.
Carol Meyrowitz, the latest chief executive to oversee TJX, survived the data breach controversy back in 2007 and has helped the retailer emerge stronger from the recession. She earned $17.4 million last year, mostly through stock options.
In fact, its performance during one of the sharpest downturns in generations may be the most impressive testament to TJX's success.
As other retailers struggled, TJX, owner of brands including T.J. Maxx, Marshalls, HomeGoods, and A.J. Wright, has soared.
Overall, TJX has established itself as a hotspot for discounted designer clothes and luxury goods.
This creates a "treasure hunt" atmosphere in which canny shoppers scan the racks for the latest bargain, never knowing exactly what they might come up with, notes Richard Jaffe, an analyst who covers the retailer for Stifel Nicolaus & Co.
"They have an excellent business model that has been very effective for years," Jaffe said. "They sell nationally recognized brands at deeply discounted prices in a treasure hunt format. When you find them, it is deeply gratifying. You are inspired to continue your treasure hunt and come back."
And at a time when shoppers were fleeing from many retailers, there's evidence that TJX has not only boosted its same store sales, but also expanded its appeal to a wider base of customers, including higher income shoppers.
Looking to cut back amid the recession, some shoppers switched from high-end department stores to TJX as they searched for the same brands at lower prices, noted Howard Tubin, an analyst with RBC Capital Markets.
TJX itself offers a similar argument, noting that its sales actually accelerated during the recession, something that did not happen during past downturns, said Sherry Lang, senior vice president of global communications.
"We believe we have attracted an entirely new customer based from all areas of income and demographics," Lang said. "We have attracted customers from the high end, the middle and the low end."
In fact, TJX is now rolling out a series of improvements in a bid to spruce up its stores and hang onto these new customers as the recession fades.
Lang declined to offer details, citing concerns about competitors, but insisted the upgrades would be more "robust" than the routine maintenance the chain does on its stores.
But offering the right mix of fashionable clothes at the right prices is just one part of the TJX success story.
Just In Time
Making it possible is a never ending scramble by hundreds of buyers around the world to buy top-of-the-shelf clothes at discounted prices.
TJX's just-in-time system for stocking its stores is cited by analysts as key to the company's success over the years, giving the retailer a flexibility its competitors often don't have.
Executives at a traditional retail chain might sit down six or 12 months in advance with a group of merchandisers, putting in bulk orders for whole lines of clothes and making bets on what will be fashionable months in advance.
If the bet works out, great, but if not they may be stuck with a whole line of clothes that won't sell.
By contrast, TJX's global force of more than 600 buyers is constantly shopping. This gives the company the flexibility to avoid risky long-range bets and snap up clothes and styles known to be selling that season, Lang said.
"They are buying off-price, they keep inventory levels lean, for sure," RBC's Tubin said. "The benefit of playing it as close to the vest as possible, while you never know what you are going to get, you are going to get a very similar product to one in the full-price channel, but pay 40 percent to 60 percent less."
TJX's inventory system has even won praise from Moody's. The rating agency has given a solid A3 rating to the retailer's senior unsecured debt.
"The closer to need they buy, the smarter they are," Lang said of TJX's global network of buyers. "They are reading the current trends - you can buy into those trends."
Looking Ahead
Still, the outlook has not always been so sunny for TJX, which encountered one of the biggest challenges in its corporate history three years ago.
The retailer revealed in March 2007 that hackers, over a previous two-year period, had stolen the credit card data of more than 40 million customers.
TJX ended up having to shell out tens of millions to credit card companies, as well as endure a firestorm of negative media publicity.
Lang declined to address the issue in-depth.
"It happened well over two years ago, almost three," Lang said. "We weathered that storm."
And other businesses have felt the aftereffects in the form of far-reaching new state laws concerning the privacy and security of customer data.
But those dark days appear to be ancient history for the fast-growing retailer.
With the economy recovering, TJX has now set its sights on even higher goals for new growth.
After expanding its retail empire by 3 percent last year, as measured by the total square footage of its stores, TJX is now looking to add another 5 percent in 2010, Tubin said.
That includes Europe, where TJX is starting to make serious inroads, boosting the number of stores in the United Kingdom and expanding into new markets in Germany and Poland.
The retailer, which now has 2,761 stores, expects to add another 130 by year's end.
"There is plenty of opportunity for them,'' Tubin said. "They are in a very strong financial position. They can ramp it up and get a little more aggressive."
Scott Van Voorhis is a freelance writer. He can be reached at sbvanvoorhis@hotmail.com.
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