Tuesday Morning (TUES)

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Business Overview

Tuesday Morning Corporation (NasdaqGS: TUES) is a closeout retailer of upscale home staples. The retailer sells home accessories, house wares, lamps, furniture, toys, clothing, kitchen accessories, small electronics, etc. Since opening their first store in 1974, the company has expanded to 845 stores in 43 states as of December 31th 2010. The business sells high quality brand name merchandise at closeout prices 50 weeks out of the year, with a treasure hunt sales model focusing on limited time only low priced goods. The company locates their stores predominately in strip malls near their customer base. The customer base of Tuesday Morning Corporation is value conscious middle to upper-class women.^[1]

The company primarily attracts customers through direct mail or email sale and items on their retail website, www.tuesdaymorningoffer.com.

Business Model

Treasure Hunt Advertising

Tuesday Morning Corporation believes in a business model that depends greatly on their advertising to bring customers in. With mailing lists of more than 9 million subscribers and 360 newspapers, TUES creates a treasure hunt mentality for their offerings. By using a limited supply of products in the store and specifically in the ads, this company has created a relationship with their customers that supports urgency to shop there; each product a customer finds is a race against time against other customers.

According to the company, the strategy of this selling method.... "We believe the limited quantities of specific items intensify customers' sense of urgency to buy our merchandise.... We intend to continue to adhere to this strategy, and continue shipments to our stores of new and different merchandise during the later stages of sales events in order to encourage new and repeat customer visits." ^[2]

SWOT Analysis

Strengths: TUES has a dedicated customer base that seeks the best products at outrageously cheap prices. This is only possible with their successful supply chain that keeps costs low from delivery to Tuesday Morning, to the customer at the end of the day. The company also focuses on using inexperienced and part time employees throughout the year as customer needs require, to sell their products. The company believes that the customer knows what they want and they only need to be shown the great prices to bring them into the store.

Weaknesses: This company utilizes brand name products straight from the vendor's warehouses set for liquidation. This waiting process for products to be set for liquidation creates large amounts of overhead that TUES must pay for to acquire the liquidated products. This could be eliminated by dealing with the manufacturer directly in cooperation with the brand name product owner.

Opportunities: Tuesday Morning is a very small player in the market it is in and as such, has time to grow and mature while other firms are involved in advertising and pricing wars to gain customers. Tuesday Morning has no major competitor at their current market size and as such, can grow and mature at its' own pace while gaining a sizable profit along the way.

Threats: There inherit possibility that vendors can come together to open their own discount store chains and cut Tuesday Morning out of the market entirely. This threat has some force behind it, but as long as the vendors in question do not seek to gain the knowledge through acquisitions to become able to claim storefront business as a core competency; the threat is minimal.

Porter's Five Forces Analysis

Threat of Substitution Products: There is always the threat of substitution products. As Tuesday Morning processes liquidated merchandise, they are always at risk for offering quality products, but ones that do not have all the newest features or options. This threat is extremely high as Tuesday Morning sells the remaining stock of products from its' vendors at a steep discount at the end of the product's life cycle.

Threat of New Entrants: Tuesday Morning Corporation is not making large profit margins and has faced significant risk of losses to shares due to the riskiness of the company; specifically the company's risk of reduced consumer spending. Currently there are few competitors who behave in the market like TUES does at the market size it does have. This threat will increase as TUES discovers how to make above average returns that it is currently not able to make. Currently the threat of new entrants is relatively low, the deep discounts on brand name products combined with low overhead is hard to mimic and adjust to as a business.

Competition Rivalry within the Industry: The competition between the big players in the industry have left Tuesday Morning to behave as it will, without becoming a player in the price wars between BBB and TGT and others. Tuesday Morning in general, is a company that most of the industry is not seeing as a major player in the marketplace.

Bargaining Power of Suppliers: The suppliers have significant control over the options Tuesday has to bring to their customers. The profit margins for TUES are significantly tied to the price of the product they purchase from the suppliers. The bargaining power of suppliers is extremely high as they have the ability to squeeze TUES out of the marketplace entirely by raising their prices or by eliminating Tuesday Morning as a customer and opening their own liquidation stores.

Bargaining Power of Customers: The products that are available are at steep discount and in very limited quantities. The customer has very little control over what they are able to purchase at Tuesday Morning, but has the power to shop elsewhere but at the risk of higher prices for comparable goods.

Supply Chain Strengths

The company has a significant over their competition with supply chain. Their store does not offer second hand, factory defects, or damaged products. In doing this, it allows retailers to liquidate their products through TUES without the concern of reducing their brand name. By only carrying the highest quality products, Tuesday Morning has become a preferred liquidation firm of well known names such as Samsonite, Cuisinart, Krups, Calphalon, and others. ^[3] By offering the ability to take large and small quantities alike from such retailers, the company has been able to create relationships with these and other well known companies to liquidate products in preparation of monthly event sales for TUES' customers. The company has only one major distribution center capable of handling 1200 stores and that is currently running at 71% of maximum assumed capacity. ^[4]

Store Information

Tuesday Morning keeps their operating costs low by renting in low cost rental areas such as strip malls. Their stores are open year round, except during slow retail times of the beginning of January and July. These stores also keep their costs down and utilizes part time employees at a rate of roughly 80% ^[5]

The company also focuses on easy to assemble fixtures that are easily transported using their substantially effective supply chain. Tuesday Morning uses exit clauses in their leasing contracts to maintain a minimum return for their bottom line. If a location is ineffective at meeting their minimum returns, TUES exercises their ability to break their contract and move to a new location. As well, Tuesday Morning does not care about the layout of their stores, this approach allows them to utilize cheap locations with varying setups to promote a different experience in every store to their customers. Combined with this lower cost layout sought by Tuesday, they carry the smallest amount of inventory possible to reduce their localized overhead.

Acknowledged Risks

All businesses have inherit risk of the market and risks specifically to their industry. Tuesday Morning Corporation is no exception. The following risks are some that have been acknowledged in their 2010 10-K:

• New Stores, Relocating, or Expanding: Unsure of effect of future growth on: Revenue, Brand Image, strain on distribution channels

• Poor Economic Conditions: Could effect consumer spending and significantly impact the ability of TUES to buy in bulk from vendors and cause unacceptable inventory levels

• Intensity of Competition and Threat of New Entrants: Highly competitive with department stores, specialty stores, internet based stores, discount stores, etc. Specifically, vendors may seek to open their own discount retail stores to push their products cutting out TUES from the market entirely.

• Network Infrastructure and Transaction Processing Systems Failure or Insufficient Capacity: The profitability of Tuesday Morning Corporation depends on their internal systems to get their products to their customer.

• Compromises of Data Security: May expose not only credit cards of their customers, but the entire collection of data from email to credit cards and personal shopping patterns.

• Legal Proceedings: TUES acknowledges legal proceedings have and will continue to be sought against them by employees, just as all other companies continually deal with. But the company believes that these concerns over breaks and hours are of minor concern and furthermore are not material to their bottom line

Financials

TUES' current strategy for continued growth in stockholder's equity is to roll left over earnings back into the company. Tuesday Morning Corporation selected to end annual dividends in February 2008, and does not plan to return to dividends in the near future.

Tuesday Morning Corporation excels compared to the competition by the sole fact that they do not make the products. Unlike their competitors, TUES understands that their core competency is transporting the product into the hands of savy customers who want the best products that carry brand names at the price at or below store brand comparable products.

Their marketing strategy is... Product: Put the best product into the hands of the store managers Price: Set the price at liquidation price that the public will bear and feel a treasure hunt mentality Place: Locate stores in cheap venues with the ability to walk away from the location easily Promotion: Notify their customers through mail and advertising methods to tell them of the greatest new product... that is only available for a limited time!

As is seen in the charting above, Tuesday Morning Corporation is in a market of its own. All other assumed direct competitors have significantly larger market caps as well as presence around the United States. Size as well as purpose separates TUES from their competitors. Bed Bath and Beyond, Target, and JC Penny must create value for their customers. Each of the competitors has company branded specific lines to attempt to offer products at a lower price to keep customers coming. But where the competitors cannot stack up is in the comparison of prices for the same exact product. Tuesday Morning's policy of bulk buying and placing it on sale creates a gap in quantity and price that benefits the customer.

Corporate Governance

Tuesday Morning focuses on delivering high quality products with the lowest price and the least amount of overhead as possible. The company employes approximately 2,100 full time employees and 8,000 part time workers without the need for union interference ^[6] with the goal of maximizing staffing when the customers need them most throughout the year.

In concert with limited full time staffing, Tuesday Morning invests greatly in the management staff responsible for training and supervising their store locations. After the initial training upon hiring or promotion, the managers face continuing training to ensure proper guidelines are followed. ^[7]

Company Contact Information

References

1. ↑ Tuesday Morning 10-K Filed 8/31/2010 Page 3: Business Overview Paragraph 3
2. ↑ Tuesday Morning 10-K Filed 8/31/2010 Page 3: Business Overview Paragraph 6
3. ↑ Product Offerings
4. ↑ Tuesday Morning 10-K Filed 8/31/2010 Page 4:Disciplined Inventory and Supply Chain Management
5. ↑ Tuesday Morning Locations
6. ↑ Tuesday Morning 10-K Filed 8/31/2010 Page 9 paragraph 6
7. ↑ Tuesday Morning 10-K Filed 8/31/2010 Page 8 Paragraph 1