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WIKI ANALYSIS
TJX Companies (NYSE: TJX) is the parent company of some of the largest off-price retailers in the world. An off-price retail store sells merchandise at prices 20-60% below department store prices, buying the goods in bulk from major labels like Polo Ralph Lauren (RL), Calvin Klein, Tommy Hilfiger and Express who are shedding excess inventory. These savings are passed on to customers in the form of low prices. TJX company operates the two largest off-price retailers in the United States, T.J. Maxx and Marshalls, and the largest off-price retailers in Canada and the U.K., Winners and T.K. Maxx. The company also operates the A.J. Wright and Bob's Stores chains. The company earned $20.2 billion in revenue and $1.2 billion in net income in 2009.[1]
As an off-price retailer TJX is positioned to gain significantly during times of economic distress when consumers are more price sensitive; in these times consumers tend to avoid higher priced apparel retailers in favor of discount stores and off-price chains. The sluggish economic environment, caused by the supbrime lending crisis, has benefited stores like T.J. Maxx and Marshall's as more people look for discounted shopping options. As a result, the company's sales increased by 7% in 2009.[1]
Company Overview
TJX is the parent company of 8 different off-price retail chains: T.J. Maxx, Marshalls, Winners, HomeSense, HomeGoods, T.K. Maxx, A.J. Wright and Bob's Stores. In total TJX operates 2,743 stores in the United States, Canada, England and Ireland.[1]
TJX's stores and other off-price retailers such as Ross Stores (ROST) purchase retail merchandise directly from suppliers and manufacturers, primarily looking for supplier surpluses due to overruns and canceled orders to acquire retail goods at an opportunistic discount. TJX also purchases seasonal items at discount at the end of a season, then stores the merchandise until the next appropriate season for sale. Through this manner TJX's stores carry branded apparel, footwear and accessories at prices 20-60% below traditional department store prices.
Stores[2]
- United States
- T.J. Maxx and Marshalls - T.J. Maxx and Marshalls (together known as Marmaxx) are the largest off-price retailers in the United States with a total of 1,703 stores. Both chains sell family apparel (including footwear and accessories), home fashions (including home basics, accent furniture, lamps, rugs, wall décor, decorative accessories and giftware) and other merchandise, primarily targeting the middle to upper-middle income customer demographic. The chains are differentiated through product assortment (including an expanded assortment of fine jewelry and accessories at T.J. Maxx and a full line of footwear and broader men’s and juniors’ offerings at Marshalls), in-store initiatives, marketing and store appearance. This differentiated shopping experience at T.J. Maxx and Marshalls encourages our customers to shop both chains.
- Homegoods - HomeGoods, introduced in 1992, is an off-price retailer of home fashions in the U.S. Through 323 stores, it sells a broad array of home basics, giftware, accent furniture, lamps, rugs, wall décor, decorative accessories, children’s furniture, seasonal merchandise and other fashions for the home. The HomeGoods’ target customers are similar to those of T.J. Maxx and Marshalls.
- A.J. Wright - Launched in 1998, A.J. Wright, like T.J. Maxx and Marshalls, sells off-price family apparel, home fashions and other merchandise. Catering to the entire family, key apparel categories for A.J. Wright’s 150 stores include basics, children’s, women’s plus sizes, juniors, young men’s and footwear. Different from all of our other chains, A.J. Wright primarily targets the moderate-income customer demographic.
- Canada
- Winners - Acquired in 1990, Winners is the leading off-price apparel and home fashions retailer in Canada. The merchandise offering at its 211 stores across Canada and its target customers are similar to T.J. Maxx and Marshalls. In 2008, Winners began testing StyleSense, a new concept that offers family footwear and accessories.
- Homesense - HomeSense introduced the home fashions off-price concept to Canada in 2001. The chain has 79 stores with a merchandise mix of home fashions and target customers similar to HomeGoods.
- Europe
- T.K. Maxx - Launched in 1994, T.K. Maxx introduced off-price to Europe and remains Europe’s only major off-price retailer of apparel and home fashions. With 263 stores, T.K. Maxx operates in the U.K. and Ireland as well as Germany, where it expanded in 2007, and Poland, where it expanded in 2009. T.K. Maxx offers a merchandise mix and targets customers similar to T.J. Maxx and Marshalls in the U.S. and Winners in Canada.
- Homesense - HomeSense introduced the home fashions off-price concept to the U.K. in 2008 and its 14 stores offer a merchandise mix of home fashions in the U.K. like that of HomeGoods in the U.S. and HomeSense in Canada. HomeSense primarily targets customers similar to those of HomeGoods in the U.S. and HomeSense in Canada.
Business Growth
FY 2009 (ended January 1, 2010)[1]
- Net sales increased by 7% to $20.2 billion. The company attributes the increase to higher sales volume due to increased traffic as consumers still feel the effects of the sluggish economy.
- Net income increased 33% to $1.2 billion.
- The company opened 91 net new stores during the year.
Trends and Forces
- The Off-price Retail Sector is Growing Quickly: The off-price retail sector as a whole is growing faster than most other retail segments, with a CAGR greater than 10% over the past five years, well above the 4% average annual growth rate for apparel retail. This ongoing trend reflects consumer preference for brand name fashion at prices even lower than those found at stores like Target, Wal-Mart Stores (WMT) and J.C. Penney (JCP). The sector has been able to grow as branded manufacturers are dumping more merchandise onto off-price retailers rather than putting the merchandise out on clearance or their own stores. The combination of a simultaneously growing demand and supply in the off-price market has led to +10% growth in the sector over the past five years. TJX has been riding this growth wave as it expands its operations throughout the U.S., Canada, England, Scotland and Ireland.
- Well-Positioned for Economic Downturns: As an off-price retailer, TJX's stores offer customers fashionable merchandise at significantly lower prices than most other retailers. This puts TJX in a favorable position during times when the general economy struggles and consumers turn away from high priced items and stores. This is particularly relevant as the U.S. economy has struggled since the sub-prime fallout has sent shockwaves through the economy and the possibility of recession grows. On the other hand, a recession could cause a cutback on all apparel and fashion consumer spending which would lower TJX's sales and the sales of its higher-priced retailing counterparts simultaneously.
- Merchandising Risk: Little Control: One major risk facing TJX is that as an off-price retailer the company has relatively little control over the assortment of the merchandise in its stores. TJX is basically stuck selling other companies and stores leftovers, which could result in a merchandise mix lacking breadth and depth that appeals to customers. A shortage of exciting merchandise could result in built up inventories and falling prices and margins; this is particularly dangerous because TJX is on the bottom end of the merchandise pass-off chain, there aren't many stores that TJX can sell its inventory to the same way branded manufacturers sell TJX their inventories.
Competition
TJX generates more than three times the sales of its main rival in the off-price retailing sector, Ross Stores (ROST). TJX is also considerably larger than Ross in terms of stores; TJX has 2,743 locations from its 8 different chains while Ross Stores (ROST) only operates 2 different chains with a total of 1005 locations.
Other competitors include:
- Retail Ventures (RVI), which includes off-price retailer Value City, upscale off-price brand Filene’s Basement, and off-price shoe specialty brand DSW (DSW). RVI is based largely in the East and Midwest, though DSW has a presence in California and Texas.
- Men's Wearhouse (MW), an off-price menswear retailer, which also includes the value brand K&G. Men's Wearhouse has locations in 45 states, as well as throughout Canada under the Moores brand.
- Stein Mart (SMRT), which positions itself as a cross between a specialty store and an off-price retailer, and targets mostly women with above-average incomes. Stein Mart is focused in the South and Midwest.
- Department stores, such as Macy's Inc. (M), Kohl's (KSS), and Sears (SHLD), who can reduce the perceived value of off-price retail through promotions and seasonal sales.
- Discount retailers such as Target (TGT) and Wal-Mart (WMT), who compete most directly with TJX by utilizing private labels to provide value apparel offerings.
- Certain branded apparel companies, such as Polo Ralph Lauren (RL), J. Crew Group (JCG) and Gap (GPS) operate their own outlet stores where these companies sell built-up inventory at lower than usual prices. These stores, while scattered in a few locations throughout the country, directly compete with the chains of TJX since they sell comparable merchandise, although TJX's prices are typically even lower than the outlet stores.
- TJX also competes with online retailers like Amazon.com (AMZN) who are now selling apparel and accessories through e-commerce to consumers. TJX is particularly disadvantaged in this area as TJX's store lines don't offer online shopping.
References
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