Summary
TJX is projecting a growth rate of 12% for the next 3 years. Given the leadership of CEO Carol Meyrowitz and the strong emphasis she gives to the merchandising of the assortments the company should easily be able to achieve this number. There has been a marked improvement in the trading up of in season designer labels aligned with the timely delivery of furnishings, shoes and accessories that is driving the customer into the T.J. Maxx and Marshall’s stores. These 2 divisions account for almost 70% of the top line sales accounting for over $11 billion in sales.
Analysis
TJX has managed to “pick off” the strong merchants from the department stores who bring their relationships with the vendor community with them. They now have about 400 merchants/buyers who source from about 10,000 vendors. The team is very strong both qualitatively and quantitatively. They plan well and purchase/negotiate at aggressive prices which has been proven out by their margin growth and improved inventory management.
With comp. store sales being projected as high as 5%, although 3% is a more realistic number, they will be able to leverage their backroom expenses and SG&A that can support the growth. The fixed costs are in place to support the increased business without additional expense which will in turn generate the higher operating margins that result from this dynamic.
TJX is among the leaders in earnings in the retail sector and given the current business and forecasts they along with most analysts expect this to be sustained. TJX is benefiting from this tough economic time as many customers are going to the stores for their designer labels to save the price of shopping at the traditional department stores. Their market share is increasing and there is no reason why this new consumer will not continue to shop at TJX now that they have “discovered” the value.
If you were to do a through S.W.O.T. analysis of the company it would be intuitive that a threat to their business is the continued supply of merchandise to be purchased off price from the designers. There is a reason that there will always be an abundance of off price available to TJX and to some extent other off price stores. With most individual designers running their own outlet stores it is logical that they should be able to handle their own overages through that channel of distribution. What is not plainly visible is that when the vendors are building their plans, they are cleverly planning and manufacturing for both themselves, their proprietary outlets and the off price retailers. 75% of the outlet assortment is manufactured exclusively for their outlets as this channel cannot depend on an inconsistent assortment flow given their continuing increase in their margin contribution to the vendor. The vendor is also over producing their assortments with the plan to sell the off price retailers as this is an important profit center for them and adds to the economy of scale in pricing with the manufactures. It is now acceptable to see the designer's label in T.J.Maxx and Marshall’s as the stores are a constant and acceptable channel of distribution.
The Homegood’s and A.J. Wright dynamic has been a bit tougher. This is the result of the stores being spread out in too many markets making the marketing, advertising and flow of merchandise a challenge. TJX plans are to remedy this by focusing on strong penetration in existing markets and slowing the introduction and opening of stores into new markets until they can sustain themselves and show organic profitability.
Lastly TJX is expanding internationally. They have selected “safe” markets such as Canada and the UK. This mitigates any political instability and facilatating entering and saturating new markets with the Marshall’s and T.J. (T.K.) Maxx nameplates. They have announced that they are aggressively looking into expansion into the German markets next. TJX and management are executing very well and given any unforeseen turmoil are setting themselves up for long term sales and margin growth. This company is one of the brighter spots in the retail sector.
