TJ Maxx: Sailing Toward Modern Retail

Problems to Port and Starboard
Since the launch of Marshalls and Zayre in the 1950s, the off-price retail industry has been steadily growing. Off-price retailers have historically performed well during periods of economic growth while remaining successful even throughout downturns. COVID-19, however, has created unexpected challenges for many off-price retailers and contributed to a slew of bankruptcies including that of JCPenney. As these chains primarily sell through brick-and-mortar outlets, decreased foot traffic and same-store sales due to social distancing regulations have led profits to plummet. For T.J. Maxx (TJ), the U.S. division of TJX Companies which encompasses T.J. Maxx and Marshalls, open-only same-store sales fell 10 percent in 2020 Q3 while profits dropped 18.9 percent year-over-year. To turn around its decline in performance, TJ should look to ease its dependence on physical retail.

The E-Commerce Tidal Wave
While physical retail channels have collapsed, the e-commerce space is thriving. Since the pandemic began, many retailers have seen upwards of 10 percent growth in their online customer base with consumers indicating their plans to continue shopping online even after stores reopen. Although e-commerce has long been poised for further growth, insights from IBM and Adobe both estimate the pandemic accelerated this growth by around five years; Millennials, in particular, gravitate towards e-commerce, with 85.9 percent regularly using e-commerce platforms. With the retail atmosphere shifting dramatically towards digital adoption, it is crucial for TJ to look towards prioritizing online sales channels and targeting the Millennials segment.

TJ’s Manifest
Founded in 1976, TJ is an American subsidiary of TJX Companies Inc. that operates as an off-price retailer offering designer apparel, accessories, and other merchandise. TJ has over 1,200 stores in the U.S., making it a dominant player in the off-price retailer space. As an off-price retailer, TJ purchases excess inventory from designer brands and sells products at discounted prices. Its flexible inventory model allows for the constant offering of new brands and styles to consumers. TJ currently targets value and fashion-conscious women with middle to upper-middle incomes; however, as its customer demographic shifts towards younger generations, it has recognized the importance of catering to Millennials.

Three Key Captains
TJ’s success relies on three key components: the “treasure hunt” experience, discounted merchandise, and its ability to capitalize on market trends quickly. The treasure hunt experience is characterized by the sense of exploration and discovery when browsing stock. In physical stores, displays shift frequently with no pre-defined plan; this creates huge variability and flexibility in inventory at any given time. From a behavioural perspective, shoppers tend to purchase impulsively when they know items may not be found again, creating a “buy now or cry later” mentality.

Customers are attracted by competitive prices, and they can receive up to 60 percent off at TJ stores compared to other retailers. These cost savings are achieved by TJ’s vendor purchasing strategies, which enable a low cost of goods sold. Unlike department stores, TJ does not operate under a buy-back clause, meaning it takes full responsibility for selling all merchandise purchased. This allows TJ to negotiate lower prices as it takes on the merchandising risk. It can also purchase merchandise at various points throughout the year from overproducing manufacturers and department stores with excess inventory. Above all, these unique purchasing strategies allow TJ to receive significant discounts and provide consumers with competitively low prices.

TJ’s ability to quickly adapt its supply chain to market trends keeps it relevant to consumers. By keeping up with consumer preferences faster than the competition, TJ is able to achieve an inventory turnover rate of 9.0 times. This is significantly higher than competitors such as Nordstrom and Kohl’s which have inventory turnover rates of 7.3 and 4.8 times, respectively. Higher inventory turnover rates result in better cash flow and fewer inventory write-downs, both of which are crucial to financial success. Moreover, product selection differs across TJ stores as inventory is filled in varying quantities based on local market trends and consumer preferences. This practice helps reduce inventory carrying costs and potential product obsolescence.

Sail the High Seas in Troubled Waters
TJ’s current treasure hunt model relies heavily on its in-store experience to attract customers. Strict social distancing measures, as a result of COVID-19, have discouraged consumers from shopping in-person, decreasing retail foot traffic and ultimately preventing TJ from operating stores at full-capacity. This trend, combined with the accelerated shift towards e-commerce catalyzed by the pandemic, significantly hampers TJ’s current strategy of focusing on in-person retailing. The new reality foreshadows digital solutions as a competitive advantage for retailers.

Despite its current misalignment with market trends, TJ has the capabilities to differentiate itself against other traditional off-price retailers and new e-commerce entrants. With its robust operations systems, TJ can demonstrate far greater flexibility in its supply and distribution chains. Its large base of operations allows it to achieve economies of scale, and its strong relationships with more than 17,000 vendors give the company a differentiated selection of products with cost savings of 20 to 60 percent passed on to the consumer. Lastly, TJ’s strong cash position enables it to weather financial challenges far better than competitors. TJ is on strong footing to shift its strategy to e-commerce and should do so quickly before it faces significant declines in its customer base and financial health.

Weather the Storm and Find the Treasure
To combat declining in-store sales and stimulate future growth, TJ should reduce its reliance on its declining brick-and-mortar segment and translate its strengths to a complementary digital solution, Maxx Discovery. This solution would encompass a rebranding of its existing online platform. The platform would be designed to target Millenials and would complement the in-store experience, providing shoppers with a unified journey throughout all touchpoints with the brand.

For the e-commerce solution to succeed, it must leverage the core strengths of TJ. Currently, TJ’s website resembles that of a traditional e-commerce store; instead, the website should revolve around the treasure hunt model, emphasize TJ’s pricing advantages relative to competitors, and incite a sense of urgency within the shopper to either “buy now or cry later.”

The treasure hunt model has been core to the historical success of TJ. Popular online “thrift” style platforms such as Depop and Thredup have adopted the treasure hunt model to great success. TJ should strive to mimic a similar experience, where shopping is focused on promoting discovery rather than systematic filtering, as seen on traditional e-commerce sites such as Amazon and Walmart. Customers browsing the website would be able to scroll through a feed of clothing items and click on those that interest them. Moreover, TJ can utilize the customer’s purchasing data to power its discovery system, providing relevant, uniquely tailored recommendations that go one step beyond the in-store experience.

TJ’s pricing advantages are a key component of its business offering to consumers. It is imperative for customers to know the discounts they are receiving relative to the full price they would pay at competitor stores. In addition to TJ displaying its low price benchmarked against the average competitor price for similar products, Maxx Discovery should personalize information to the customer by listing cumulative dollars saved through their past purchases. Both figures reinforce TJ’s value to the customer and encourage them to continue to shop at TJ.

Offering “deals-of-the-day” would not only instigate urgency for the shopper but could also create new shopping experiences not possible in brick-and-mortar. This could be incorporated through a step-structured discounting model. For instance, the first 200 users would be able to purchase clothing at 60 percent off, the next 400 users can purchase at 40 percent off, continuing until the base discount level is reached. Even if shoppers miss out on the first tier of discounts, they would still be able to participate in the deal, allowing TJ to maximize revenue from discounts. This model continues to instill urgency but does not completely penalize the shopper for missing out on the deeper discounts.

TJ’s discovery system should consist of a three-step process: gathering all products listed on the website, generating recommendations based on the customer’s purchasing history, and presenting them to the shopper in a random order. The algorithm should be outsourced to a technology company that has experience with data analysis and ecommerce. Moreover, the algorithm should be based on the inventory available in geographically close stores, allowing for in-store pick-up or fast shipping using TJ’s robust online delivery system.

Products that will soon be out of season should be selected as “deals of the day.” By prioritizing items that will soon see a decline in sales, TJ would be able to write down as little inventory as possible and maintain its high inventory turnover ratio. Overall, this would allow it to maintain its strong balance sheet while driving sales.

Board the Ship or Walk the Plank
TJ, while a quintessential name in the U.S. retail industry, is missing the mark on an industry-wide shift to digital adoption. Management has failed to recognize the importance of incorporating elements of discovery, price-discounting, and urgency into its online platform. With e-commerce only comprising two percent of TJ’s total sales, TJ is severely underperforming compared to peers. Successful implementation of the e-commerce strategy should level TJ with peers and help catapult growth. Ultimately, TJ should be preemptive in preparing for the future and adapting to changing retail trends.


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