For retailers that rely solely or very heavily on physical store locations, the future looks increasingly bleak. Many well-known chains have reduced the number of their physical store locations; some even have chosen to shutter their brick-and-mortar locations for good and move solely to e-commerce platforms. Still other brands have declared bankruptcy and exited the market or been sold to competitors. And consumers continue to shift toward online shopping, seeking its convenience and lower prices.
Despite many ideas about how to retailers might pivot and best meet the changing demands of consumers, few have found the solution. This claim is best exemplified by an exception: The discount retailer TJX Co., owner of brands such as T.J. Maxx, Home Goods, and Marshalls, seemingly might have had the recipe for success all along. Sales at this retailer’s stores have risen for 33 straight quarters, and as revenue and profits continue to climb, the brand plans to open an additional 250 stores in 2017.
What’s the secret? Turns out that TJX Co.’s business model is the key. Since the 1970s, TJX Co. has focused on offering brand name goods at reduced prices. The store’s merchandise managers and corporate buyers are empowered to order limited quantities of products when a good buy becomes available, resulting in a diverse offering of merchandise that constantly shifts. From soup to swimsuits, the inventory can change based on available supply, current trends, or lucky finds. This practice lures bargain hunters to the store to partake in the ever-changing treasure hunt, and when a good deal appears, shoppers know they must buy now, before the product is gone. There is no incentive to wait: The product is already discounted, and TJX Co. does not use sales or coupons to drive sales. Furthermore, at TJX Co.’s locations, a strict “door to floor within 24” policy ensures that the carefully selected inventory has no time to collect dust. These retailers sell merchandise within 25 days on average—far less than the 100 day timeline routinely exhibited by other department stores such as Macy’s and Kohl’s.
In addition, TJX Co.’s unique inventory allows the retailer to shift easily, from clothes to shoes to housewares, then back again, depending on sales performance and product availability. Unlike a traditional retailer (e.g., J. Crew), which only can stock its own line’s fall, winter, or spring options, regardless of performance, TJX Co. can move underperforming items to the clearance rack and put something new in its place. The store designs accordingly are intentionally flexible in terms of the space designated for each department. If one season sees an increase in the number of jackets received, space from underwear and swimsuits can easily be reallocated.
One of the key results of this mix of low-cost finds and flexible inventory is that consumers visit a TJX Co. retailer on average seven times a year, and those shoppers typically make a purchase at each visit. Traditional department stores find that consumers visit only four times a year, and those shoppers tend to purchase only about one-third of the time. The only area that TJX Co. fails to compete (or beat) traditional department store retails is in the e-commerce space. Currently, only 1 percent of brand revenue comes from TJX Co.’s website sales. However, with the continued success experienced by its physical locations, the retailer is not too concerned with finding the recipe for success online. It likely will stick with what has always worked.
- What type of retailers are TJ Maxx and Marshall’s?
- Why are they so successful?
Source: Suzanne Kapner, The Wall Street Journal, June 20, 2017