A Shining Star Amid a Shaky Quarter
Posted: December 29, 2015
What are certain stores doing right, where others are faltering? As retailers ponder lackluster quarters, there are some key players who seem to have a handle on turning profits.
While fewer promotions may work for some retailers who have a brand image to maintain, it may not work for others. The shining stars in a sea of lackluster performances go to the off-price sector of retail.
Companies like TJX, which owns T.J. Maxx, Marshalls and HomeGoods, have found the recipe for success. They control 43% of this competitive sector. The market for off-price apparel and footwear came to almost $45 billion in revenue in fiscal 2015, an increase of more than 40% over 2009, according to estimates by RBC Capital Markets.
With comparable same-store sales rising 5% in the third quarter, TJX Cos. was way ahead of the curve, beating out Macy’s and Nordstrom, whose shares took a dive due to weak sales and the projection of a lower outlook for Q4. Even though Nordstrom has 8% of the off-price market and has experienced success with Nordstrom Rack, it still came up short this last quarter.
Aside from TJX’s market capitalization being almost four times greater than Macy’s, they, and competitor Ross Stores, now get their stock directly from manufacturers, so the assortment and quality of apparel are often identical to their department store peers.
Macy’s has gotten the message, and has responded with its own off-price offshoot, Macy’s Backstage. The new stores, some of which will exist inside Macy’s existing stores, will have everyday low prices. This differs from the continuous sales and markdowns that have been the trademark of Macy’s clearance section up until now.
Columbia business school professor Mark Cohen notes a big problem the heavyweight department stores have that T.J. Maxx doesn’t, and that is being a flagship brand that’s undermined by lower-quality merchandise, “or even bargain-basement prices. T.J. Maxx already has this customer, but when Saks, Nordstrom and Macy’s get really aggressive in their outlets, they create a problem in their regular business.”
It used to be that department stores led the charge (and the profits), as they could demand markdowns from apparel manufacturers. The off-price chains would have to wait for the hand-me-downs from those stores with no help from manufacturers in marketing or markdowns.
Beth Kowitt in Fortune Magazine wrote an article on why T.J. Maxx is so successful. Its buyers are some of the most savvy in the business, staying on top of trends and moving inventory quickly, to the point where Kowitt wrote, “Former employees say that the stuff moves so rapidly that merchandise is often sold before TJX has paid its vendors for it.”
The company is apparently willing to give some vendors a sort of plausible deniability, according to USA Today. While upscale brands like Coach, Michael Kors and Ralph Lauren can be found at T.J. Maxx, those companies won’t outright admit their products are sold there and CEO Carol Meyrowitz is fine with that, as it preserves their relationship with these companies.
Another reason for T.J. Maxx’s success: There are no storewide sales because they want to protect their brand of good deals all the time.
Additionally, T.J. Maxx’s unique locations are found mainly at out-of-way strip malls, unlike department store outlets, which are tethered to expensive leases in downtown areas or major shopping malls. Those stores would have a difficult time being in a downscale location, because it could make a dent in their flagship brand.
"The majority of the customers who try us do come back, whether it’s a recession or not," says Meyrowitz. "They think, 'Why would I buy at this price when I can buy at a lot less?'"TAGS: retail, retail trends, retailers,