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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. This is increasingly relevant in early 2008 with the U.S. economy slowing and fears of a recession creeping higher as troubles caused by the supbrime lending crisis spread to the general economy. Constricted consumer spending is not good for the overall economy, but it could benefit stores like T.J. Maxx and Marshall's as more people look for discounted shopping options.

[edit] 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 2,563 stores in the United States, Canada, England and Ireland; the company has plans to open 5 T.K. Maxx stores in Germany during 2008.^[1]

Notes: 1) All sales and profit figures are in millions of dollars. 2) *-TJX combine sales, profit and same store sales figures at T.J. Maxx and Marshalls into one reportable segment, Marmaxx, and at Winners and HomeSense stores.

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.^[3]

In total, TJX generated net sales of $18.6 billion in 2007, a 7.1% increase from sales in 2006.^[4] TJX's company wide operating margin for 2007 was 6.7%, down from 7.2% in 2006,^[5] although this decrease was largely due to a charge related to a computer database breach incident. As the leader in the off-price market, TJX is focused on growing its operations to continue revenue growth while trying to expand profit margins simultaneously. In 2007, TJX added 97 stores on net across its multiple chains, with most growth focused on the addition of 26 T.J. Maxx and 28 Marshalls locations.^[6] TJX is also beginning to close underperforming A.J. Wright stores as that chain has operated at a loss for the past two years.

[edit] 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.

• Troubles with A.J. Wright and Bob's Stores Drag Down TJX's Balance Sheet: For the past four years, both the A.J. Wright and Bob's Stores segments have operated at a loss. One of the main causes of the problems with these two chains is that they are both departures from the core business of TJX, serving lower income households with branded apparel, housewares, footwear and accessories. Both A.J. Wright and Bob's Stores try to target the middle class, a segment of consumers not typically found shopping at off-price retailers. This has proven to be very difficult for TJX as shown by the two segments operating results in recent years. In 2007, A.J. Wright's operating loss was $1 million, improvement from the $10 million the chain lost on its 2006 operations.^[7] Bob's Stores have lost $17 million on its operations in the past two years.^[8] TJX is halting expansions on these two chains as it re-evaluates the two businesses, and has begun closing the worst performing of these chains.

• 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.

[edit] Competition

TJX generates more than three times the sales of its main rival in the off-price retailing sector, Ross Stores (ROST). TJX's 2006 sales of $17.4 billion^[9] placed it considerably ahead of Ross which generated only $5.6 billion of sales in 2006. TJX is also considerably larger than Ross in terms of stores; TJX has 2,538 locations from its 8 different chains while Ross Stores (ROST) only operates 2 different chains with a total of 890 locations.

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, and in 2007 reported total sales of $3.0 billion.^[10]
• 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. MW reported $1.9 billion in 2006 sales.^[11]
• 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, and reported $1.45 billion in 2007 sales.^[12]
• 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.

 TJX Companies

	Select All  |  Select None Metrics Merchandise Revenue Credit Card Revenue Inventory Long Term Debt Number of Discount Stores Cost of Sales Operating Income Comparable Sales Growth Number of Stores Sales per Store Net Income Cancel

	Select All  |  Select None Companies Macy's Inc. (M) Sears Holdings (SHLD) J.C. Penney (JCP) Bon-Ton Stores (BONT) Cost Plus (CPWM) Gottschalks (GOT) Saks (SKS) TJX Companies (TJX) Kohl's (KSS) Dillard's (DDS) Cancel

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Company	Data From	Comparable Sales Growth	Number of Stores	Sales per Store	Net Income
J.C. Penney (JCP)	2007	0%[13]	1.07K[13]	$18.6[14]	$1.11B[15]
Kohl's (KSS)	2007	5.9%[16]	817[16]	$19M[16]	$1.11B[16]
Macy's Inc. (M)	2007	(1.3%)[17]	853[18]	$30.8[19]	$893M[19]
Sears Holdings (SHLD)	2006	(3.7%)[20]	3.79K[20]	$14M[21]	$1.49B[20]
TJX Companies (TJX)	2007	4%[22]	2.47K[22]	$7.06M[23]	$738M[23]

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[edit] References

1. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
2. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
3. ↑ TJX Companies (TJX) Annual Report 2006, p. 2
4. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
5. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
6. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
7. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
8. ↑ TJX Companies (TJX) Press Release, Fourth Quarter Earnings Release
9. ↑ TJX Companies (TJX) Annual Report 2006, p. 2
10. ↑ Retail Ventures, Inc. (RVI) Press Release, Fourth Quarter Earnings Release
11. ↑ MW Annual Report
12. ↑ Stein Mart, Inc. (SMRT) Press Release, Fourth Quarter Earnings Release
13. ↑ ^{13.0 13.1} Sec.gov
14. ↑ JCP 2007 10-K
15. ↑ Google Finance
16. ↑ ^{16.0 16.1 16.2 16.3} KSS,2007,10-K,Item-6,Page-13
17. ↑ M 2008 10-K
18. ↑ M,2007,10-K,Item-2,Page-10
19. ↑ ^{19.0 19.1} M 2007 10-K
20. ↑ ^{20.0 20.1 20.2} SHLD,2006,10-K,Item-6,Page-18
21. ↑ SHLD,2006,10-K,Item-8,Page-55
22. ↑ ^{22.0 22.1} TJX,2007,10-K,Item-7,Page-24
23. ↑ ^{23.0 23.1} TJX,2007,10-K,Item-6,Page-24