Case 21 Tjx | Course Paper

tho75109_case21_C240-C250.indd C-240 12/18/18 10:49 AM

TJX Companies: Its Strategy in

Off-Price Home Accessories

and Apparel Retailing

David L. Turnipseed

University of South Alabama

In February 2018, TJX Companies, Inc., the world’s

largest off-price home accessories and apparel

retailer, completed 42 years of operations with sev–

eral enviable milestones: the company had edged up to

number 85 on the Fortune 500, surpassed $35 billion

in sales, and opened its 4,000th store, guided by a

highly effective global strategy. Sales had grown over

eight percent and comparable store sales increased 2

percent in fiscal year 2018. In the company’s 42-year

history, it had experienced an annual decline in

comparable store sales in only one year. The strong

earnings trend enabled TJX to increase its per share

dividends for fiscal 2019 by 20 percent, which made

21 consecutive years of dividend increases.

Ernie Herrman, the President and CEO of TJX,

looked back at his first year in charge of the huge, inter–

national off-price retailer with great satisfaction. As

the TJX Companies moved into fiscal 2019, President

Herrman pondered how to keep the company on the

same upward trajectory. Although the TJX Companies

had one small chain that was primarily e-commerce,

and its brick-and-mortar chains had e-commerce capa–

bilities, in a world ostensibly focused on e-commerce,

TJX had been very successful concentrating on its

brick-and-mortar chains. Given TJX’s steadily increas–

ing sales and profits in its present structure, should

the company divert part of its attention and resources,

and attempt to boost its internet sales? Also, given

the outstanding sales growth driven by opening new

stores worldwide, should the company stay the course,

or would concentration on certain geographical loca–

tions produce more sales and profits?

TJX: AN OVERVIEW

TJX traced its origin to the Feldberg cousins who

opened their Zayre (Yiddish for “very good”) dis-

count store in Hyannis, Massachusetts in 1956. Over

the years, Zayre purchased a women’s clothing chain,

opened Chadwick’s of Boston, launched a mem-

bership warehouse club, and a home improvement

chain. The first T.J. Maxx opened in Auburn, MA

in 1977, offering off-price upscale family apparel.

In 1987, the Zayre’s off-price chains were organized

as the TJX Companies, Inc., which were operated

as a subsidiary of Zayre. Also in 1987, TJX had an

IPO, with Zayre retaining 83 percent ownership. In

1989, Zayre divested its warehouse club division, and

acquired minority ownership in TJX companies that

had been publically traded. Zayre merged with TJX

and then adopted the name of its former subsidiary.

In 1990, TJX acquired Winners Apparel Ltd, a

Canadian chain similar to T.J. Maxx, and this chain

became Canada’s largest off-price stores. Two years later,

in 1992, HomeGoods, offering home fashions from

around the world, was launched in the United States.

TJX ventured overseas in 1994 and opened T.K. Maxx

in the United Kingdom (UK) and Ireland. Over time,

T.K. Maxx became the only major brick-and-mortar off-

price retailer of home fashions and apparel in Europe.

In 1995, TJX acquired the 496 store Marshalls chain,

which was the second largest off-price retailer of brand-

name family apparel in the United States.

CASE 21

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CAsE 21 TJX Companies: It’s Strategy in Off-Price Home Accessories and Apparel Retailing C-241

TJX launched an off-price concept, named A.J.

Wright, in 1998, which was similar to Marshalls

and T.J. Maxx. A.J. Wright targeted moderate-

income families. In 2001, TJX opened HomeSense

in Canada, which was the first off-price home fash-

ion chain in Canada. HomeSense was similar to

HomeGoods in the United States and offered a wide

selection of off-price home fashions. TJX acquired

Bob’s Stores in 2003, which was a value-oriented,

casual family apparel and footwear retailer, located

in the Northeastern United States. In 2007, T.K.

Maxx opened stores in Germany, introducing the off-

price concept to that country.

In 2008, TJX sold Bob’s Stores to private

equity firms and opened the first HomeSense

stores in the UK. The expansion into Europe con–

tinued in 2009 when T.K. Maxx opened stores

in Poland. Also in 2009, T.K. Maxx launched its

e-commerce site, tkmaxx.com in the UK. TJX con–

solidated its A.J. Wright division, converting 91

stores to Marshalls, HomeGoods, or T.J. Maxx.

Marshalls was launched in Canada in 2011 and

in 2012 TJX acquired a U.S. off-price Internet

retailer, Sierra Trading Post. T.J. Maxx launched

its e-commerce site, tjmaxx.com, in 2013. The fol–

lowing year, Sierra Trading Post opened two brick–

and-mortar stores to bring its off-price outdoor

apparel to more consumers.

TJX continued its international expansion in

2015, acquiring an Australian off-price retail chain,

Trade Secret, and opening stores in Austria and

the Netherlands under the T.K. Maxx brand. The

Australian Trade Secret stores were converted to

T.K. Maxx stores in 2017. HomeSense expanded

into Europe and opened stores in Ireland. Moving

into fiscal year 2019, TJX had over 4,000 stores in

nine countries— the United States, The Netherlands,

United Kingdom, Germany, Republic of Ireland,

Austria, Poland, Australia, and Canada.

TJX’s sTRATEGIC VIsION AND

MANAGEMENT FOCUs

TJX’s mission was:

Our mission is to deliver great value to our custom-

ers every day. We do this by offering a rapidly changing

assortment of quality, fashionable, brand name, and

designer merchandise generally 20 percent to 60 percent

below full-price retailers’ (including department, specialty,

and major online retailers) regular prices on comparable

merchandise.1

TJX management believed that the company

had one of the most flexible business models in the

world, and that the great flexibility had enabled the

company to succeed through the many economic

and retail situations over the years. There were no

walls between departments in TJX stores—stores

could expand and contract merchandise areas for fast

response to market trends and changes in customer

preferences. TJX had rapid inventory turnover, which

enabled the company to buy close to need, having

visibility into current fashion and pricing trends. The

company sourced its merchandise from around the

world from a group of over 20,000 vendors in over

100 countries. TJX was an industry leader in innova-

tion: the company relentlessly tested new ideas, try-

ing to find the current fashions and top brands, and

leveraging information from their global worldwide

purchasing network. Also, the company was finan-

cially strong, which gave it the ability to invest in the

growth of its business. These key success factors gave

TJX management confidence in the company’s abil-

ity to achieve corporate goals for global growth.

TJX’s management was focused on increasing

market share, while simultaneously delivering profit-

able stock growth to its shareholders. Management

had several initiatives underway in 2018 to attract

consumers to the TJX stores and grow its customer

base in the United States and internationally. TJX

expected total sales and comparable store sales

growth in fiscal year 2019 similar to prior years.

TJX’s management believed that their pursuit of

their goals for global growth would be sustained by

the company’s major strengths:

• World-class buying organization

• Global supply chain and distribution network

• Leveraging the global presence

• One of the most flexible retail business models in

the world

The company’s earnings per share estimates

reflected the significant benefit from U.S. tax reform

as well as continued increases in wages and expected

investments to support company growth. President

Herrman and his management team were passionate

about surpassing corporate goals.

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C-242 PART 2 Cases in Crafting and Executing Strategy

EXHIBIT 1 Monthly Performance of TJX Companies’ stock Price, July 2013–July 2018

˜°

(a) Trend in TJX’s Common Stock Price

Year

˜˛ ˜˝ ˜˙ ˜ˆ

Stock price

˛ˇ

˛˛

˝ˇ

˝˛

˙ˇ

˙˛

ˆˇ

ˆ˛

˘ˇ

˘˛

$˜ˇˇ

(b) Performance of TJX’s Stock Price versus the S&P ˛ˇˇ Index

Year

˜° ˜˛ ˜˝ ˜˙ ˜ˆ

Percent change

(July 2013 = ˇ)

+˘ˇ%

+ˆˇ%

+˙ˇ%

+˝ˇ%

+˛ˇ%

+°ˇ%

+30%

+20%

+˜ˇ%

+ˇ%

–˜ˇ%

TJX’s Stock price

S&P ˛ˇˇ

Source: Bigcharts.com

TJM’s sTOCK PERFORMANCE

TJX had its IPO on August 4, 1989, and the stock

began a steady uptrend of growth that continued into

mid-2018. Stock prices from July 2013 to July 2018

are shown in Exhibit 1.

TJX stock showed significant strength: a $10,000

investment in TJX at $16.15 on July 14, 2008, would

have returned 573.71 percent and yielded an ending

investment of $67,351.07, at $95.36 on July 11, 2018,

10 years later (assuming dividend reinvestment).

Following a very strong fourth quarter, with

24 percent stock price growth, TJX announced a divi-

dend increase of 25 percent ($.39) and announced

plans to repurchase $2.5 to 3.0 billion of TJX stock.

The stock reached its historic high of $96.82 on

June 20, 2018.

TJX BUsINEssEs

TJX operated four primary business segments,

Marmaxx and HomeGoods (U.S.), TJX Canada,

TJX International, and one Internet retailer, Sierra

Trading Post. The company believed that it had the

opportunity to expand their retail chains around the

world by increasing their store base of 4,000 by more

than 2,000 stores, or about 50 percent, to 6,100 stores

long term. This reflected the potential the company

saw with its existing chains in the current countries

alone. In 2018, TJX planned an increase of approxi-

mately 240 new stores, about 6 percent store growth.

U.S. Segments

Marmaxx The T.J. Maxx and Marshalls chains

(“Marmaxx”) were collectively the largest off-price

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CAsE 21 TJX Companies: It’s Strategy in Off-Price Home Accessories and Apparel Retailing C-243

growth ahead for the division. Marmaxx’s continued

comparable store sales and traffic increases in many

different retail and economic environments gave TJX

confidence in the division’s continued growth (see

Exhibit 2). Also, new stores continued to reach their

targets and, overall, to generate attractive returns.

Marmaxx had a 1 percent comparable store sales

increase in 2017, which met the low end of the com-

pany’s expectations, despite a significant negative

impact of severe weather during the year. Marmaxx

was focused on driving customer traffic and com-

parable sales increases, and had a long-term target

of 3,000 stores that reflected TJX’s determination

and perceived ability to further penetrate existing

U.S. markets.

HomeGoods The HomeGoods segment was intro–

duced in 1992, and became the leading off-price home

fashions retailer in the United States. HomeGoods

offered an extensive assortment of home fashions,

including furniture, rugs, lighting, decorative acces–

sories, tabletop and cookware, as well as expanded

retailers in the United States, with a total of 2,285

stores. T.J. Maxx was founded in 1976 and Marmaxx

acquired Marshalls in 1995. Both chains sold family

apparel, home fashions (e.g., home basics, accent

furniture, lamps, rugs, etc.), and other merchan–

dise. The primary difference between T.J. Maxx and

Marshalls was their product assortment: a larger

assortment of fine jewelry and accessories and a

designer section called The Runway at T.J. Maxx,

and a full line of footwear, a broader men’s offer–

ing, and a juniors’ department named The Cube at

Marshalls. The intent of the differentiated shopping

experience at the two stores was to encourage cus–

tomers to shop both chains. T.J. Maxx’s e-commerce

website, tjmaxx.com, was launched in 2013.

Sierra Trading Post Sierra Trading Post was an off-

price Internet retailer of brand name, quality outdoor

gear, family apparel and footwear, sporting goods,

and home fashions. Sierra Trading Post launched its

e-commerce site, sierratradingpost.com, in 1998 and

operated 27 retail stores in the United States.

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