A treasure hunt in a department store? This is the experience that CEO Carol Meyrowitz of TJX wants customers to have when they come into any of the company’s 3,200-plus stores in the United States, Canada, and Europe. TJX is a huge retail conglomerate of off-price brands, including TJMaxx, Marshalls, HomeGoods, and Sierra Trading Post—with stores in all 50 states of the USA, 10 provinces of Canada, as well as the European nations the United Kingdom, Ireland, Germany, and Poland. Headquartered in Framingham, Massachusetts, TJX’s revenue increased to $29 billion in fiscal 2014 that ended January 31, 2015, while the company’s net income increased to $2.2 billion. TJX has about 195,000 employees who often work right across the street from rival companies such as Ross Stores, Stein Mart, Gap, and Cato.
TJX reported 2016 Q1 EPS of $0.69, up 8 percent from Q1 of the previous fiscal year, despite a 4 cent per share foreign exchange rate loss. Same store sales also grew 5 percent. CEO Meyrowitz attributed the increased EPS to increased consumer traffic and merchandise margins in nearly all of the company’s Canadian and U.S. stores. Part of the increase in consumer traffic is a new trend where consumers are not as willing to drive to outlet stores that are often far from their homes in search of deals. If this trend continues, firms like TJX and rivals such as Ross should continue to benefit as they siphon sales away from outlet malls.
History
In 1919, two brothers, Max and Morris Feldberg, established the New England Trading Company in Boston, Massachusetts, and by 1929, devoted the business to selling ladies hosiery, a luxury during that time. By 1949, the Feldberg brothers were owners of a chain of women’s apparel stores along the East Coast of the United States.
When the next generation of Feldbergs, Stanley and Sumner, took over in the 1950s, they changed the business model to one that offered discounted merchandise to the entire family. They also changed the company name to Zayne Discount Department Store (Zayne) and listed it on the New York Stock Exchange.
In 1976, Ben Cammarata (who recently retired in June 2015), chairman of the Board of Directors, created the brand TJMaxx and officially changed the name of the company to TJX. A few milestones in TJX’s history are given below.
USA
• 1992 TJX launched HomeGoods, a brand consisting of items for the home.
• 1995 TJX acquired Marshalls and grouped it with TJMaxx to form The MarMaxx Group, the largest division/product line in the TJX stable.
• 2012 TJX acquired Sierra Trading Post of Wyoming, an off-price store selling goods for most outdoors activities.
Canada
• 1990 TJX acquired Winners, an off-price chain in Canada that offers many of the same goods as TJMaxx.
• 2001 Winners launched HomeSense, similar to HomeGoods in USA.
• 2011 TJX launched Marshalls in Canada.
Europe
• 1994 TJX established TJMaxx in United Kingdom (UK), which later expanded to Ireland.
• 2007 TJMaxx began its business in Germany.
• 2008 TJMaxx brings HomeSense from Canada to the UK.
• 2009 TJMaxx opens its first store in Poland.
Internal Issues
Corporate Values
The top part of the “X” in the TJX logo is a “V” that represents the VALUES believed in by TJX. In broad strokes, each alphabet represents vital parts of its business model, and each alphabet in VALUE translates into more specific codes of conduct:
• V = Vendor Relationships are unequivocally built on high standards of ethics
• A = TJX pays Attention in governance and to integrity, fairness, and openness in treatment of others.
• L = TJX Leverages the diversity and inclusion among employees, customers, and vendors.
• U = TJX Unites with the communities in which its stores are in to enrich the lives of employees, customers, and people who live in these communities.
• E = TJX follows the motto of “smart for business, good for the Environment” by being deliberate in controlling waste/pollution and in managing energy sources.
Organizational Structure
TJX’s organizational chart is provided in Exhibit 1. The company appears to operate using a strategic-business unit (SBU) design, but it is not clear from the titles of executives what the groups are or what the divisions underneath the group heads are. Analysts suggest that improvements are needed in the design or at least in the titles of executives to more clearly reveal reporting relationships and areas of responsibility. The company’s CEO, Carol Meyrowitz, was also elected to be Chairman of the Board in mid-2015.
Business Segments
Formed after the acquisition of Marshalls in 1995, The MarMaxx Group is the division that consists of the T.J. Maxx and Marshalls brands. Both T.J. Maxx and Marshalls sell similar items, consisting of home goods, furniture, laps, rugs, giftware, snack foods, and much more. TJMaxx offers off-price brand names in family apparel, fine jewelry, accessories, and beauty products. The term off-price translates to prices 20 to 60 percent less than that of the major department and/or specialty stores. The Runway, a high-end house designer line, is offered in some T.J. Maxx stores. In fact, T.J. Maxx considers The Runway, and other higher-end selections, as a way it differentiates itself from Marshalls.
There are nearly 1,200 T.J. Maxx stores in the United States, with an average size of 29,000 square feet. Marshalls offers merchandise similar to T.J. Maxx and was purchased partly as a means to remove a competitor from the industry, along with growing the T.J. Maxx’s brand. Marshalls’ signature difference from T.J. Maxx is The CUBE designed for juniors. The CUBE is a store within a store, an A-level boutique offering higher-end selections targeted for juniors. There were 942 Marshalls stores in the United States in 2014, up 4.5 percent from 2013, with an average size of 31,000 square feet. In total, there are over 2,000 T.J. Maxx and Marshalls stores in the country, with a long-range outlook to expand to 3,000 stores.
TJX’s other U.S.-based business is HomeGoods, which focuses on furniture, laps, rugs, giftware, wall décor, and bath and bedding through 450 stores in the United States, with an average store size of 26,000 square feet. The firm has a vision to increase its HomeGoods store presence to 850 stores long term.
TJX’s newly acquired Sierra Trading Post is a small Wyoming-based business specializing in outdoor equipment, family apparel, footwear, and many other items, including expensive suits, shirts, and slacks. Sierra Trading Post currently operates four stores in the United States, with plans to add two additional stores. Being a super-discount seller of overstocked goods, it is not uncommon to find products for as much as 70 percent off retail prices, but equally as common, it can be difficult to find your size or the exact product you wish to purchase from Sierra Trading Post. The store is best known for its website, www.sierratradingpost.com, rather than its physical stores.
TJX’s Winners segment is a leading off-priced retail chain in Canada. The offerings are similar to T.J. Maxx, but with brand names familiar to Canadian customers in apparel and home goods. TJX recently added fine jewelry and The Runway to selected Winners stores. There are 227 Winners stores located in 10 provinces, the majority of which are in Ontario (104), Quebec (41), and British Columbia (80). Winners owns HomeSense, a chain of 91 stores that offer similar merchandise as HomeGoods USA for the kitchen, dining room, living room, and bedroom. The majority of HomeSense stores (42) are found in Ontario.
TJX brought Marshalls into Canada in 2011 with the establishment of 27 stores, the majority (20) of which are found in Ontario. Other than the usual Marshalls merchandise, the Canadian stores offer brand name footwear. TJX plans to add an additional 100 Marshalls stores in Canada.
Unique to TJMaxx in Europe are two in-house brands: The Mod Box is a line of apparel aimed specifically at young adults, and the Gold label consists of European high-end designer brands. As of fiscal 2014, there were 371 stores spread over the UK and Ireland (270), Germany (63), and Poland (38). Currently, there are 28 HomeSense stores in Europe offering merchandise for the living room, dining room, bedroom, kitchen, and garden. The average T.J. Maxx and HomeSense store in Europe is 31,000 and 21,000 square feet, respectively. The company plans to have 900 stores total in Europe.
Exhibit 2 reveals the locations and types of TJX stores worldwide. Note that approximately 13 percent of stores are located in Europe in fiscal 2015, but no stores in Asia, Middle East, or Africa. Exhibit 3 shows revenues per geographic region. The United States accounts for 77 percent of all store locations and 76 percent of all revenue. TJX reported revenues of $27.4 and $25.8 billion in fiscal 2014 and 2013, respectively.
Exhibit 3 provides a revenue and profit breakdown for TJX’s segments. Not revealed in Exhibit 3, fiscal 2015 produced modest gains across every business operated by TJX. Total sales companywide were up 6 percent. Canada, which experienced a small decline in sales from 2013 to 2014, had a small increase in fiscal 2015 to $2,884 million. The largest percent increase was in USA HomeGoods, increasing sales to over $3 billion with Marmaxx (combination of TJ Maxx and Marshalls) increasing to $18 billion for the largest net dollar change.
Exhibit 2 TJX’s Total Number of Stores
Business 2015 2014
Marmaxx
USA T.J. Maxx 1,119 1,079
USA Marshalls 975 942
HomeGoods 487 450
Sierra Trading Post 6 4
TJX Canada
Winners 234 227
HomeSense 96 91
Marshalls 38 27
TJX Europe
T.K. Maxx 407 371
HomeSense 33 28
TJX Totals 3,395 3,219
Source: Based on a TJX Q4 2015 press release.
Exhibit 3 TJX’s Revenue and Profits (in thousands of USD)
Revenues 2014 2013
USA Marmaxx $17,929,576 $17,011,409
USA HomeGoods 2,993,718 2,657,111
TJX Canada 2,877,834 2,925,991
TJX Europe 3,621,568 3,283,861
Totals $27,422,696 $25,878,372
Profits 2014 2013
USA Marmaxx $2,612,693 $2,486,274
USA HomeGoods 386,541 324,623
TJX Canada 405,363 414,914
TJX Europe 275,453 215,713
Totals* $3,319,489 $3,077,351
*Adjusted to reflect interest and corporate expenses.
Source: TJX’s 2014 Annual Report, p. F-19.
Exhibit 4 reveals TJX’s revenues by product category across all stores. The firm does not reveal profit details by products. TJX’s revenue mix has remained stable over the last 3 years, with the only minor trend being clothing, which dropped from 60 percent of revenues in 2012 (not shown in Exhibit 4) to 58 percent in fiscal 2014.
Finance
TJX’s income statement and balance sheet are provided in Exhibits 5 and 6, respectively. Note the nice increases in revenue and net income.
Supply Chain Management
The beginning point of TJX’s supply chain is the acquisition of inventory by its approximately 900 associates (buyers) in 13 buying offices in 10 countries. TJX associates maintain close relationships with vendors, and are constantly looking out for opportunistic purchases—close-out sales, order cancellations, and manufacturing overruns. TJX buys on an ongoing basis, keeping track of customers’ preferences, trends, and seasonal needs in merchandise.
Exhibit 4 TJX’s 2014 Percent Revenue by Product
Source: Based on 2014 Annual Report, page F-19.
Exhibit 5 TJX’s Income Statement (in millions of USD)
Report Date February 1, 2015 February 1, 2014
Revenues $29,078 $27,423
Cost of sales 20,777 19,605
Operating expenses 4,712 4,468
EBIT 3,589 3,350
Interest 40 31
EBT 3,549 3,319
Tax 1,334 1,182
Net income 2,215 2,137
Source: Based on TJX’s 2014 Annual Report, page F-3.
There are about 16,000 vendors around the world, mainly manufacturers and other retailers. TJX purchases “less-than-full” assortment items, of quantity from small to large, and in different styles and sizes. TJX pays vendors promptly and therefore has no need for any retail concessions like promotion or mark-down allowances, or delivery concessions like discount on shipment cost, or reliance on a “return policy” discount. When appropriate, TJX will purchase inventory to sell at a future time, in spite of its usual policy of adhering to a lean and rapid turnover of inventory.
The next point in the supply chain is warehousing where inventory is collected, sorted, and processed for distribution. Thus, the various distribution centers can be viewed as TJX production facilities. Although many of TJX retail outlets are leased, many of its distribution centers are owned and located near, or as part of, corporate offices in order to facilitate the centrally controlled decisions on pricing, mark-downs, and inventory replenishment.
In the United States, TJX distribution centers are located in Massachusetts, Indiana, Georgia, North Carolina, Pennsylvania, Nevada, and Arizona. In Canada, they are located in Ontario, and in Europe, they are located in England, Germany, and Poland.
Marketing
The one key success factor for TJX is pricing, as in offering merchandise at least 20 to 60 percent off the prices charged by major retail and specialty department stores. TJX claims it serves a wide spectrum of customers with annual household income from $50,000 to millions of dollars. Given their business model, one area where TJX does save is in advertising and customer service. Customers are encouraged to explore in a “treasure hunt” in its stores, where no walls separate the different departments. Customers roam freely about the open-spaced layout without staff “hovering around,” yet the customers are able to seek assistance from such staff when needed. TJX has a generous return policy. It encourages customers to apply for and obtain a TJX credit card.
Exhibit 6 TJX’s Balance Sheet (in millions of USD)
Report Date February 1, 2015 February 1, 2014
Assets
Cash and equivalents $2,494 $2,149
Accounts receivable 283 210
Inventories 3,218 2,967
Other current assets 720 742
Total current assets 6,715 6,068
Property, plant & equipment 3,868 3,595
Goodwill & intangibles 310 313
Other assets 235 225
Total assets 11,128 10,201
Liabilities
Accounts payable 2,008 1,771
Other current liabilities 1,922 1,747
Total current liabilities 3,930 3,518
Long-term debt 1,624 1,274
Other liabilities 1,310 1,179
Total liabilities 6,864 5,971
Common stock 685 705
Retained earnings 4,134 3,724
Other equity (554) (200)
Paid in capital — —
Total equity 4,264 4,230
Total liabilities & equity 11,128 10,201
Source: Based on TJX’s 2014 Annual Report, page F-5.
TJX marketers work closely with TJX buyers to identify customers’ preferences, and in recent years, they have worked with the product development people to produce its own in-house and licensed brands. TJX’s primary advertising strategy is its stores—a visible and physical representation of its brands. In Europe, especially with the younger generation, TJX engages in TV, radio, and social media advertising, pushing its “tri-branding” campaigns. Starting in 2013, TJX launched www.tjmaxx.com in the United States and www.tkmaxx.com in the United Kingdom and officially entered in e-commerce arena.
Competitors
The family clothing business in the United States is highly fragmented, with over 20,000 businesses, ranging in size from a mom-and-pop to TJX, which is the largest clothing business based on total revenues. Profit margins are slim in the industry that is valued at $100 billion in annual sales, with profits slightly above $3 billion and a growth rate of less than 2.5 percent. Top competitors in the industry include TJX, Ross Stores, L Brands, Gap, Cato, Stein Mart, and many more. Notable newcomers to the U.S. market include H&M, based in Sweden and popular throughout Europe, specializing in inexpensive but quality clothing. Also, Zara, a fashionable clothing store with inexpensive prices based in Spain, now has U.S. stores.
Note in Exhibit 7, TJX has a larger market cap, net income, and revenues than Ross and Gap combined. However, Ross is worth more per share than TJX.
Exhibit 7 Comparative Analysis of TJX versus Rival Firms
TJX Ross Gap
# Employees 198,000 71,400 141,000
$ Net Income 2,215 M 837 M 1,280 M
$ Revenue 29,078 M 10,230 M 16,148 M
$ Revenue/Employee 147,000 143,000 115,000
$ EPS Ratio 3.15 4.42 2.87
Market Cap. 47.5 B 21.5 B 17.7 B
Source: Based on Yahoo Finance 2014 data and other sources.
Ross Stores, Inc. (ROST)
Based in Dublin, California, Ross Stores is a discount clothing and home fashions store offering products at prices generally 20 to 60 percent off typical retail department store prices. The firm’s main slogan is “Ross, Dress for Less.” The firm operates under two segments: Ross, Dress for Less and dd’s Discounts. The firm employs over 17,000 people, and reported revenues were over $10 billion in fiscal year-end February 2014. In total, Ross operates over 1,100 stores in 36 states with product offerings similar to TJX—including women’s clothing, lingerie, maternity clothing, shoes, accessories, handbags, watches, jewelry, luggage, and more. Ross operates under a no-frills policy that extends to having no window displays, no mannequins, nor other fancy marketing and advertising displays. In Q4 of 2014, Ross’s sales advanced 10.6 percent to over $3 billion, and the company’s comparable-store sales jumped 6 percent year over year.
Arguably TJX’s primary competitor, Ross operates 130 discounts stores in 10 states, offering products similar to TJX, but in generally lesser-known name brands. There are about 315, 189, and 156 stores in California, Texas, and Florida, respectively. Ross has no stores yet in much of the Midwest and Northeast, including no stores in Michigan, Ohio, or New York. Exhibit 8 reveals the breakdown in sales from various products in Ross Stores.
The Gap Inc. (GPS)
Headquartered in San Francisco, California, Gap’s notable brands include Gap, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix. Gap’s stores are generally considered full-retail–priced stores, unlike TJX and Ross, both of which are off-priced–retail stores. GAP sells a variety of casual apparel, including men’s, women’s, children’s, and baby’s clothing in all styles and fashions, as well as various accessories and luxury and contemporary products. Gap operates over 3,600 stores worldwide on every inhabited continent. The company reported fiscal year-end February 2014 revenues in excess of $16 billion, with the bulk of revenues being derived from Gap, Banana Republic, and Old Navy, as revealed in Exhibit 9 by geographic region. In 2013, Gap reported 15 percent of its sales from outside the United States and Canada. The firm controls approximately 14 percent of the U.S. market share for retail appeal stores.
Exhibit 9 Gap’s Fiscal 2013 (year-end February 1, 2014) Revenues (in millions of USD)
Region Gap Old Navy Banana Republic Other Total
US $3,800 $5,698 $2,365 $668 $12,531
Canada 404 482 238 4 1,128
Europe 809 – 82 – 891
Asia 1,165 77 155 – 1,397
Other 173 – 28 – 201
Total 6,351 6,257 2,868 672 16,148
Source: Based on various tables from Gap’s 2013 Annual Report.
Burlington Stores Inc. (BURL)
Headquartered in Burlington, New Jersey, Burlington Stores is a large apparel company that reported net sales of $4.4 billion in fiscal year-end February 2014. Better known as Burlington Coat Factory, the company operates 521 stores in 44 states, with merchandise often priced up to 70 percent below department store prices. Burlington Stores offers clothing for men, women, children, and babies, as well as home décor, jewelry, and much more.
For its fourth quarter ending January 31, 2015, the company sales increased about 10 percent, whereas its comparable store sales increases about 5.5 percent. BURL’s full fiscal year 2014 (the 52 weeks ending January 31, 2015) revealed a sales increase of about 8.3 percent, with comparable store sales for the full year to be approximately 4.5 percent. Thus, Burlington Stores is performing quite well and is a qualified competitor to TJX.
External Issues
Product Segmentation
Women’s clothing accounts for 62 percent of all clothing sold in the United States. Men’s clothing accounts for 30 percent, and children’s about 8 percent. Casual clothing for both men and women have twice the sales volumes as formal wear, with other types of clothing being a distant third in total sales. In general, formal wear includes business attire, church attire, and other such settings. Sales in formal wear have been relatively stable over the last 5 years. Casual wear, including shorts, jeans, and even athletic wear, has increased slightly over the last several years, due in part to businesses becoming more lax on what employees can wear to work, and also the increasing trend of athletic wear being included in casual wear. Some estimates place 30 percent of all women’s casual wear to be categorized as athletic wear.
Reshoring
Over the last 50 years, production of apparel (textile industry) moved from the northern United States to the southern states, then to Mexico, and from there to places in Asia, such as China and Vietnam. However, there is a growing trend, according to the Boston Consulting Group, to produce products domestically. Increasing transportation cost, government incentives, being closer to the end consumer, increasing labor costs abroad, and just simply being able to have “Made in the USA” on your product, is driving some firms to start production again in the United States. Several apparel firms who are now producing some of their brands in the United States include Abercrombie & Fitch, J. Crew, and Ralph Lauren’s Club Monaco brand. Even Nike, plagued by its operations in sweatshops in the past, is seriously considering reshoring select products.
Mergers and Acquisitions
Mergers and acquisitions activity has increased over the last several years in the apparel industry. Notable apparel industry acquisitions in 2014 include Men’s Warehouse acquiring Jos. A. Banks, and Sycamore Partners LLC acquiring the Jones Group Inc. for $1.8 and $2.2 billion, respectively. The largest two acquisitions from 2010 through 2014 were TPG Capital’s acquisition of J Crew Group for $3 billion in 2011, and Phillips Van-Huesen’s acquisition of Tommy Hilfiger Group B.V. for $3.2 billion in 2010. From 2012 through the Summer of 2014, there were five acquisitions in the industry at over $1 billion.
Future
TJX reported that its fiscal year 2015 comparable store sales increased 2 percent, compared to a 3 percent increase the prior year. In the United States, Marmaxx comps were up 3 percent. HomeGoods reported an outstanding quarter that ended January 31, 2015, with comparable stores sales up 11 percent.
TJX’s plans for 2015 include remodeling about 225 stores and adding 181 stores globally. At Marmaxx, the company plans to increase their store base by over 40 percent to about 3,000 stores, partly because in 2014, Marmaxx’s segment profit margin was a strong 14.6 percent. The company recently raised TJX Canada’s long-term store estimate to around 500 stores—50 more than their prior estimate. The company plans to grow the Marshalls chain to about 100 stores.
TJX Europe’s adjusted segment profit margin, excluding foreign currency, increased to 8.1 percent in 2014, another divisional record. Thus, the company raised their long-term store growth potential estimates for TJX Europe to about 975 stores, more than double the early 2015 number of stores. In fact, in the Spring of 2015, TJX added their seventh country, Austria, with their first store opening in March. In the Fall of 2015, TJX added their eighth country, the Netherlands.
At HomeGoods, TJX recently raised their estimates for its long-term growth store potential to approximately 1,000 stores. This is double the current base and 175 more stores than TJX’s prior estimates. The HomeGoods profit margin hit a divisional record of 13.6 percent.
Based on key external and internal factors, develop a 3-year strategic plan for TJX Companies. -DO NOT DO. How aggressively should TJX expand globally, and where, and when, to maximize the value of the company for shareholders?
Okay, the assignment again is to answer and complete the two questions below:
1. How aggressively should TJX expand globally, and where, and when, to maximize the value of the company for shareholders?
2. Develop Projected Financial Statements that fully assess and evaluate the impact of the proposed strategy. This should include a projected income statement, balance sheet, and EPS/EBIT analysis.
