How One Huge American Retailer Ignored the Internet and Won
When Kimberly Dulude steps into a TJ Maxx store near her job at the Massachusetts Institute of Technology, she likes to begin perusing a clearance aisle in the back. Then she works her way up to shoes. Beauty is next, and so on until she gets to the front. The 29-year-old does buy stuff online all the time–just not from TJ Maxx. The store, she says, provides the thrill of the hunt.
“I kid you not, I could spend hours in there,” said Dulude.
There’s been much talk this holiday season about the utter dominance of e-commerce. Cyber Monday set a record for online sales, racking up $3.45 billion, according to Adobe Digital Insights. The National Retail Federation said more people shopped online throughout Black Friday weekend than in physical stores. And the clicks continued past the weekend: Retailers such as Wal-Mart Stores Inc. and Amazon.com turned what was once just a discount day for online sales into weeks of bargains.
But there are some stores bucking the trend. Take TJ Maxx and Marshalls, owned by parent company TJX Cos. Inc. They’re a rarity in the retail universe: stores that don’t care about online sales because their businesses are based on the real-life retail experience. Inventory shifts regularly, so no visit is the same—the promise of discovering great items on the cheap is what draws shoppers inside.
Companies like Framingham, Mass.-based TJX and competitors Ross Stores Inc. and Burlington Stores Inc. have a team of buyers that pick up excess items on the wholesale market–anything from cashmere sweaters to copper mugs. TJX alone works with more than 18,000 vendors, including manufacturers and retailers, to scoop up stylish stuff in bulk and resell it at a steal. With more than 2,500 U.S. stores, the company is also adept at tailoring merchandise being offered to local trends.
If you love retailers like HomeGoods or Marshall’s but don’t live near one, you’re out of luck–online, they only sell gift cards. T.J. Maxx sells some clothing and accessories on its website, but the experience is very different than sifting through racks for a one-of-its-size item.
“They’re not worried about it at all,” says Mickey Chadha, an analyst at Moody’s Investor Service who considers the T.J. Maxx’s online penetration negligible. “The product is right at the right price. Online is only as good as the product.”
A representative for TJX declined to comment on the company’s strategy. Executives have repeatedly stated on conference calls with analysts that they view e-commerce as a supplement to its shops, a way to drive real-life traffic. Though TJMaxx.com launched back in 2013, e-commerce sales remain at only about 1 percent of total sales and had an “immaterial impact” on growth last year, according to a January filing.
“While it’s a small part of our business, we see it as highly complementary to our physical stores,” TJX Chief Executive Officer Ernie Herrman said in May. “We are being methodical in how we grow this business.”
It’s working. Shares have more than doubled over the past five years and revenue is up more than 30 percent during the same time period. TJX’s 10 brands hauled in nearly $31 billion in sales last year.
But don’t expect a trend heading back in time. This is a difficult system to replicate, said Simeon Siegel, an analyst at Instinet. TJX boasts a wide net of inventory buyers who find small batches of desirable clothing, then make a small bet on those goods. This is unlike the traditional department store model, where buyers look at runway trends and make large orders of a few items, hoping that they’ll be the winner for the season.
“You’re buying closed-out product and you’re buying samples,” said Siegel. “You have to be very attuned to the numbers and very attuned to the fashion. The vendor base that you need to be plugged into and the intelligence that goes into buying the product is the most important asset they have. You need to find the most compelling stuff.”
When stores like T.J. Maxx do it right, they leave their shoppers filled with feelings of adventure and serendipity, says Jordan Rost, vice president of consumer insights at Nielsen, a research firm. Even an unsuccessful trip to a discount store can reinforce the thrill of the hunt. The instincts driving customers into parking lots is similar to those shopping online, Rost says. They’re searching for deals and the best item to fill some broad want or need without a target in mind.
As shoppers across generations and demographics become more focused on value than ever before, the excitement of finding something on sale has an even broader appeal. Millennials who grew up relying on e-commerce for all their needs are coming through the doors, too.
“Younger consumers are really open to that kind of open-minded approach to shopping, not necessarily coming in with a specific brand or product in mind,” says Rost. “Discovery is part of the experience.”
New York native Samantha Feldman, 55, shops at TJ Maxx or Marshalls at least once or twice a week and says she’s never ordered a single thing from them online. She always finds something interesting in there–stuff she feels she’d never find on department store racks.
“I know sometimes what they get is out of season,” said Feldman. “But if it’s new for me, it’s good.”