I have never really given T.J. Maxx much thought. I can’t recall the last time I was in one of their stores, and going to T.J. Maxx has not been an obvious choice to me since I was in high school (and that tells you more about the shopping options in Manchester, NH, in the early 80’s than anything else). But now Fortune has an article singing the praises of T.J. Maxx — or more accurate its parent company TJX, which also owns Marshalls among other retail chains (Is T.J. Maxx the best retail store in the land?, Jul 24). The article is full of all sorts of interesting nuggets (TJX is basically the successor company of Zayre, another retailer from my childhood, who knew?!) as well as laying out seven “secrets” from the company playbook. Some of these are about positioning in the eyes of the customer (e.g., Put real treasure in the treasure hunt) or management talent (Find a CEO who gets retail). But many of their points go right to the stores operations and how it manages its supply chain.
The off-price business is a volume game: selling a ton of goods and selling them fast. The measure of speed here is how quickly a company turns over its inventory: TJX does that every 55 days, vs. 85 for its peer group, according to Morningstar. Indeed, the company is structured to whisk items through its distribution centers and stores—and a lot of items they are: TJX shipped some 2 billion units to its stores in its 2014 fiscal year (which ended on Feb. 1), up from 1.6 billion in fiscal 2010.
Former employees say that the stuff moves so rapidly that merchandise is often sold before TJX has paid its vendors for it. The busiest stores can take daily delivery of product, which employees put out on the floor right away—a “door to floor” approach that cuts down on the amount of space needed for backroom storage. Sources say items typically go on markdown if the turn rate is slower than about seven weeks, which also contributes to the rapid flow.
These claims got me looking at some numbers. The table below calculates the days of inventory and days in accounts payable for TJX and a few other national retailers of apparel and house goods.
|Days of Accounts Payable|
For those who like to think of things in terms of a cash-to-cash cycle, the difference between inventory and accounts payable basically give you their respective cash-to-cash cycles since all of these firms have at most four or five days of accounts receivable.
So TJX is decidedly faster than its rivals — both in how it moves inventory through its stores and how it pays its vendors. The former speaks to the points made above — the stores get frequent deliveries and merchandise moves immediately to the floor.
The accounts payable part says something about their dealings with suppliers. Discounting depends on volume. As the article points out, off-price retailers cannot live solely on closeouts and irregulars. TJX has over a thousand T.J. Maxx stores. Any vendor who routinely produced enough irregulars to stock all those stores would not be in business for long. Rather TJX needs brands to produce stuff just for them and that depends on having good relations with its vendors.
One reason the supplier relationship with TJX is so strong is that it has gotten so bad with the department stores. “A lot of buyers beat up people in the market to try to get what they want, as if they’re making a one-time car buy and they’re never going to go back,” says a former TJX buyer. Department stores want concessions for advertising and markdown allowances. They want money for delayed deliveries and returns. D’Arienzo says he had a client pay $1 million in markdown money to a department store for a product that didn’t sell. “The contention between the two partners is really serious,” he says. Many describe it as adversarial.
By contrast, the buyer-supplier relationship with TJX has historically been more of a partnership. “They grew up needing to be the nice guy, needing people to sell to them,” Tesler says. TJX buyers are taught to make the vendor feel like it’s a win-win and to leave the door open if they can’t come to an agreement this time around. “They’ll make a deal with a vendor they know isn’t a great deal to maintain or establish a relationship with a brand they know is important,” Tesler explains. TJX also pays on time, which seems like a given, but suppliers can go out of business because they don’t always get paid.
With TJX, myriad sources told Fortune, you know what you’re getting. “TJX is going to squeeze you for the best price upfront, but that’s it,” Rosengard says. “That’s the good and the bad.”
The article also points out that TJX’s large number of stores benefits it when dealing with suppliers. Spreading a shipment from a designer across a thousand plus stores allows for the designer to move a lot of stuff without any one store screaming that the designer has gotten desperate to dump inventory.
A final point. Virtually any story of a company that is outperforming its industry by following a unique strategy (e.g., Southwest or Zara) inevitably points to the importance of integrating operations with other dimensions of strategy. For TJX frequent deliveries and good relations with vendors gives them an essentially always-fresh inventory with some great values. That in turn gives customers a reason to visit frequently and buy quickly when they see something they want. But loyal frequent shoppers makes it easy to justify sending new stuff to the stores every day while also giving vendors confidence that selling through T.J. Maxx won’t mean that their goods will languish on the shelves.