The CEO of TJX on How to Train First-Class Buyers

Fashion runs in my family. My father was in wholesale, and my mother is an artist. My dad was a very good businessperson, smart and empathetic. I grew up spending a lot of time in his tore in New York, and I knew early on that business and working with people were my passions. Before and during college, where I majored in marketing and management, I was a part-time salesclerk at Fortunoff. After graduation I joined Saks Fifth Avenue in New York and then went to Bamberger's. In 1983 I moved to Boston to join first Hit or Miss, a chain of fashion stores that later became part of TJX, and then Chad wick's of Boston, my company's former catalog division. I filled several executive roles at TJX before becoming CEO, in 2007.

Today TJX operates seven retail brands in the United States, Canada, and Europe, and is the leading retailer of off-price apparel and home fashions in the U.S. and worldwide, with $27.4 billion in sales in 2013. Our businesses offer a treasure-hunt shopping experience for great fashions, brands, and quality merchandise, all at amazing prices - that's how we define value. We operate very differently from traditional retailers. Each of our stores has a vast number of SKUs, offering customers nearly an entire mall within about 23,000 square feet of selling space. To find the right products, we source from more than 16,000 vendors around the globe. We don't want to be deep in any one product, and we don't try to carry every size or every style of an item. Customers come to our stores to find something surprising and special at an outstanding price - what we call the wow factor. When they find it, they feel compelled to buy it right away, because they know that particular item probably won't be there the next time they visit. Our merchandise assortments turn over very rapidly.

One key to driving our business is teaching and developing talent in our buying organization. Buyers must thoroughly understand consumer and fashion trends and the right value for every product we sell. They have to be opportunistic and extremely flexible. They have to develop relationships with our vendors, which takes a lot of time. Becoming an outstanding buyer demands curiosity - and a lot of training. We have to teach our buyers how to select the right products, how to develop advanced negotiation skills, and how to communicate with vendors. Our long-term vision is to grow TJX revenue to $40 billion and beyond. Even with more than 900 merchants in our buying organization, to achieve that level of growth we need to expand our base of buyers and develop a larger talent pool in every area of our business.

We've always been committed to teaching the off-price business to our merchants. Over the past several years we've formalized our teachings in an ambitious training program that we call TJX University, which I believe it one of the best training programs in retailing. In addition, everyone in management spends a great deal of time teaching and mentoring our people. For me, as CEO, it's an absolute priority. Yes, CEOs are responsible for short- and long-term strategy, to Wall Street, and to their boards; but teaching is crucial to reaching our goals, creating shareholder value, and continuing to drive the long-term success of the company.

Committed to Developing Talent

We hire people for our buyer training program every year, many of them right out of college. Last year we hired more than 100 new associates, and before they completed their training, senior management had met every one of them. Some of their training time is spent in the classroom and some in stores - our own and our competitors'. Communication is imperative - we have no walls between departments in our stores, and we take the same approach in our organization. We want the way we do business - with integrity, honesty, and caring about one another - to continue to permeate our culture, and we speak to this within our program. We've developed financial training so that associates understand the ramifications of the buying decisions they will make. We are all teachers at TJX, so experienced buyers serve as mentors to future buyers. This one-on-one training is vital.

After associates complete the initial training, they spend a substantial amount of time in our planning organization, which allocates merchandise to stores. There are several additional steps before someone becomes a buyer, and our planners and future buyers often move around quickly between departments, our retail brands, and our locations. It's important that they be exposed to different parts of the business, and it's an advantage that we can move them across divisions both domestically and internationally to gain global experience.

We teach our future buyers to be entrepreneurial and empowered. We want them to feel confident that they can go into the market and seek out the best of the best. One day they may buy 600 items - or they may buy several million units. They need to be intelligent risk takers. Our buyers generally deal with a much broader universe of suppliers than buyers at traditional retailers do. They need to have great instincts and to be comfortable making big decisions.

Our mode requires them to be very team-oriented. Let me give you an example. Not long ago, a buyer for a particular product category decided that the offerings that season weren't very strong. So she opted to cut her own budget dramatically and have those dollars allocated to other categories that seemed more likely to drive sales. Think about that for a moment: How many buyers at a traditional retailer would voluntarily cut their own budgets? At TJX we reinforce sharing among our buyers by awarding bonuses on the basis of divisional and overall company performance rather than the performance of individual merchandise categories.

In retailing all buyers are going to make some mistakes - and learning from them is a key part of the training we provide. When they make mistakes, we want them to go back and examine their merchandise in the stores, and evaluate whether it originally felt right from a fashion, brand, quality, and price perspective. If something doesn't sell as well as we would like, we mark it down quickly and learn. But the buyers must continue to take intelligent risks.

We all recognize that buyers are part of the heart and soul of the organization. It's an advantage that I and many other people in senior management spent years in that role. Because our buyers know that, and know that we feel passionate about the product, they can relate to us: We have credibility as teachers. I tell them that I was lucky to have a series of important mentors during my career, and we encourage them to develop those kinds of relationships. We have a casual, open culture here. I know most of our merchandise managers, and our senior executives are very close to our buyers.

Preparing Managers for Leadership

The biggest transition most successful buyers will face is moving from an individual contributor role into a leadership role. We do a lot of training to prepare for that transition. It can be jarring for someone who has been successful individually to suddenly be responsible for the performance of others, and making that work is not necessarily intuitive. As their leadership roles change - whether they move on to become merchandise managers or higher-level executives - we continue to train them to succeed.

In all our training we emphasize the importance of listening. Our business is about relationships, and you can never have a good relationship if you're not listening well. People who are too closed minded or too linear can have a hard time succeeding as buyers and certainly as managers. Today many companies are shifting to analytics and trying to use data to scientifically predict what consumers will buy. I think that approach can be taken too far. I worry that if our company were to become too analytical and our buying process too automated, customers would no longer find the exciting and surprising products that create the treasure-hunt experience they expect every time they walk into one of our stores.

As we think about growing our company, we know we need to continue to develop and expand our talent pool ahead of our store growth. Hiring and training are important pieces of our plan to add talent, but retention is clearly very important too. It's not unusual in the retail industry for people to move around. I believe that one reason we hold on to our best people is TJX's culture. We are very family-friendly. We encourage people to balance work and home life - whatever that means for each individual. As a result, people tend to stay. Many of them have been here more than 30 years, as I have.

Teaching is Key for Long-Term Success

My role as a teacher goes beyond our buyer training program - it's a part of everything I do. Whenever I walk into a meeting in any area of our company, I'm thinking, what can I teach during this meeting? Often, if someone asks me to make a decision or offer feedback, rather than announcing my view, I'll ask questions: Do you see the similarities between this and that? If we decide this way, what will be the ramifications five or 10 y ears from now?

I try to guide the group to a decision that way. As a manager, I look for teachable moments every day. There is nothing I enjoy more than walking through our stores with a group of buyers, creating those moments. We talk about categories, and products, and our shoppers. Those are my favorite days as a leader.

A key to our success at TJX is our ability to recruit people who are curious and have tremendous passion, whether it's for merchandising, finance, store operations, logistics, human resources, information technology, real estate, marketing, or communications. As leaders, we must make teaching a priority and create an environment in which our associates can grow and learn every day.

As of 2014 TJX employed about 191,000 associates worldwide, and 58,000 of them were hired in just the previous five years. As CEO, I'd be very happy if five years from now I could tell you we had hired just as many more. Ultimately, our success, now and in the future, relies on our associates, who bring our business to life every single day for our customers

Problem 6 (10 points) A portfolio of derivatives on a stock has delta of 2400 and a gamma of -100. a) What position in the stock would create a delta neutral portfolio? b) A call option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded. What position in the option and the stock creates a portfolio that is both gamma and delta neutral? c) What is the main difference between replicating and hedging a portfolio?