TJX Companies : It's Srategy in Off-Price Home Accessories and Apparel Retailing

In February 2018, TJX Companies, Inc., the worlds largest off-price home accessories and apparel retailer, completed 42 years of operations with several enviable milestones: the company had edged up to number 85 on the Fortune 500, surpassed $35 billion in sales, and opened its 4,000^th store, guided by a highly effective global strategy. Sales had growth over eight percent and comparable store sales increased 2 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, international 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 chans had e-commerce capabilities, in a world ostensibly focused on e-commerce, TJX had been very successful concentrating on its brick-and-mortar chains. Given TJX's steadily increasing 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 locations produce more sales and profits?

TJX : An Overview

TJX traced its origin to the Feldberg cousins who opened their Zayre (Yiddish for "very good") discount store in Hyannis, Massachusetts in 1956. Over the years, Zayre purchased a women's clothing chain, opened Chadwick's of Boston, launched a membership warehouse club, and a home improvement chain. The first T.J. Maxx opened 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. In1989, Zayre divested its warehouse club division, and acquired minority ownership in TJX companies that had been publicly 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 brandname family apparel in the United States.

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 0ff-price home fashion 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 store 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 continued 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 consolidated it's A.J. Wright division, converting 91 stores to Marshalls was launched in Canada in 2011 and 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 following 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 a 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 9 countries - the United States, The Netherlands, United Kingdom, Germany, Republic of Ireland, Austria, Poland, Australia and Canada.

TJX's Strategic Vison and Management Focus

TJX's Mission was :

Our mission is to deliver great value to our customers everyday. We do 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.

TJX management believed that the company had one of the most flexible business model 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 merchandised 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 merchandised from around the world from a group of 20,000 vendors in over 100 countries. TJX was an industry leader in innovation: the company relentlessly tested new ideas, trying to find the current fashions and top brands, and leveraging information from their global worldwide purchasing network. Also, the company was financially 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 ability to achieve corporate goals for global growth.

TJX's management was focused on increasing market share, while simultaneously delivering profitable 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 strength:

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 fron 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.

TJM's Stock Performance

TJX had its IPO on August 4, 1989, and the stock began a steady uptrend of growth 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 dividend increase of 25 percent ($.39) and announced plans to repurchased $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 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. AIN 2018, TJX planned an increase of approximately 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 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 merchandise. The primary difference between T.J. Maxx and Marshalls was their product assortment of fine jewelry and accessories and a designer section called The Runway at T.J. Maxx, and a full line of footwear, a braoder men's offering, and a juniors's department named The Cube at Marshalls. The intent of the differentiated shopping experience at the two stores was to encourage customers 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.

Marmaxx was the largest and most profitable of TJX's divisions, and the company saw significant growth ahead for the division. Marmaxx's continued comparable store sales and traffic increases in many different retail and economic environment gave TJX confidence in the division's continued growth. Also, new store continued to reach their tragets and, overall, to generate attractive returns. Marmaxx had a 1 percent comparable store sales increase in 2017, which met the low end of the company's expectations, despite a significant negative impact of severe weather during the year. Marmaxx was focused on driving customer traffic and comparable sales increases, and had a long-term target of 3,000 stores reflected TJX's determination and perceived ability to further penetrate existing U.S. markets.

Homegoods

The Homegoods segment was introduced in 1992, and became the leading off-price home fashions retailer in the United States. The HomeGoods offered offered an extensive assortment of home fashions, including furniture, rugs, lighting, decorative accessories, tabletop and cookware as well as expanded pet, kids and gourmet food departments through its 667 stores. In 2017, HomeSense was launched in the US with four store. HomeSense complemented HomeGoods by offering a differentiated mix and expanded departments, including furniture, lighting and rugs as well as new departments, such as a general store and an entertaining marketplace.

The HomeGoods division celebrated its 25^th anniversary in 2017, with 4 percent comparable store sales growth, primarily driven by customer traffic. Also, it launched HomeSense in 2017. The company. The company expected significant future growth for HomeGoods and HomeSense, because it believed that the US market was underpenetrated. At Homegoods, the long-term plan was to expand to 1,000 stores, over 300 more than in 2017. The company was confident in their plan because of Homegoods' long-history of good performance, and there 65 top markets with a T.J. Maxx or Marshalls that did not have a HomeGoods. The first four HomeSense four stores were opened in 2017 to an overwhelmingly positive customer response. TJX planned to continue opening HomeSense stores in their larger HomeGoods markets to encourage customers to shop both stores. Based on response to the first four stores, the company believed it could expand the HomeSense brand to about 400 US stores over the long term.

Foreign Segments

TJX Canada acquired in 1990 , TJX Canada operated the HomeSense, Winners and Marshalls chains in Canada, Winners was the leading off-price apparel and home fashions retailers in Canada. The merchandise in Winners' 264 Canadian stores was comparable to TJ Maxx, with select stores offering fine jewelry, and "The Runway", which was a designer section. The HomeSense chain was opened in 2001, and introduced the off-price home fashion concept to Canada. HomeSense had 117 stores with a merchandise mix of home fashions similar to homegoods in the US. The Canadian Marshalls was launched in 2011 and operated 73 stores in Canada in 2017. The Canadian Marshalls stores offered an expanded footwear department and "The Cube" juniours department, similar to Marshalls in the US, differentiating them from Winners stores.

The three Canadian chains had a comparable store sales increase of 5 percent in 2017, with all 3 chains having strong results and increases in customer traffic. The TJX Canada division had grown into the largest off-price apparel and home fashions retailer in Canada. Due to the division strong results and growth forecast. TJX increased the long-term store of TJX Canada by 100 stores to 600 total stores.

TJX International segment operated the T.K. Maxx and HomeSense chains in Europe and the T.K. Maxx chain in Australia, T.K. Maxx was launched in 1994, and introduced off-price retail to Europe. T.K. Maxx was the only major brick-and-mortar off-price retailer of apparel and home fashions in Europe. T.K. Maxx operated 540 stores in the U.K., Ireland, Germany, Poland, Austria and the Netherlands, offering a merchandise mix similar to T.J. Maxx through its storesand e-commerce website for the U.K., tkmaxx.com. TJK International brought the off-price home fashions concept to Europe in 2008, opening HomeSense in the U.K. In fiscal year 2018, two HomeSense 55 stores offered a home fashions merchandise mix similar to homegoods in the USand HomeSense in Canada. Trade Secret in Australia was acquired in fiscal year 2016 and rebranded T.K. Maxx during fiscal year 2018. The merchandise offered at Trade Secret's 38 stores was comparable to T.J. Maxx.

TJX International's (T.K. Maxx and HomeSense Europe and T.K. Maxx Australia) comparable store sales increased 2 percent I 2017, consistent with company plans and expectations. TJX was satisfied with the gains in customer traffic and believed that the division gained market share. The company was confident of significant long-term opportunity and believed that the division had the potential to grow TJX International to 1,100 stores in just the countries in which they were located.

TJX Maxx and HomeSense were the only major brick-and-mortar, off-price retailers of clothing and home fashions in Europe and they planned to continue capitalizing on their first-mover advantages. They were also focusing on growing tkmaxx.com in the UK. In 2017, TK Maxx introduced "Click and Collect" in the UK, which allowed online shoppers to pick up their purchases in the stores.

TJX bought the Australian off-price retailer Trade Secret in 2015 and in 2017, converted those stores to T.K. Maxx Australia. In its first year of operation (2017) the division surpassed sales projections.

TJX Companies, Inc. Financial Performance in Fiscal Year 2018

TJX had enjoyed impressive revenue growth from approximately $1 billion in fiscal year 2016 to nearly 35.9 billion in fiscal year 2018.

Store Growth

A central part of TJX's global growth strategy focus was the addition of new stores to expand its business, and the the primary growth startegies were increasing customer traffic and comparable store sales and growing the global store base. The company was confident that their value concept could work in any country in which consumers wanted great fashion and top brands at great-value prices.

In the US, the company saw meaningful growth potential fro Marmaxx, which had been the largest and most profitable division. Marmaxx had shown continued comparable store sales and traffic increases in many different retail and economic environments, and TJX management believed there was a long-term potential to grow the Marmaxx division to 3,000 stores which was over 700 more stores than at the end of fiscal 2018. In 2018, the company planned to open about 65 new T.J. Maxx and Marshalls stores.

TJX believed that there was a large opportunity for growth at HomeGoods and HomeSense in the US, both of which were underpenetrated in the US home market. The company believed that its ability to leverage its global teams, and its infrastructure and operational expertise were major reasons to be confident in continuing to open stores successfully around the world. TJX's management believed that the company had a huge opportunity to gain market share around the world.

The number of stores and store growth for the 4 major segments in the last 2 fiscal year and growth estimates for fiscal 2019 and long-term store growth potential of these segments in their current geographic locations.

Windfall from the tax cuts and job acts of 2017

On Decmber 22, 2017, President Trump signed the tax cuts and job cuts of 2017, which amended the internal Revenue Code and among other things, reduced corporate tax rates. This legislation benefited TJX in 2017, and the company believed that their business would continue to benefit from the tax reform, primarily due to lower US corporate income tax rates. The company used part of the expected cash benefits to make investment in its employee's communities. Eligible, non-bonus plan employees in each of TJX divisions worldwide were given a one-time discretionary bonus and the company made incremental contributions to its defined contribution plans around the world for eligible participants.

In the US, TJX planned enhanced vacation benefits for certain employees and introduced paid parental leave. In 2017, the company made sizeable contributions to its charitable foundations and planned to use the tax reduction windfall to significantly increase its charitable giving. Also, the company planned t increase its shareholder distribution programs.

In addition to the expected cash benefits due to US tax reform, TJX planned to repatriate over$1 billion form Canada back to the US. Consequently, the company was able to increase its per share dividend and planned a substantial share buyback program. In addition, the tax reform benefit enabled TJX to move forward investments in store growth, technology and employee training.

TJX's Performance in Fiscal Year 2019

TJX's first quarter fiscal 2019 net income was $716.4 million, or $1.13 per share, compared to 536.3 million and $0.82 per share in the same period during 2017. The increase in net income per share exceeded expectations helped drive the company's per share price higher. Sales increased year-over-year by 12 percent in Q1 fiscal year 2019, reaching $8.7 billion. The increased revenue was largely due to increased store traffic and increased comparable store sales in the four large divisions.

The strong first quarter fiscal year 2019 performance led to the company increasing its upper-end fiscal 2019 adjusted EPS guidance by $0.02. The company's new expectation for adjusted diluted earnings per share (which excludes the benefit from the 2017 Tax Cuts and Job Act) was in the $4.04 to $4.10 range. This guidance was a 5% to 6% increased over the prior year's adjusted $3.85, which excluded $.17 net benefit due to the 2017 Tax Cuts and Jobs Act, a benefit of approximately $.11 from the extra week in the company's fiscal year 2018 calendar, and a $.10 impairment charge related to Sirra Trading Post from GAAP EPS of $4.04. This guidance also assumed that wage increases would negatively impact EPS growth by two percent. The outlook for EPS continued to be based upon estimated consolidated comparable store sales growth of 1 to 2%. Continued focus in the effective execution of its strategy gave TJX management and investors good reason to believe its competitive advantage could be sustained in the near term.

Questions:

1.Make a industry strategic group mapping and what is TJX Company's competitive position in the industry using strategic group mapping?

2.Indicate the attractiveness of TJX company position in strategic group mapping?

3.What are companies are in the strongest position in the industry strategic group mapping?

4.Who are the companies that are weakest in the industry strategic group mapping?

5.What are strategy elements of TJX company prosper in the marketplace as the company's key success factors?

6.What are TJX company dominant characteristic, product attributes and competitive capabilities to have competitive advantage in the industry?