TJX needs to be better than better

Discount Store News, March 3, 1997

FARMINGHAM, MASS. -- Sometimes good news can be a burden. TJX Cos. is in an enviable position. Top of its class, the 1,032-store off-price leader saw sales grow from $4.0 billion to $6.7 billion in 1996, a 67% boost that includes the addition of Marshalls to the mix of chains led by T.J. Maxx.

The comp store gain was 9% for the fourth quarter, ended Feb. 1, and 7% for the year.

President and ceo Bernard Cammarata noted, "January consolidated sales were stronger than we had anticipated. As we begin our first quarter, inventories are in extremely good shape."

This statement was an echo from last summer, when in the wake of the Marshalls acquisition, Cammarata said the chain had performed better than expected during the fourth quarter of '95.

By performing above projections, TJX has raised investor interest--and the potential for disappointment.

TJX is lauded for a good degree of business acumen. But analysts point out that the company still must prove that its performance during the past 18 months hasn't been so much the result of luck as of skill.

"What no one really knows, even the company, is how much of what happened last year was essentially good luck," said Donald Trott, senior vp of Dean Witter. "There are times when your execution just works out to be perfect; your inventory plan is a beauty, etc.

"To the degree that any company establishes a pattern of continually beating expectations, the financial community builds into their assumptions the idea that, `these guys always do better; they say X; they'll do X-plus,'" Trott added.

Looking at the aftermath of the TJX masterstroke of acquiring its chief competitor, analyst Barry Bryant of Rodman & Renshaw observed, "People trivialize the problems in executing what's already on TJX's plate: the three-year integration and cost-cutting program for uniting the units."

Obtaining optimum synergy in combining the buyers, operations and real estate of the two chains will be no cake walk, although the company seems to be on track. It will bring SG&A to below 17% of sales this year, stepping toward the three-year goal of 14.5%, a key to sustaining robust margins.

Even as the company digests Marshalls, two more priorities loom on the TJX horizon: international expansion and a new domestic growth vehicle.

The Canadian format, Winners Apparel, has been a great success, now at 65 stores. The bugs also seem to be out of the Euro model, T.K. Maxx; 18 units now operate in the United Kingdom, with the next target of opportunity likely to be in the Benelux countries (Belgium, Luxembourg and the Netherlands).

TJX has told analysts it could ultimately operate 125 units in Canada, 125 in the United Kingdom and 300 across Europe. The rollout in Canada has been smooth, with the chain adding a dozen stores per year. The British stores are showing 40% comp gains and will increase by 15 units to 25 units per year.

Domestically, the "MarMaxx" complex has reached such a saturation point that the chain felt no pain in leaving Hawaii last summer. TJX sold the leasehold rights of its six Hawaiian stores to Ross Stores, its California-based, 309-unit rival.

Ross has been a star in its own right, with 1996 sales up 20% over '95, to $1.69 billion and comp store sales up 13%. Prior to the Marshalls/T.J. Maxx merger, Ross had outperformed both chains in operating profits, which were up 31% in '95, compared to a 17% drop that year at T.J. Maxx.

Trott said these results showed that the department store buyers, recruited by Ross Stores five years ago, were finally proving their skill at the off-price game.

TJX showed plenty of smarts in cutting away the unproductive Hit or Miss women's private label chain and the Chadwick's of Boston mail-order operation. That leaves these U.S. store counts: 578 T.J. Maxx units, 454 Marshalls stores and 22 HomeGoods stores.

There has been little progress with soft home and housewares-driven HomeGoods. Even though Cammarata said last year that MegaMaxx, a test of a hybrid HomeGoods/T.J. Maxx store in four locations, "could have significant impact as we move into the 21st century." There is no indication that the company has found its ideal growth concept.

Detecting an erosion. of buying power in the middle class, Bryant favors a downmarket concept for TJX. "They should go down one level, I mean below the Big Three marts, but they don't like the economics of the low-income consumer," he said.

Bryant suggested that among the home superstores, such as Bed Bath & Beyond and Linens 'n Things, "Nobody is really operating on an aggressive off-price basis."

No doubt that was a TJX assumption when it launched HomeGoods several years ago. Even for a conservatively paced company such as TJX, however, HomeGoods has not lived up to expectations.

And that is not what the market has come to expect of TJX.