T.J. Maxx sizes up its options; search goes on for successful prototype formula - off-price apparel chain

Discount Store News, April 23, 1990

T.J. Maxx Sizes Up Its Options

Search Goes On For Successful Prototype Formula

FRAMINGHAM, Mass. -- Sizing is everything in retailing. T.J. Maxx is taking this maxim to heart as it plans to test both larger and smaller prototype stores in 1990.

The 350-store firm, the largest segment of the TJX Cos., expects to open three additional smaller prototype stores this year, ranging between 17,000 square feet and 20,000 square feet. The off-pricer will also open from three to five larger stores of about 35,000 square feet. Existing T.J. Maxx stores are generally between 20,000 square feet and 25,000 square feet in size.

T.J. Maxx will continue to be TJX Cos.' "major engine," accounting for approximately 78 percent of sales, estimated analyst Richard Baum of Sanford C. Bernstein & Co., New York. Baum reported that operating profits, fueled by continued new store growth, comparable store growth and an increase in the operating profit rate, should grow about 14 percent per year.

Baum added that the smaller T.J. Maxx prototype stores are "an opportunity for the firm to extend its concept as saturation occurs in its larger markets in the mid-1990s . . . and represents a significant point of differentiation between T.J. Maxx and Marshalls"--its most direct competitor.

Still, the smaller prototypes, 10 of which were already in place in 1989, are recording mixed responses. In fact, a projection of 10 new stores was adjusted to only three new units for the current year.

"We still don't have the smaller store concept worked out to a level we are satisfied with. We don't plan on accelerating until we do," a company spokesman reported.

The smaller units are targeted to serve "micropolitan" areas. About 150 of these market areas representing populations of between 100,000 and 250,000 have been pinpointed by the company, though no specific locales have been named.

Part of the problem confronting these smaller units, according to Baum, is that consumers may not be as educated regarding off-price merchandise as their cosmopolitan counterparts. "Ironically, T.J. Maxx is finding that because of the lack of department store competition in these markets, it is having a difficult time validating its concept," said Baum. "Instead of recognizing a great value in a well-known brand name sweater at $24.99 [compared with $35 or $40 in a department store], the consumer compares the sweater to the local apparel alternatives at $14.99 to $19.99."

While T.J. Maxx struggles to adjust and change the smaller prototype formula, it seems to be finding that bigger is sometimes better. Plans are underway for larger prototypes and even the planned smaller stores have gone up from 17,000 square feet to about 20,000 square feet.

The increase in minimum store size was, in part, an attempt to preserve the store's merchandising mix. The company did experiment with the smaller units, leaving out certain departments such as giftware and domestics. However, focus group feedback indicated it was more profitable to reinstate these for a broader merchandise base.

In addition to the new prototypes and 35 full-line stores projected for 1990, other growth directions the discounter is targeting for the new decade include further expansion into merchandise categories such as giftware and jewelry, already featured in a number of T.J. Maxx units.

The discounter carries jewelry in 120 of its stores with an additional 70 locations slated to embrace the merchandise category in 1990. This category is viewed as an especially high potential growth area. The Bernstein analysis pointed out that it requires a relatively small amount of space (the equivalent of two or three sportswear racks) though it provides high productivity per square foot.

Giftware is featured in almost all of the T.J. Maxx units with plans for this merchandise area to be expanded in 1990 as well.

Cosmetics is another consideration. Though no T.J. Maxx store currently carries this merchandise, Baum described it as a possible merchandise area for the retailer, though admittedly several criteria need to be examined by management before the category is introduced.

Among these considerations are the ongoing availability of department store brands, the ability to offer the customer real value compared to conventional department stores, the sales and profit potential of the category, and the company's merchandising, operational and distribution expertise to deliver the product effectively to the consumer.

The company would not comment on specific plans for this area in the near future.

Baum attributed lower revenues recorded in 1989 to such factors as the extraordinary level of promotional activity from Macy's and the Campeau stores, a mild fall season, a general slowdown in off-price apparel sales and some inventory mistakes--such as a merchandise mix that relied too heavily on upper-end rather than moderately priced merchandise and a delay in making commitments to heavier fall merchandise.

Despite weak store sales performance through fiscal 1989, especially in the third quarter, TJX Cos., reported a 142.9 percent gain in earnings for the fourth quarter ending Jan. 27, 1990. Earnings from continuing operations in the quarter rose to $25.2 million, from $10.4 million, largely due to growth in its T.J. Maxx division. In his analysis, Baum estimated T.J. Maxx operating profit for calendar 1989 at $135 million and sales for the same period at $1.7 billion. For the parent company, sales for fiscal year 1989 were $2.1 billion, an 11.9 percent increase from 1988.