Why T.J. Maxx, Marshalls Thrive As Loehmann's Goes Bankrupt

Yesterday, news spread that Loehmann's had filed Chapter 11 bankruptcy for the third time. Meanwhile, T.J. Maxx and Marshalls, also discounted retailers, are thriving, with third-quarter sales at its 3,000 stores increasing 9 percent to $7 billion, as same-store sales grew 5 percent. And with a tough holiday season underway as retailers compete with online and mobile sales, how exactly are T.J. Maxx and Marshalls staying so far ahead of the game?

When it comes to being a step ahead of fellow discounters, such as Loehmann's, the sheer size of TJX Companies (NYSE: TJX), which also includes interior discounter Homegoods, makes a big difference.

"If T.J. Maxx [hypothetically] goes to Van Heusen, and says, 'We like this $40 shirt you're selling at Macy's, but we want to retail it for $22. We don't need the lining and we could use cheaper buttons,'" T.J. Maxx will get what it asks for because it will place an order of one or two million, Howard Davidowitz, chair of retail consulting and investment banking firm Davidowitz & Associates, told CNN. Davidowitz goes on to explain that for smaller companies like Loehmann's, which only operates 39 stores, finding goods that customers want to buy is much harder. Oftentimes, smaller discount retailers get stuck with overages, last-season or even slightly damaged merchandise, all of which make for a tougher sell.

Another factor that contributes to TJX's success in the critical year-end period is the surge of shoppers who have less money to spend on holiday gifts. While major retailers have had to drive in shoppers with heavy discounts store-wide, T.J. Maxx, Marshalls and Homegoods are discounted to begin with. That means buyers at TJX corporate offices start negotiations with their suppliers at a much lower cost.  So even if a shopper buys a sweater for $19.99 from T.J. Maxx, the company gets a higher markup than Macy's or J.C. Penney hypothetically would by selling a $19.99 sweater to a customer using a 20% coupon, which most retailers offer en masse during the holidays.

Consider, too, that shoppers at TJX's stores seem to live for the thrill of the "treasure hunt." Shoppers at discount retailers tend to buy more items per transaction, with a "this is a one-of-a-kind deal that I must get before it's gone" mentality. Merchandise at T.J. Maxx and Marshalls varies greatly from store to store, even in the same city, thus if customers don't grab that must-have item now, there's a chance they won't find it elsewhere.

For more see:
-This CNN article
-This Bloomberg Businessweek article

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