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USA: How does TJ Maxx keep its prices so low?

Updated: Mar 6, 2023

Discount Retail Chain TJ Maxx (owned by the TJX Companies) CEO Ernie Herrman said in a call with investors last month, announcing its fourth-quarter and fiscal 2023 earnings, that the company is in an extremely strong position when it comes to sourcing inventory, describing the current inventory availability as "phenomenal."

  • TJ Maxx sells products at 20% to 60% cheaper than department stores and retailers.

  • It does so by buying surplus inventory from retailers.

  • Recent store closures and a slowdown in consumer spending have given it access to more inventory.

Recent store closures, and a slowdown in consumer spending because of inflation, have meant that many retailers are being left with a surplus of stock that they want to offload in a quick and discreet way, and TJ Maxx is often the perfect solution for this.

The chain buys up excess inventory at a discounted rate and sells it to the consumer at bargain prices, typically 20% to 60% less than full-price retailers. It is an attractive place for retailers to offload inventory because TJ Maxx is happy to buy incomplete assortments, buys without asking for returns privileges, and mostly sells in-store so there's limited risk of discounted brand names being splashed all over the internet which could harm the brand image.

So, how does it keep its prices so low?

A network of experienced buyers

TJ Maxx has a team of more than 1,200 buyers who source products from its 21,000 vendors globally. These buyers are the "secret sauce" to its success, Neil Saunders, managing director of GlobalData Retail, told Insider. They know where to look for the best deals and cast their web wide.

Brands that want to offload inventory

TJ Maxx's buyers know how to negotiate the best prices but they're also in a strong position to do so. Essentially, parent company TJX buys other companies' mistakes when they've ordered too much inventory or demand has tailed off, Simeon Siegel, managing director of BMO Capital told Insider. "Inventory doesn't get better with age," he said, and because retailers are aware of this, TJ Maxx pays much less upfront for this product.

2022 was a good example of how the market can turn in TJ Maxx's favor. While the company was subject to industry-wide rising supply chain costs, the snafus in this pipeline meant that many retailers were receiving the wrong inventory at the wrong time and an easy way to get rid of it was to sell to the off-price channel. TJ Maxx continues to have the "pick of a large pool" when it comes to inventory, Morningstar analyst Zain Akbar wrote in a note to clients in January.

Buying in bulk

The scale and size of TJ Maxx, it has vendors in over 100 countries and stores in nine, mean that its buying team is often buying product in bulk, which gives it more room to negotiate deals with sellers.

According to Morningstar research, it also buys up inventory when it's cheaper to store up for future seasons. And as it's happy to buy a limited assortment rather than the full collection of sizes and styles from a retailer, it is an attractive option for these stores and therefore has more leverage to bargain on price.

It sells its own brands

TJ Maxx also sells products that are manufactured especially for the chain, which means it has direct control over the pricing in this area. This is an area of its business that is growing, Siegel said. Well-known brands like Ralph Lauren have been known to make items for TJ Maxx in the past, but pulled back in a bid to address worries about brand exclusivity.

Low maintenance stores

TJ Maxx's low-frills stores also help to keep costs down. These stores are typically stuffed with racks of product. The appeal here is the treasure hunt shopping experience, where customers care more about assortment and price than the store design.

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