Behind the bargains at T.J. Maxx, Marshalls

ByJayne O'Donnell, USA TODAY
October 26, 2011, 12:54 PM

— -- Shelly Levy could be T.J. Maxx and Marshalls' dream customer.

The Houston legal assistant shops at the stores once or twice a week, lured by the chance of getting buys like the Nanette Lepore dress she had seen a year earlier at Neiman Marcus, designer jeans by Seven and Joe's and an Isabella Fiore handbag at Marshalls that all her friends were envious of.

"Treasure hunting" attracts many to the off-price retailers, according to TJX tjx , which owns both stores, along with the home furnishings chain HomeGoods. Off-price stores sell name-brand clothing, jewelry, luggage and other items found in other stores, but at prices that are often far lower. They can do this, in part, because they sell merchandise from a previous year or season that a store or brand couldn't sell and unloaded for pennies on the dollar to a liquidator. Or so the thinking goes.

In a rare interview, TJX CEO Carol Meyrowitz explained how conventional wisdom is wrong when it comes to T.J. Maxx and Marshalls. Meyrowitz, 57, has been with TJX for almost 30 years, rising from a buyer in 1983 to CEO in 2007. During that time, the chain has turned into a retail powerhouse, with more than 1,700 stores — nearly as many as Target. She says 85% of what the stores sell is from the same season and same year it was designed for, and 85% is purchased directly from manufacturers. Much is identical to what the brands sell in department stores, she insists. Less than 5% is irregular.

These distinctions are more significant than ever for consumers looking for a "good buy" in a sea of deals.

TJX's sales were down only once in the last 34 years — 1995 — but the competition for bargain-hunting shoppers is coming from an increasing number of sources. Outlet stores now occupy 68 million square feet of retail space, up from 56 million in 2006, according to Value Retail News. Outlet stores typically only sell one retailer or manufacturer's brand, but that difference is fast getting muddled, too. When you add Web-only off-price stores such as (formerly and sites with short-term deals known as "flash sales," you have a consumer bombarded with purported bargains and a demand for discounted goods that couldn't possibly be satisfied with last year's leftovers and manufacturers' mistakes.

"For brands, the discount segment represents a huge revenue channel," says retail strategist Alison Jatlow Levy of consulting firm Kurt Salmon. "The challenge for brands is how to manage it without negatively impacting their image."

The source — and quality — of all this marked-down merchandise can be confusing to shoppers. Outlets, like off-price retailers, sell at least some products that were "never intended to ever touch the doors" of traditional retailers, says retail brand expert Ken Nisch.

"Consumers are taken by brand names and styles, and quality, I think, comes in second," says Lisa Lee Freeman, editor-in-chief of ShopSmart, a magazine published by Consumer Reports. "Gone are the days when people bought shoes and other clothing and hung onto them for years and years and repaired them to keep them in top shape."

How it works

Meyrowitz says TJX typically deals directly with brands — not with liquidators.

But there is an interesting sort of denial associated with these brand/off-price relationships.

Coach spokeswoman Andrea Resnick referred to T.J. Maxx and Marshalls as the "disposition channel," and says the brand does not design or manufacture for it. She acknowledges that the company's licensees, which make products including shoes and wallets, sometimes sell to off-price stores but that it's only "excess discontinued inventory."

Others may prefer to fib.

"We're absolutely fine with every vendor saying they don't do business with us," Meyrowitz says. "It's a very important part of our relationship."

Spokespeople for Ralph Lauren, Michael Kors, Anne Klein, Jones of New York and Nanette Lepore — all brands sold in T.J. Maxx and Marshalls — did not respond to requests for comment on whether they sell to the stores.

Indeed, there's a fair amount of throat clearing in the world of discounted designer apparel.

Steven Davis, president of the designer flash sale site Rue La La, says he's "never known a brand to deny" doing business with the site. He says brands featured on Rue La La — which include Kate Spade and Cullen — think of it as just another boutique they do business with. The brands like the fact fashion is displayed on models, not messy racks, he says.

Meyrowitz, who never mentions any of the company's brands by name, says manufacturers like doing business with her company because "we're not fair-weather friends. When we buy it, we own it." TJX is there to help when stores buy too much and return unsold merchandise to manufacturers, but also when manufacturers and designers want to lower their per-item cost by making extra for the company's stores.

"There's a degree of wink, wink," says Nisch, chairman of the retail branding and design company JGA. "Manufacturers need off-price in order to survive, but they can make too much and destroy the value balance between supply and demand."

TJX has 700 buyers around the world that are part of what Meyrowitz calls a "supplying machine." The company works with different factories and agents and maintains offices in countries including Italy, India and China, she says. Buyers work with about 14,000 vendors in "a million different ways," says Meyrowitz, who calls it "opportunistic buying."

T.J. Maxx and Marshalls customers have an average household income of $40,000 a year, but some make "several million dollars a year," Meyrowitz says.

"There are very few retailers that get that breadth of shoppers," she says.

When it comes to shopping at her favorite stores, Shelly Levy, 48, says, "It doesn't matter to me that it's last year's or not.

"I don't think people that shop there all the time worry about what season or year it is, especially now when fashion is all over the place and the prices are so incredible" at T.J. Maxx, she says.

But it matters to Meyrowitz that shoppers realize less than 15% of the merchandise is last season. The company changed its marketing to emphasize details like this because it realized its old strategy was talking to existing customers, when it really wanted to attract new ones. Price tags say "past season" if it is.

What TJX shoppers new and old share is enthusiasm for their deals.

Lynn Richardson of Windsor Mill, Md., says she recently got Coach boots at Marshalls for $125 that she says sold at Coach for about $250. She also bought Ralph Lauren jeans that were reduced from $99 to $29 and shops regularly for Polo Ralph Lauren shirts at the stores.

"Marshalls has more Polo than any other retail store," she says, in a comment that would surely make Ralph shudder.

Many paths lead to off-price retailers

A few retail realities combine to assure a steady supply of name-brand merchandise from the current season in off-price stores.

•Designers and brands typically take back what stores can't sell after prices are marked down to a certain level. Dan Butler, vice president of retail operations at the National Retail Federation, says some manufacturers sometimes make too much because they overestimate demand or stores may cancel orders.

•Department and specialty stores display clothes long before people usually have a need to wear them. So when stores return merchandise that isn't selling to the manufacturers, the manufacturers can easily turn around and quickly sell it to off-price stores in the same season. But stores have gotten smarter about what and how much to order, so they don't have to cut prices too much or go through the hassle of shipping unsold items back to the brands.

•Manufacturers will often make an almost identical piece of clothing with a slightly different fabric or less detail — such as fewer pockets or rhinestones — for outlets or off-price stores than what they sell to department stores. TJX, which owns T.J. Maxx and Marshalls, says it gets identical merchandise to that sold in department and specialty stores. Manufacturers also often have extra fabric or factory capacity, so they have an incentive to make more, say, shirts or pants if they know they have a willing buyer.

Whether off-price deals are truly "good" gets into the more nebulous area of quality. When Consumer Reports compared the clothing from brands' outlet stores with that in their regular stores for its November issue, the magazine said the quality was often the same, although retail stores' merchandise was "usually a trifle better because of construction details or better materials."

"It's logical that (brands) would want to maintain a certain baseline quality for both the outlets and any additional runs they do for T.J.'s and Marshall's," says Lisa Freeman, editor in chief of ShopSmart, a magazine published by Consumer Reports. "After all, they don't want to hurt their brand image. The fact is that these quality differences are often very slight and might not be very noticeable to the consumer."

The quality question

Even if brands matter most to many consumers, TJX knows quality counts. And the company is working hard to shake any lingering doubts about the stores being filled what used to be known as "seconds."

"It's all about the quality, and the quality vs. a department and a specialty store," Meyrowitz says. "It's the same, and I hope it's better."

Still, even some T.J. Maxx and Marshalls customers say they're starting to find as good, if not better, deals at department stores. Donna DeShields, 47, of Cary, N.C., says she finds something almost every time she goes to T.J. Maxx or Marshalls, but gets similar savings and finds a more reliable selection at department stores. A receipt from Macy's shows she recently spent $9 for $142 worth of merchandise after all the markdowns, discounts and a $25 loyalty coupon.

"With their ongoing sales — there seems to be a sale of some sort every weekend — and their customer-loyalty coupons, I can get really great bargains every time I am in the store," says DeShields, who says she has similar luck at the department store Belk.

Easier to shop?

Indeed, off-price stores can be a lot less appealing than department stores for some manufacturers and shoppers. Members of USA TODAY's shopper panel who count TJX's stores among their favorites say they go for the low prices, not the ambiance. But like any talk of irregular merchandise, suggestions that its stores are run down appear to be a sore spot for Meyrowitz.

The company is remodeling more than 350 stores a year and is on a "mission to make the in-store experience better and better," Meyrowitz says.

Retail stock analyst Howard Tubin, who follows the company, says TJX's store sales go up after they are remodeled, though he says the company won't say by how much. The company is well positioned to compete with all the other deal-filled stores and sites, he says, because it consistently gets name-brand merchandise that it sells for up to 60% off. He says TJX's large and experienced buying group and geographic diversity help make it difficult to compete with.

"It is one of the most consistent performers in retail and has a long track record of generating both sales and earnings growth in good times and bad," says Tubin of RBC Capital Markets.

Meyrowitz says the most important thing is shoppers largely approve of the way they do business.

"The majority of the customers who try us, whether recession or not a recession, do come back," says Meyrowitz. "It's almost the 'aha.' They think, 'Why would I buy at this price when I can buy at a lot less?'"