TK Maxx: the retail giant that profits from its rivals’ mistakes

The best time to shop at TK Maxx begins as soon as it opens. The dozens of bargain hunters that had gathered at the retailer’s Croydon branch in south London mid-morning on a recent weekday knew this.

Families, students, and pensioners all know to get the best deals and browse in relative quiet, they need to be the first to the rails.

Angela, a 70-year-old property manager, is the type of “treasure seeker” TK Maxx has lured into its stores for over 30 years. “I am not supposed to be in this shop, my husband would kill, but I can’t help myself when I see a TK Maxx. “I’m addicted,” says the woman. You never know what you will find.

TJX, TJ Maxx’s American parent company, exploited inefficiencies in fashion buying to create one of the most successful retailers in the world.

Fashion retailers who sell traditional fashions are unable to predict the fashion trends or weather once they have been on sale.

TK Maxx has a team of buyers who buy their unsold inventory at steep discounts when they make mistakes, as they do often. They then stock their 358 shops with it on a regular basis. Customers can save up to 60% on popular brands. There are plenty of options.

Fashion retailers struggled to sell the bikinis and shorts they ordered months ago. The “treasures”, on sale in Croydon, included dresses from Whistles at £39.99 as well as a Chloe beach bag priced at £399.99.

TK Maxx reported a record profit of £172.4 on £3.9 billion in sales last year.

But it’s not all about buying with a clever mind. TK Maxx is designed to take advantage of our consumerist instincts. Even the colours of the signs and labels are designed with this in mind.

The majority of shoppers who are seduced to part with their money will not be aware of what some call TK Maxx’s “dirty little secrets”: a large portion of clothes displayed on the rails were not sourced from unsold stockpileds of retailers, but rather, they were produced specifically for TK Maxx. The value for money of these products is at best questionable.

TJX is based in Framingham Massachusetts and operates its “off-price” retail model at more than 5,000 stores in nine countries. In the last five years, thanks to the closure of department shops both on the US and UK sides, TJX’s shares more than doubled, reaching $119.83. This puts the company at $133 billion – 14 times larger than Marks & Spencer.

Bernard “Ben” Cammarata was the mastermind behind TJX’s global expansion. He was hired by TJX’s predecessor, Zayre Group in 1976 to build an “off-price” retail chain. TJ Maxx – the US equivalent – professionalised a practice that mom and pop shops were already doing: buying out-of season stock and selling at a discounted price.

The group, headed by Ernie Herrman – a company veteran – made $4.47 billion in net profit last year on $54.2 billion in sales. The first UK store, which opened in Bristol, in 1994, was called TK Maxx in order to avoid confusion with discount chain TJ Hughes. HomeSense, the home furnishings chain of the group, opened in 2008.

TK Maxx stores are full of bargains, and shoppers who walk in without realizing it will soon learn this. There are signs everywhere with slogans such as “Big Labels Small Prices” and “Amazing Savings”. Cathrine Jansson Boyd, a consumer psychology expert, noted that the stores displayed a remarkable level of attention to detail. This was evident in the round signs placed along the clothing racks.

Jansson Boyd said that academic research showed that women, the majority of the company’s customers, were more drawn to round signs rather than angular signs. However, the exact reasons for this remained a mystery.

TK Maxx continually updates its product ranges in order to keep customers interested. Stock is moved quickly through the company once it arrives at its warehouses. In America, the motto is “door to floor within 24 hours”. Stores receive deliveries containing thousands of items several times per week. The store managers are often unaware what’s inside until the delivery arrives.

The clothes are organized on the shop floor by type of product — T-shirts or jeans, for example — and not by brand. The rails can be moved about the store and add to the feeling of a constantly changing array of clothing.

Irene Scopelliti is a professor of marketing and behavioural sciences at Bayes Business School, London. She said that TK Maxx’s practice of printing “original price” on its labels or “RRP” next to their own price encouraged customers to act irrationally.

When buying something, we should consider ‘acquisition utility,’ how much we value a particular product compared with its cost. But at TK Maxx, the focus is on ‘transactional utility,’ how much it costs compared to how much you’d expect to pay. “The perception of getting a great deal can often take precedence over the actual value of what you’re purchasing.”

TK Maxx stores are always busy. They generate twice as much sales per square feet as traditional fashion retailers. As the day progresses, they start to look like a jumble. This may be a turn off for some shoppers, but many are driven by the excitement of the hunt and the fear of missing out.

Customers don’t have a specific mission when they enter the store, but they do know that if they find something they like they will buy it. Richard Hyman, of Thought Provoking Consulting, said that if you don’t buy it someone else will.

The long queues at checkouts are a common complaint from shoppers in Croydon, but it’s not an accident. Impulse purchases line the narrow and winding path to the checkout, from wireless headphones to bags of coffee to board games. There are few discounts, but that doesn’t stop shoppers from adding more items to their baskets.

TK Maxx bargains aren’t just found at the checkout. Some of the stores’ brands, like Frederik Anderson from Copenhagen, were actually created by TK Maxx. Sources estimate that between a quarter to a third (or more) of the clothes sold in TK Maxx stores are made by brands created specifically for them.

The company stated that “some merchandise we sell are developed for us. This is especially true when we see in the market isn’t right value for our clients… and these items carry no RRP.” “Operating with Integrity is at the core of our business”.

Many brands view TK Maxx as a friend rather than a foe because of its ability to produce. Its ability to solve problems is another reason why many brands see TK Maxx as a friend.

“TK Maxx offers brands a way to quietly correct their mistakes when they have ordered too much. “They don’t promote specific brands, and they can come into your warehouse that same day and give you a check,” said a consultant with the company. The downside is that you’re doing well if you get paid 30 percent of the retail price.

Neil Saunders of GlobalData, a consultant, said that TJX buyers are well-trained, well-connected, and have a lot of autonomy in what they purchase. They buy clothes from an extensive global network of over 21,000 brands and retail outlets worldwide.

Buyers will often purchase in small amounts and then increase their orders when the stock sells. Former buyers said that they were encouraged by their company to operate their business as if they owned their own small businesses. TJX has a vast international network, which allows products to be imported into the UK.

They recalled that “a lot of people were on the defensive” when they met them because they thought we were trying rip off. We were taught to build rapport with people and try to connect. It was important to be the friendliest person in the room, because we wouldn’t be offering the lowest prices.

Is there anything to stop the TJX juggernaut then? The possibility that traditional competitors will use new technology to reduce human error in their purchasing operation is one risk. The business may simply reach its saturation point. TK Maxx continues to do what it’s done for three decades.

Hyman stated that they are completely focused on one specific customer: bargain hunters. They have never attempted to diverge from this. “They are who they are, and don’t try to be anything else,” Hyman said.