On the surface, what TJX does is straight- forward: Its various chains sell mostly name-brand goods at a discount to traditional retail prices. How it continuously makes money doing this when so many others have failed is another tale—and that’s the mystery Fortune Magazine has set out to uncover. Fortune spent months talking to 50 former TJX employees and other retail insiders—including analysts, consultants, suppliers, and competitors—to re-create the company’s secret playbook. Here’s what they’re found.
Play No. 1:
Sell “new,” not a “sale.”
TJX shipped over 2 billion units this year. Their secret – keep merchandise fresh and create demand by controlling and limiting supply. Brand consultant Bill D’Arienzo calls the “buy now or cry later” mentality, which gives customers a sense of urgency and entices them to buy.
TJX is selling hot new items at a lower price, instead of selling last seasons items at a “sale” price.
Play No. 2:
Put real treasure in the treasure hunt.
TJX’s off-price chain model for product placement is much different than normal retailers. Instead of new products being displayed in the front of the store, followed by a massive marketing campaign with print, social media, advertisements; a $1,250 Stella McCartney dress would be tucked back on a rack somewhere sold for $499.99.
Fortune explains, TJX makes a point of hiding gems for the well-heeled as well as the middle class. TJX is trying to create an experience sort of like a “treasure hunt,” where customers feels the rush when they find an item they might not know they’ve wanted, at a price point that feels like they are getting a steal for.
Play No. 3:
“The money is in the buy.”
The company’s buying organization is considered one of the best. In order to develop an expertise in a specific category of goods, TJX’s buyers focus much more narrowly than their department store counterparts; rather than be responsible for accessories, a TJX buyer might specialize in just handbags.
TJX buyers spend years perfecting their craft, and go through a rigorous training program. All because buyers are negotiating millions of dollars.
Play No. 4:
Have the vendor make it for you.
One of the biggest myths about T.J. Maxx is that the retailer sells merchandise that department stores or designers couldn’t sell. TJX finds some of its deals through other retailers who routinely return or cancel orders from manufacturers,
Surprisingly, many suppliers purposefully create excess merchandise for T.J. Maxx to buy, according to Fortune.
T.J. Maxx produces its own merchandise, too. About 10% of merchandise is under in-house labels such as Frou Frou for pet products or Mercer & Madison for leather handbags.
Play No. 5:
Take it all
Even though TJX is buying upfront, it can still secure a good price, because of the volume of orders it places for its thousands of stores.
“The magic sentence manufacturers wants to hear is, ‘We’ll take it all,’” a CEO of a rival retailer told Fortune.
“Outside of true luxury brands, anyone who tells you TJX isn’t one of their top five customers is either lying or doesn’t have a successful business,”Paul F. Rosengard, president and CEO of supplier Boston Traders. Some vendors actually make more money selling to TJX than to the other retail outlets.
Play No. 6:
Suppliers aren’t used-car dealers.
One reason the supplier relationship with TJX is so strong is that it has gotten so bad with the department stores. Department stores want concessions for advertising and markdown allowances. They want money for delayed deliveries and returns. Suppliers have given department stores hundreds-of-thousands of dollars in markdown money to a department store for a product that didn’t sell.
Fortune says the buyer-supplier relationship with TJX has historically been more of a partnership. TJX buyers are taught to make the vendor feel like it’s a win-win and to leave the door open if they can’t come to an agreement this time around. TJX also pays on time, which seems like a given, but suppliers can go out of business because they don’t always get paid.
Play No. 7:
Find a CEO who gets retail.
Carol Meyrowitz is no stranger to retail, growing up her father was a wholesaler and Meyrowitz started her career in retail as an assistant buyer straight out of college.
People who have worked with Meyrowitz say she has an intuitive sense of the business because she’s been on the frontlines.
“She’s one of the few executives that could do almost any merchant job in the company,” Sweetenham says. Meyrowitz has upgraded the stores, taking merchandise out and replenishing more frequently so they’re not as messy.
She’s also raised the stores’ taste level, expanding T.J. Maxx’s Runway collection; expanding into European market and introducing the retail giant to the world of e-commerce.
This story is from the August 11, 2014 issue of Fortune. Click here to view the full article