Seamless integration

A credit and debit card confidentiality crisis earlier this year hasn’t stripped TK Maxx of its credentials as a cornerstone of the UK high street, despite arriving here just 13 years ago, says Matthew Gorman

TK%20MaxxThe managing director of discount retailer TK Maxx, Stephanie Morgan, left the company last week after just eight months at the helm of the US company’s UK operation.

Morgan’s surprise departure after reportedly disagreeing with her US superiors about company strategy, comes four months after Carol Meyrowitz, president and chief executive of parent company TJX Companies, was forced to apologise after credit and debit card details of more than 45 million customers in the US and UK were stolen from the company’s IT systems.

Most retailers would be reeling from a customer backlash in such circumstances, yet TK Maxx went on in May to report an 8% jump in sales for the quarter. The company, which is said to have revolutionised the high street with its concept of selling designer labels for less, has gone from strength to strength since it opened its first UK store in 1994.

By the end of 2006 the retailer had grown to a chain of 210 outlets throughout the UK and Ireland, and says it will open a further ten stores this year. The company has a long-term plan to reach 275 stores throughout the UK and Ireland, and is expanding into continental Europe with the opening of its first five stores in Germany, a country known for its love of discount retailers and where home grown value grocers such as Lidl and Aldi have proved extremely popular.

Yet in the time TK Maxx has operated in the UK, the retail environment has changed enormously. Value is now a by-word of retailing, and the supermarket groups, led by the almighty Tesco, are increasingly eating into the market share of clothes and homeware retailers.

TK%20Maxx%20labelVerdict senior retail analyst Maureen Hinton says: “Value is not as unique as it once was, so it’s not really a differentiator anymore – although TK Maxx says it is not a value retailer but a discount retailer.”

The landscape is set to evolve further as retailers get braced for the effects of last week’s interest rate rise. Analysts say high street spending is already being hit from previous rate rises, which have left less spare cash in consumers’ pockets. Hinton agrees the company may not see such impressive returns in the future. She says TK Maxx has done well in recent years and the company has good customer loyalty, but retailing costs, such as rent, transport and utilities costs, are also rising.

Maureen Johnson, chief executive of The Shop, WPP Group’s retail analysis division, says TK Maxx could be caught out by a shift in consumer spending habits. “People have everything these days and making them reinvest in a new wardrobe is difficult,” she says.

Johnson also predicts a backlash against the trend for “disposable” chic pioneered by fast fashion retailers such as Primark and Hennes & Mauritz (H&M). “People are growing sick of seeing cheap clothes in their wardrobe,” she says. “People are increasingly looking for quality, and at lower prices than they can find on the high street. The internet is being used for price comparison and that will drive prices down further still. We are going to be seeing much more of an investment in quality clothing and quality merchandise.”

TK Maxx is a subsidiary of US-based TJX Companies, a NYSE listed company, which reported sales up 9% to $1.4bn (£700m) on the same period the year before for the four-week period ending June 2.

TJ Maxx was the company’s first discount offering founded in the US in 1976. It has since grown to become the largest discount clothes and homeware retailer in the US with 832 stores averaging 30,000 square feet each.

When the company launched in the UK, it was forced to rebrand as TK Maxx to avoid confusion with homegrown retailer TJ Hughes, the Liverpool-based company that operates 50 stores throughout the UK, and which also offers discounted branded goods.

TJX also owns Marshalls in the US – the country’s second-largest off-price retailer – HomeGoods, AJ Wright and Bob’s Stores. In Canada the company acquired Winners in 1990, a discounter that went on to launch its own home furnishing division HomeSense in 2001.

The concept of designer labels at up to 60% off the recommended retail price has been hugely successful in North America, but Hinton warns TK Maxx has a very low level of sales density in the UK compared with its competitors. Its sales per square foot are much lower than rival retailers and that makes it much harder to make a good return. In the US, where costs are lower, there is a much lower sales density.

In 2006 the average sales density per square foot for a UK clothes retailer was £365 according to Verdict. Primark had a value of £409 while TK Maxx achieved a ratio of just £222 per square foot.

One retail analyst familiar with the company says its latest strategy of putting more emphasis on the sale of homewares was a good move. The company is faring well at the moment but much of that is down to space and the fact the retailer continues to open stores.

Last month MindShare won the retailer’s £6.4m media planning and buying account in a final three-way pitch against Havas-owned Media Planning Group and Booth Lockett Makin (BLM Media), its advertising agency. Incumbent Starcom declined to repitch.

The company is increasingly seen as a cornerstone of the UK high street but Hinton warns: “Like all UK retailers in the current climate, TK Maxx will have problems and perhaps a bit more than most retailers because of the low density of sales.”

Facts and figures

TK Maxx 

  • TK Maxx opened its first store in the UK in 1994. By the end of 2006 it had 210 outlets in the UK and Ireland.
  • Parent company TJX Companies operates 832 TJ Maxx stores across the US along with 1,458 other outlets across its six different discount retailing brands.
  • TJX reported in February that group sales for the 52 weeks to the end of the fiscal year were up 9% to $17.4bn (£8.7bn) on the previous year.
  • On the same day as reporting a boost in sales company president and chief executive Carol Meyrowitz apologised for the theft of more than 45 million credit and debit card details from customers.
  • The theft from the company’s IT system was the biggest breach of personal data ever reported and stretched back to 2002.

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