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TJ Max Upscale?

Development, Retail

TJX move upscale may blur lines in high-end retail


Off-price retailer TJX Cos Inc has capitalized on the woes of its higher-end rivals in the past year by snapping up tons of their unsold merchandise and winning a new contingent of shoppers.


The presence of fancier brands at TJX stores, which include the T.J. Maxx and Marshalls chains, is also drawing it into more direct competition with the likes of Saks Inc and Macy's Inc, whose upscale Bloomingdale's chain is set to open its own off-price outlets later in 2010.


"We are actually seeing better vendors and more product than ever that is pretty high quality at T.J. Maxx," said Laura Champine, a Cowen & Co analyst.


Already, a T.J. Maxx shopper may find brands such as Theory, Ralph Lauren, Tahari, Seven for all Mankind, Rock & Republic, and BCBGMaxAzria.  More designers are finding TJX to be a reliable way to sell their wares in a weak economy, rather than just a place to dump rejects or overproduction.


But as TJX ups its fashion quotient, it could face potential product shortages.  Upscale retailers have become extra cautious in how they place orders, reflecting the newfound frugality of luxury consumers.


"Certainly that supply chain is tightening up first, and that is where you would see an issue first," said Barclays Capital analyst Jeff Black, referring to a potential shortage of higher-end products TJX can tap.


Black lowered his price target on TJX shares last month, saying in a note "it's hard to argue that we'll see a better environment for TJX to purchase its apparel and home categories.”  That could limit TJX's margin growth, he wrote.




Nonetheless, analysts including Black say TJX sales and profits will grow in 2010, with consumers still under pressure and vendors desperate for sales they can bank on.


Full-price retailers typically negotiate tough return privileges, markdowns and advertising allowances, terms that add up and eat away at the manufacturer's margins.


TJX, in contrast, negotiates more advantageous prices for itself.  But its simpler terms give vendors the peace of mind of knowing that once they've sold an item, it's sold.


"They'll pay me cash and they'll pay me right now, so it's actually a pretty compelling way to do business," said Cowen's Champine.


That position of strength is also shared by its main rival Ross Stores Inc, whose annual sales are about a third of TJX's expected fiscal 2010 sales of $20.3 billion.


If full-price retailers cut back on their orders too much, it could erase that advantage, putting pressure on the prices TJX can charge, said Madison Riley, a managing director at retail consulting firm Kurt Salmon Associates.


And the arrival of the Bloomingdale's outlets later this year will add to that pressure, he said.


"It does spell more competition between off-price places as they all vie for a lower level of excess inventory," he said.


Source and Full Story: Reuters



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