Discount fashion: Taking it to the Maxx
The company behind TK Maxx in Europe is embarking on a massive expansion. James Thompson reports
Wednesday 19 August 2009
In 1994, a discount fashion chain, which was little known outside the US, opened its first store in Bristol. The selling point of TK Maxx was designer fashion brands at a sizeable discount to high-street prices, and it soon attracted a cult following among bargain-hunting shoppers.
Over the past 15 years, TK Maxx, part of the US retail group TJX Companies, has expanded at an explosive pace. It already has 229 stores in the UK and Ireland, but this is just the tip of the iceberg of one of the biggest expansion plans in world retail, with TJX Europe planning to open 500 stores in the next five years. After making its debut in Germany in 2007, its European division will open three stores in Poland this autumn and is also considering launches in France, Italy, Spain and Denmark, although the company declined to comment on these four countries.
TK Maxx has already captured the UK public's imagination. Maureen Hinton, the lead analyst at Verdict Research, says: "The main appeal is that it is different to other retailers. It has this mix of brands, it is always changing, and there is always that promise of a real bargain."
In the UK and Ireland, it sees the potential for 275 TK Maxx stores. This week alone, TK Maxx will open stores in Tooting, south London, and in Milton Keynes. The off-price retailer also plans to roll out between 100 and 150 of its fledgling homewares format, HomeSense, on these shores, of which it now has 10 outlets after launching in the UK last year.
While TK Maxx has attracted an expanding army of shoppers during the recession, it was growing robustly before the credit crunch as well. In fact, its business model and pricing architecture is radically different to that of rival discount fashion stores, notably Primark, New Look and H&M, which have also prospered during the downturn.
Deborah Dolce, director of brands and business development at TJX Europe, says: "Our model is to sell great brands and labels, usually with savings up to 60 per cent on high-street prices. The other key aspect of the business is a huge choice within the stores."
While TK Maxx is best-known for its men's and women's clothing brands – from Calvin Klein to Diesel – it also sells a wide range of kidswear, luggage, homewares, furnishings, toys, lingerie, sportswear and accessories.
Robert Clark, senior partner at the industry analysts Retail Knowledge Bank, says: "More recently they have expanded into homewares and home textiles, which have been good value, and that will have helped to win over some [socio-demographic group] ABC1 shoppers."
Ms Dolce points out that 65 per cent of TK Maxx's customers are from the ABC1 group. She says: "Our intention is not to be the cheapest on the high street. We aim to offer the best value and you can still find a designer handbag for £200 that was £500."
Its buying strategy is at the heart of TK Maxx's business model. Unlike most retailers, which buy just four times a year, the retailer's buyers negotiate deals from more than 10,000 vendors in over 60 countries every day. Ms Dolce says: "We have a very big [buying] team and we source worldwide from a huge range of brand owners. Their purpose in life is to find great-value products and to secure them at a great price. They are very opportunistic about it, have a very broad field to play in, and they are very empowered."
One of the "common myths" that TK Maxx is keen to rebuff is its policy towards selling out-of-season stock. While it does sell some "past season" stock, this is clearly labelled in stores and only accounts for a single-digit percentage of its offerings, says Ms Dolce. "The majority of our stock is not past season."
But industry experts reckon that TK Maxx will have benefited from a large pool of product availability during the global retail downturn. Edward Whitefield, the chairman of MHE Retail, the specialist consultancy, says: "In a period of recession, there are lots of brands obviously wanting to offload stock."
A certain breed of UK shopper is also attracted to the rapid turnover of stock at TK Maxx. Dolce says the retailer makes daily deliveries to stores, where a fifth of the 50,000 items on sale change each week. Ms Hinton says: "Because stock changes every day you find stuff that suits one day and not the next. It is a bit hit-and-miss." While this bargain-hunting style tends to be more popular with women, Ms Hinton believes that its branded offering appeals strongly to men as well. "I think it goes down well with men because of that promise of brands. They prefer to have the security of brands and if you get that brand at a discount it's a double whammy," she says.
However, it is fair to say that the TK Maxx experience is not for everyone. While the store does segment clothing by sizes, shoppers often have to search through a lot of stock to find a hidden gem. Mr Clark says: "You either love it or loathe it. It can be extremely difficult to shop with stuff on hangers and customers drop items everywhere.
"The fact is that things are not in a particular order in the first place and this adds to a jumble sale sort of atmosphere, which some find attractive and some don't." But there can also be a marked difference in stores, such as its established set-up in Brent Cross, north London, and its plusher new store in High Street Kensington.
In the UK, TK Maxx is also now taking the battle to its rivals with e-commerce. It started selling designer handbags online in March 2009, but last week expanded into accessories, including scarves, purses, belts and watches.
In the wider retail market, industry experts believe that TK Maxx has grabbed sales from across the market. Mr Clark said: "Its market share gains will have been widely spread." But he adds that Matalan, the discount fashion chain, will also have felt the heat from TK Maxx, along with the high-street stalwarts Marks & Spencer and Bhs.
Yesterday, its US parent, TJX, said that its 252 stores in Europe – primarily TK Maxx in the UK, as well as HomeSense – delivered like-for-like sales up by 6 per cent in the second quarter to 1 August. In fact, TJX-delivered group net income from continuing operations rose by 31 per cent to $261.5m, on record sales up by 4 per cent to $4.7bn.
While the recession has pushed some fashion retailers into an early grave, TK Maxx has positively thrived in the UK. As Ms Dolce says: "At a time when consumers are careful about their spending, it is even more appealing when they see a style and brand they like and pay half price for it."
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