Tuesday, November 8, 2011

TJ Maxx/Marshalls and Manufacturers' Excess Supply

I was just perusing through USA Today a couple weeks ago and read an article "Behind the Bargains at T.J. Maxx, Marshalls". Essentially it was a piece on how TJX (the parent company of both retailers) provided branded apparel at lower prices. We're not talking private label either. They sell higher end brands such as Kate Spade, Polo Ralph Lauren, Michael Kors, etc. Furthermore, it explained how they are the leaders in this "discount segment" of retail. I was shocked to find that 85% of what they sell is in the same year/season it was designed for. Also, only 5% of what they sell is "irregular". Talk about challenging conventional wisdom! Although this has a lot to say about the efficiency of their supply chain, I will be focusing on other aspects of the article.

There were quite a few tidbits on their interaction with their suppliers and what value they bring to the manufacturers . Here is a quote from their CEO on how they go about getting their supply:
TJX has 700 buyers around the world that are part of what Meyrowitz calls a "supplying machine." The company works with different factories and agents and maintains offices in countries including Italy, India and China, she says. Buyers work with about 14,000 vendors in "a million different ways," says Meyrowitz, who calls it "opportunistic buying."
They are going straight to the manufacturers all around the globe and they buy the merchandise at the source. What does this mean for the manufacturer's supply chain? First, TJX is going to their locations which is likely saving them transportation costs. Also, discount retailers like TJX provide a whole new channel for their product. It's not just their e-commerce presence, wholesale distributors, outlets, and department stores anymore. Discount retailers allow them to get rid of excess supply and/or materials.
Manufacturers will often make an almost identical piece of clothing with a slightly different fabric or less detail — such as fewer pockets or rhinestones — for outlets or off-price stores than what they sell to department stores. TJX, which owns T.J. Maxx and Marshalls, says it gets identical merchandise to that sold in department and specialty stores. Manufacturers also often have extra fabric or factory capacity, so they have an incentive to make more, say, shirts or pants if they know they have a willing buyer.
This helps reduce inventory costs by utilizing their excess raw materials. Through our class readings we've learned that companies are trying more and more to improve forecasting and harness better demand planning. However, there is still going to be excess supply no matter how good forecasting gets in fashion. Discount and off-price retailers help mitigate the costs of excess inventory and inaccurate forecasts.

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