Analysis: How TK Maxx’s ‘treasure hunt’ tactics drive success

TK Maxx owner TJX last week unveiled a record annual performance as global turnover rose 7% to hit $41.7bn and profits rose by the same proportion to $3.2bn, reinforcing its position as the world’s largest off-price retailer – a category it invented itself and the key to the retailer’s power.

Like-for-like sales at the international division, in which the UK represents 73% of the store count, rocketed 10% in the fourth quarter to reach $1.7bn and over the past year, increasing 8% on a comparable store basis to $5.6bn.

Total profits at the international division, comprising the UK, Austria, Australia, Germany, Poland and the Netherlands, increased 7% to $307m.

Off-price retail was created by TK Maxx

Through a global team of more than 1,000 buyers sourcing products from vendors across 100 countries including brands, manufacturers, retailers and stockholders, TJX turns challenge into opportunity when there are overruns, seconds and liquidation to be dealt with. TK Maxx promises customers that all of its products will always be up to 60% below RRP according to its off-price definition.

Where it can’t obtain products to fit a category, TK Maxx has more than 350 own-labels ranging from Amaryllis to World Republic, made to suit its price points.

TK Maxx is classified as a department store by some because it sells products ranging from clothing, beauty and homeware to furniture. Where it can’t fit all its homeware range into stores it has opened 67 Homesense stores, primarily in retail parks, which focus on home furnishings and accessories and have gained traction in recent years.

TK Maxx generated turnover of £3.1bn in 2018

Like fellow American retailer Costco, TK Maxx avoids media and analyst attention but is rapidly filling up vacant space across the UK. From two US stores in 1977 to more than 4,000 globally, TJX Companies has become the world’s leading off-price retailer. Its foray into the UK began with a store in Bristol in 1994 and it now has more than 500 TK Maxx and Homesense branches.

In 2009, the company launched its first global ecommerce site in the UK. TKMaxx.com has become a profitable business turning over an estimated £100m a year. Expansion across Europe has followed – Germany in 2007, Poland in 2009 and Austria and the Netherlands in 2015. In 2018, TK Maxx UK reported turnover of £3.1bn and profits of £103m.

Loyalty innovator

In 2015, TK Maxx launched a trial of the Big Brand Treasure Loyalty Card in Ireland, which was rolled out in the UK in 2018. Unlike most loyalty cards where monetary benefits are redeemed for every purchase in-store or online, shoppers get a key for every purchase and for every five keys they get a free gift or the chance to win a competition or donate to charity.

Even Amazon retreated from off-price retail

TK Maxx has seen off the advent of online flash-sales sites such as BrandAlley, Secretsales, Zalando Lounge and Vente-Prive, which closed its UK operation in 2019. Even Amazon closed its US flash-sales sites Myhabit.com in 2011 and its European operation BuyVip across France, Germany and Spain in 2017. However, Frasers Group launched a Brand Max website in 2017 and it now has nearly 30 stores in the UK and Ireland after taking over the Heatons department store chain in Ireland.

Average of 50,000 lines per store

TK Maxx believes in creating a treasure hunt experience, so when shoppers find a bargain, they feel like they’ve earned it. New deliveries come in every day and stores receive an average of 10,000 new products a week.

On average, each branch contains 50,000 items ranging from coats to underwear arranged by category and size. Some brands allow themselves to be featured at the entrance to each aisle with specific price points in order to draw the shopper to the category.

A ‘Bicester Village’ in every store

In its top-performing stores, TK Maxx offers ‘Gold Label’ brands across menswear and womenswear, where luxury designer clothes from Armani coats to Zegna suits are more elegantly presented.

Biannual Gold Label events are held in-store and online and every week Treasure Card members get an exclusive invitation to an online Sale of designer brands before they are released to the general public.

Lots of higher-tier luxury brands do not allow their products to be sold online, so shoppers searching for them on the TK Maxx website will be met with: “Sorry, some of our brands are a bit shy. Not all our brands are searchable. But hunt around and you might find them in our department pages. Happy hunting!” It all adds the retailer’s allure and consumers’ bargain-hunting instincts.

Jewellery counters in larger shops selling costume jewellery through to high-end branded bracelets and watches have also turned TK Maxx into a destination retailer for occasions from Christmas to Valentine’s Day.

Making shoppers pay to return online orders in-store has boosted footfall

When customers get their online order in a Gold Bag or brown anonymous box there is no pre-paid label to return the order if they don’t like it. Shoppers have the choice of paying to post items back themselves or, in the vast majority of cases, to take them back to a store for a refund.

This can spark the bargain-hunter mentality among shoppers, many of which will then look around the store and make another purchase. Obviously, queues to pay and return items can get long. However, customers think that it’s worth the wait – sales and profits would not be increasing at the rate they are if consumers were upset with the experience.

Every day Is Black Friday

TK Maxx buyers’ phones are always ringing as vendors offer deals that allowed the retailer to operate at a global profit margin of 10.6% in 2019.

Stores are no-frills and are not going to win any visual merchandising awards, but openings on Oxford Street and high-profile locations including Covent Garden and High Street Kensington, along with celebrity shoppers and royalty, have enabled the retailer to make its brand and goods accessible to all.

In recent years, customers have been trained by retailers across the board to expect a discounted market all year and TK Maxx has benefited from a value proposition creating the expectation that there is no need to pay full price.

As it continues to expand, competitors could perhaps drive footfall in-store by following its lead.

TK Maxx has shown that it’s not necessary to sell everything online, and why it can be worth creating exclusive one-day, in-store-only collections from influencers and celebrities. The business has ingrained the notion of treasure hunting among consumers. It is up to other retailers to make their stores destinations that also require regular visits.