Despite the ongoing retail apocalypse, there’s a lot of oohing and ahhing about the longtime success of T.J. Maxx. It’s one of the only retailers out there today that’s still doing well, and for good reason. Shoppers love a bargain, being able to buy brand-name goods at a fraction of the full-price value. $20 for a Calvin Klein blouse, worth $80 at regular department stores like Macy’s? Sold!
When asked how it sell goods at such low prices, T.J. Maxx is extremely secretive. It does take the chance to toot its own horn by discussing how it sources goods directly from manufacturers, making all sorts of deals like buying last minute overstock, not including buyback clauses in contracts that require manufacturers to accept returns for unsold goods, and other wheeling-and-dealing behind closed doors that allows it to pass the savings onto consumers.
There doesn’t seem to be much questioning about these supposed tactics from the media that covers T.J. Maxx–it apparently has a history of staying mum and protecting its vendor sources. It projects an image of having insider connections to vendors who would be embarrassed to disclose that they sell to T.J. Maxx. Because of this, while fast fashion retailers like Forever 21 and H&M have been the subject of continued harsh media scrutiny, T.J. Maxx hasn’t been made to answer for its business practices and indiscretions.
As mentioned, T.J. Maxx is extremely secretive about its sourcing. But it’s still possible to make some guesses about its sourcing tactics based on a couple media articles and my dad’s encounters and experiences as a vendor.
Here’s the real deal.
Good vendors don’t sell to T.J. Maxx
T.J. Maxx does disclose/brag that it gets 85% of merchandise directly from manufacturers (as of 2011). It claims that it obtains clothes this way through buying extra inventory from vendors who have items that their client retailer doesn’t want, for whatever reason, at a discount that can be passed on the consumers (in case you don’t know, most retailers don’t make their own clothing but order clothes from vendors who make them):
“We take advantage of a wide variety of opportunities, which can include department store cancellations, a manufacturer making up too much product, or a closeout deal when a vendor wants to clear merchandise at the end of a season, as well as lots of other ways to bring you tremendous value.” (source here)
This does seem to be true to an extent. My dad is constantly contacted by a former colleague who works for T.J. Maxx, who asks if he has anything to sell them. T.J. Maxx likes to discuss how they have a large network affiliates who try to source inventory from vendors they have relationships with.
That’s all good and well. But the truth is, good vendors generally don’t have stock lying around to sell to T.J. Maxx. A reputable vendor, who makes well-produced quality clothing, won’t have overproduced stock they’re unable to sell on a regular basis. Good vendors usually have long-established, stable relationships with their vendors with ongoing communication about needs, so have clear expectations for how much inventory should be made. They’ll only produce the merchandise they are relatively certain they could sell.
For example, my dad had one retailer for whom he produced 1,000,000 units of a single style for ten years; but these weren’t made all at once, it was that he and the retailer kept each other abreast of sale trends. He and his manufacturing partners even produced prior to orders were placed, because they were aware of their customer’s likely needs. Good vendors are in constant contact with their retailer client, and if there are any problems with quality they’ll be communicated and rapidly remedied.
In addition, it’s not that profitable for vendors to resell to T.J. Maxx, and it’s more trouble than it’s worth. In order to resell stock to a different retailer, the vendor must get a label release and go through a hassle-filled process to obtain permission to resell from the ordering company (the retailer). The logistics involved are a huge pain, and you don’t make any real money from this kind of deal. You’d only do this as a last resort, if your only other choice was to throw away the items.
This is also a very unreliable way to source merchandise; there would be no way to predict how much inventory you’d receive. And that’s probably why T.J. Maxx most likely has much of its merchandise manufactured specifically for its own stores, as it directly admits.
T.J. Maxx manufactures clothes meant to be sold in its stores
It’s puzzling how T.J. Maxx makes a profit, when they sell their merchandise really for dirt cheap after it has to pay for the actual clothing at a markup. How could they cover overhead and come out ahead when they sell brand-name clothes for $12?
The answer seems to be that they skip the process of hoping to be tossed extra leftover stock from vendors, and go straight to having clothing made for its stores. T.J. Maxx does state it has items designed and manufactured for sales in its own stores:
“Some of our merchandise is manufactured for us and some is designed by our own fashion experts, particularly when what we are seeing in the marketplace isn’t the right value for our customers, meaning the right combination of fashion, brand, quality and price.”
So at least some of its stock is manufactured for its own stores, at the direction of T.J. Maxx. It’s previously disclosed that it produces about 10% of the merchandise in its stores, under private label names like Frou Frou and Mercer & Madison. The number may be even higher today.
In addition, vendors appear to manufacture extra numbers of styles ordered by other clients, with the extra stock meant for T.J. Maxx. According to a 2014 Fortune story:
“[T]he company buys a surprising share of merchandise from its suppliers upfront, insiders say. Hard numbers are difficult to come by. ‘But if you saw the vendor’s revenue plan, TJX is included,’ says D’Arienzo. Vendors, say experts, also produce excess inventory on purpose, hoping TJX will buy it. ‘It becomes a little bit of a blurry line between what’s off-price and what was built for TJX,’ Poppe says. A former buyer explained it this way: ‘The vendor is fronting it.’ One supplier told Fortune it’s risky, but it has allowed her to double her business.”
In addition to the financial risk, it’s possible that the vendor is taking a legal risk by producing more numbers of the exact same style ordered by a client. The ordering client probably hasn’t authorized the extra production, and the vendor likely never obtained the requisite legal releases allowing it to sell to T.J. Maxx.
A vendor usually doesn’t have the right to produce and sell extra versions of clothing as it desires. The ordering client usually owns intellectual property related to the style, including patterns, colors, and other aspects of the style that others cannot use without obtaining permission. Producing anyway and selling to unauthorized resellers in this way could be seen as selling fakes–really good identical fakes, but unauthorized and illegal..
T.J. Maxx has been accused multiple times of selling fakes in its stores; Burberry sued the company after counterfeit shirts were found being sold in its stores, among other items marked as Burberry. There are also anecdotal accusations that T.J. Maxx sells fake brand name handbags, though some justify it is due to scammers who buy real handbags at T.J. Maxx stores and then return fake versions of the same bags.
Another scenario is that T.J. Maxx might license brand names from famous companies like Cynthia Rowley, where the brand sells the rights to use its logo and other intellectual property to a party that designs and manufactures the clothes themselves. This would allow for a higher profit margin than buying the clothes after they’ve already been designed, manufactured and marketed.
T.J. Maxx: no different from Forever 21?
A lot of people love to rag on Forever 21, for good reason–they’re known for making cheap, shoddy clothes using stolen designs. Googling “Forever 21 cheap bad” gets 470 million results. “TJ Maxx cheap bad” only gets 6 million hits.
The two companies aren’t that far off from each other in their practices and business model, though, manufacturing or otherwise obtaining clothing at extremely low prices. They use measures like:
- Contract with ramshackle factories that don’t meet safety regulations and underpay workers
- Use cheap fabric and shoddy construction
- Steal designs (Forever 21) or sell fakes (TJ Maxx)
Clothing meant for T.J. Maxx has been discovered in the same L.A. factories that make clothes for Forever 21, and Department of Labor investigators finding a worker being paid as little as $3.42/hour for sewing T.J. Maxx clothes (CA minimum wage is $10). The clothes for both companies seem to be made in the same places in downtown L.A. because this allows for rapid turnarounds, avoiding the need for freight from Central America or Asia. So it’s not that far-fetched to say they operate under fairly similar business models: deliver trendy, fast-fashion items and very low cost.
So it’s weird that T.J. Maxx is heralded as a good company delivering value to consumers, while other fast fashion companies are scoffed at and belittled. Not that they care much as they laugh their way to the bank, but the mainstream media. especially fashion, certainly seems to sing the praises of T.J. Maxx by regurgitating the company‘s PR. T.J. Maxx is certainly not the first company to come to mind when you think fast fashion, though that’s basically the model. The perception is that you can find classic brand-name gems from department stores–the opposite of fast fashion. It feels like we as consumers have been duped into thinking we’d be able to find high-quality brand-name designer gems at their stores when it’s mostly like going to any other cheap retailer. It’s impressive in one way but borderline unethical and misleading on the other.