As TK Maxx reveals another strong financial performance, Drapers explores secrets of the off-price retailer’s success.
Earlier this week, TK Maxx revealed its sales and pre-tax profits were both up 11% in the year to January 2016, compared to the year before. Like-for-likes were up 4.6%. It was the latest in a string of positive announcements from the retailer, which has been reporting rising sales since 2013 as it cashes in on consumer demand for discounted products.
TK Maxx claims to give its shoppers “real value”, offering “big labels and designer gems at up to 60% less than the RRP”. This strikes a chord with today’s bargain-hungry consumer, says Verdict Retail senior analyst Kate Ormrod. “Its strong branded discount offer continues to resonate well with shoppers looking to get a bargain, and with disposable incomes remaining restricted in 2016, TK Maxx looks set to continue this trend into next year,” she says.
Trish Young, head of UK business consulting for retail and consumer goods at consultancy firm Cognizant, agrees. “TK Maxx has a very attractive business model for shoppers who are looking for a bargain and aren’t necessarily interested in the hottest fashion trends. There’s a huge variety of styles and sizes and there’s also the thrill of the hunt, of finding something at an attractive price.”
Although it has been a difficult year for many retailers on the high street, it’s been a different story for businesses that sell excess or end-of-season product. Like TK Maxx, flash Sales sites MySale, BrandAlley and Secret Sales all reported strong summers, helped by surplus stock left over from stagnant seasons. All of these businesses build discounted prices into their models, in a way traditional retailers don’t.
“A difficult summer for many retailers has definitely helped TK Maxx, simply because it will have a lot more stock to pull through,” says Young.
Its sales momentum has allowed TK Maxx to invest in expanding its UK property portfolio, opening 19 new stores last year, bringing its total to 304 by the end of the financial year. A further 24 are planned to open in 2017. It has also focused “aggressively” on its expenses, cutting back on high-profile TV adverts and using no-frill store fixtures. This will enable it to absorb more of rising costs associated with the living wage, rents, rates and currency headwinds, rather than passing them onto consumers.
However, the retailer is not without its challenges. Department stores like House of Fraser are increasingly discounting branded goods, rivalling TK Maxx’s budget offer. Ormrod also points to increased competition from Amazon, and notes that TK Maxx’s online offer lags behind others.
“Amazon’s investment in its fashion proposition does pose a threat to TK Maxx, especially as its online offer remains uncompetitive with click-and-collect not yet available in all stores and shoppers unable to filter by brand – making it harder for online browsers to find what they are looking for, risking unfruitful visits and dissatisfied shoppers.”
With rising sales and an increased store presence, TX Maxx has an increasingly strong position on the UK high street. However, as department stores continue to discount heavily and Amazon continues its onwards march in the fashion world, TK Maxx must develop a stronger online offer to remain competitive.