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How TJ Maxx Beats J.C. Penney

This article is more than 5 years old.

TJ Maxx is beating J.C. Penney. On Wall Street that is.

TJX Maxx’s stock has soared 69% over the last five years, while J.C. Penney’s has declined 85%.

J.C. Penney and TJ Maxx are in similar businesses.  J.C. Penney sells family apparel and footwear, accessories, jewelry and beauty products, and home furnishings and appliances. It also provides a variety of services, including styling salon, optical, and custom decoration.

TJ Maxx sells family apparel and footwear, accessories, and jewelry; home fashion products, accent furniture, decorative accessories, giftware, cookware, and other merchandise.

But their business models differ in a couple of respects. One of them is the value proposition they offer to customers. J.C. Penney’s value proposition consists of traditional inexpensive merchandise that caters to the average shopper -- who seeks something better than the merchandise carried by Wal-Mart, and including more expensive merchandise carried by upscale stores.

The TJ Maxx, Inc. value proposition consists of brand name and designer fashions merchandise that normally sells at prices that range 20%-60% below department and specialty store regular prices.

Another difference in the business model of the two companies is in the way they operate. J.C. Penney operates under one store name, while TJ Maxx operates under several store names -- Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx and Sierra Trading Post.

Apparently, the TJ Maxx model is superior to J.C. Penney’s business model, as evidenced by the financial metrics of the two companies. TJ Maxx’s operating margin is close to five times higher than J.C. Penney’s. And the gap in the performance of the two companies is even bigger when it comes to return on the assets of the two companies—see Table 1.

Table 1

J.C. Penney’s and TJ Maxx’s Financials, 5/17/2018

Company 5-year Stock Price Change

Operating

 Margin

Qtrly Revenue

Growth (yoy)

Return on Assets PEG
J.C. Penney -85.07% 2.26% 1.80% 2.01% -0.52
TJ Maxx 69.64 11.12 15.80 18.50 1.69

Source: Finance.yahoo.com

Wall Street has taken notice. TJX Maxx’s stock has soared 69% over the last five years, while J.C. Penney’s has declined 85%--see Table 2.

That begs the question: why can’t J.C. Penney be like TJ Maxx?

Because it isn’t easy.

For a couple of reasons. One of them is that a retailer’s value proposition is supported by an army of product buyers, supplier relations, as well as logistics, which cannot be easily replicated by other retailers.

Then there’s corporate image and market positioning, which cannot be changed simply by adopting a competitors’ business model.

In fact, Penney’s tried to adopt TJ Maxx’s model under celebrity CEO Ron Johnson, who borrowed a page or two from the elegance of Apple stores. But this experiment turned out to be a disaster, as discussed in previous pieces here.