Should Australian retailers be worried about TK Maxx?

Should Australian retailers be worried about TK Maxx?

In recent years we’ve seen the arrival of global fashion giants such as H&M, Uniqlo and Zara. And next month we’re getting another, TK Maxx.

If you haven’t heard of TK Maxx, they’re one of the worlds largest “off-price” retailers. What is off-price retail? Off-price retailers provide high quality goods at cheap prices. Whilst using discounts to shift fashion isn’t anything new, the difference with off-price retail is most of their stock comes from traditionally expensive designer labels. In a nutshell what TK Maxx do is sell past-season designer clothes (think Marc Jacobs, Ralph Lauren and Calvin Klein) and designer homewares at a significant discount.

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It’s fluorescent lighting and jumbled displays might not seem that glamorous, but to bargain hunters it’s a dream come true.

TK Maxx currently have about 500 stores around the world, with a large amount of these located in the US and UK where they have a huge following. Last month they bought Trade Secret for $80m and plan to convert the 35 existing stores this year and open in a handful of new locations across Australia.

So should Australian retailers be worried? Potentially, and here’s why:

 

TK Maxx are one of the top sellers of clothing in the world and actually have a very profitable business model.

Everyone loves a bargain, and what makes off-price retail particularly attractive to consumers is for it’s “treasure hunt” qualities. No two TK Maxx stores are the same and appeal to the type of shopper who loves the thrill of exploring in-store, hoping to stumble across that perfect item at a bargain price. Stores don’t need to be located in traditional retail centres, as consumers are willing to travel that little bit further for a bargain. Additionally these shops are bare-bones and minimally staffed, since customers are happy to hunt for bargains without help and understand that if it isn’t on display, the store doesn’t have it. As a result, the overheads of TK Maxx (as a percentage of sales) are about half those of a traditional department store. Furthermore the experience of shopping in an off-price store is very hard to replicate online, so TK Maxx are less threatened by the rise of internet retailing than other clothing chains.

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Apparently even Prince Harry’s a fan…

Their flexible format…

TK Maxx works on opportunistic buying and a no frills operation. They’re not concerned with whats in season, rather what they can purchase from suppliers cheaply. Unlike traditional clothing retailers who buy four times a year to match what’s in season, TK Maxx buy stock everyday. Because of this, new products arrive regularly and there will always be something new and fresh in-store.  Stores have no walls and work off flexible in-store format. Want to expand the allocation to a particular category in-store? Easy, just add more racks in-store.

Designer labels (discreetly) like them…

Strangely enough, TK Maxx are also somewhat appreciated by the designer labels they stock. An elite brand does not want to damage it’s image by flooding the market with discounted products. But TK Maxx have become an essential part of the retail ecosystem, offering a way for brands to clear their excess stock discretely and very quickly.

 

So who should be worried? There is a market for off-price fashion in Australia, albeit it is currently under serviced. Although we don’t think it shouldn’t have too big of impact on the high end of town (high-end fashion consumers don’t want to be seen in last season’s stock and will always pay a premium for the latest and greatest fashion). TK Maxx does however have the potential to disrupt discount department stores such as Kmart, Target and Big W.

 

 

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