Aug 5, 2013
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TJ Maxx and others look past chaos to e-commerce bonanza

Aug 5, 2013

NEW YORK, United States - Low-price retailer T.J. Maxx plans to open an online store this year, as does rival Saks Inc's Off Fifth outlets, making 2013 the year technology may have caught up with the speed of fashion.

For such chains, which feature clearance items, last-year's fashions and overruns, their fast-moving and often unpredictable inventory has made selling goods over the web complex.

"Retail is chaotic. Off-price retail is even more chaotic," said Fiona Dias, a leading e-commerce expert and chief strategy officer at ShopRunner.

A cardinal sin in e-commerce is to tell customers something is available when it's not, and conversely, having an item in stock but not having it on the website. That is why the retailers are investing in software that manages inventory, tracks it in real time, and continuously updates the websites.

This will be TJX Cos Inc's, owner of T.J. Maxx, second stab at e-commerce after a 2005 failure. It abandoned its first attempt after only a year following poor sales, turmoil in the corner office, and challenges at its smaller chains. That failure cost TJX $15 million.

Now, TJX is one of the fastest growing retailers, and T.J. Maxx one of the most popular brands. In 2011, it hired Elaine Boltz, a leading e-commerce executive. Last year, it spent about $200 million to buy online retailer Sierra Trading for its technology and expertise.

The revenue potential is huge. Avondale Partners thinks TJX, for instance, can quickly garner annual online sales of $1 billion.

The company declined to comment beyond what its chief executive has said on investor calls, but Morningstar analyst Jaime Katz thinks TJX will carve out space at its current distribution facilities to handle e-commerce, rather than spend millions on a fulfillment center.

Saks Inc's Off Fifth is following Barneys New York's recent launch of a discount site and will use existing facilities to keep costs in check.

Saks, which has closed some department stores while expanding its Off Fifth chain, is carrying out a three-year, $95 million overhaul of its computer systems to upgrade its e-commerce. It spent an extra $6 million to push up the launch of the Off Fifth site to this fall instead of next year.

Saks Chief Executive Steve Sadove told Reuters that the online selection at Off Fifth would be limited, and focused on better selling items, given the expense of taking quality photos and editorial content.

"Ultimately, what you have to weigh is the cost of putting an item up online against the incremental sales that'll be generated," Sadove said. "It's not free."

Attracted in part by the e-commerce potential, Hudson's Bay Co struck a $2.9 billion deal to buy the New York-based luxury retailer late last month.

Nordstrom Inc has an embryonic e-commerce site for its Rack outlet chain, but said it will build it out in the coming years as part of a $1 billion online overhaul.

Not everyone wants to let shoppers buy discounted items online. Gap Inc, Nike Inc and VF Corp's The North Face are sticking with brick-and-mortar stores for their discount businesses.

Steve Rendle, a VF executive, said it is important not to get shoppers hooked on deals, lest they stop paying full price.

Ross Stores, a fast growing rival of TJX's, told Reuters it has no plans for e-commerce, saying there is still plenty of growth potential for its stores.

But as far as TJX is concerned, CEO Carol Meyrowitz said more than a year ago that "e-commerce is clearly in our future."

E-commerce is growing at a clip of 10 percent a year through 2017, Forrester Research has projected.

"You don't want to lose out. If people are shopping the channel, you don't want to leave money on the table," said Morningstar's Katz.

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