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Why Strong Supplier Relationships Matter to TJX Companies

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Apr. 9 2015, Updated 12:38 p.m. ET

Supplier relationships

TJX Companies’ (TJX) position as a leading off-price retailer requires the company to maintain strong supplier relationships with manufacturers and other merchandise suppliers. These relationships are important in order for the company to ensure efficient levels of inventory.

TJX Companies makes up 0.3% of the SPDR S&P 500 ETF (SPY) and 0.4% of the iShares Russell 1000 Growth ETF (IWF).

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Why suppliers matter

The company’s buying organization has more than 1,000 people around the globe who purchase merchandise from more than 17,000 suppliers in more than 100 countries. TJX Companies’ top 25 suppliers account for about 25.0% of the total products bought by the company.

In a previous part of this series, we mentioned that the company’s off-price model requires the opportunistic purchase of merchandise from suppliers.

This makes it vital for TJX Companies to work closely with its suppliers in order to take advantage of buying opportunities. These opportunities include order cancellations by department stores, excess production of an item by a manufacturer resulting from overestimated demand, and a closeout deal arising from a vendor’s need to clear merchandise at the end of a season.

Why suppliers prefer TJX

As an off-price retailer, TJX Companies is generally willing to purchase less-than-full assortments of items, styles, and sizes. The company is also prepared to purchase small or very large merchandise quantities from the supplier and pays promptly.

Unlike large department store chains such as Macy’s (M), Kohl’s Corporation (KSS), and Nordstrom (JWN), TJX Companies usually doesn’t look for retail concessions or to negotiate deals such as advertising, promotional, or return allowances.

Besides investing in supply chain and distribution networks, TJX Companies is making a substantial investment in store expansion.

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