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TJ Maxx Pays Its Bills, Reaps Rewards

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Retailer refuses to carry debt, profits despite retail downturn.

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While Linens 'n Things, Mervyns and the Sharper Image have all announced plans to liquidate, TJX Companies (TJX), parent of T.J. Maxx, Marshalls and Home Goods, prospers by doing business the old-fashioned way: Paying its bills promptly.

This gives the off-price retailer an enormous advantage in the current downbeat market. Vendors need to unload all the name-brand merchandize that isn't selling at well-known department stores, so TJX scoops it up and passes the savings on to its customers.

TJX's same store sales, or sales at stores open at least a year, declined 1% in September, but that's a victory in the current market and way ahead of Gap (GPS), Chico's (CHS) and Abercrombie & Fitch (ANF), which all reported double-digit sales declines in September.

File TJX's success under "virtue rewarded."

TJX doesn't attempt to negotiate additional deals if items don't sell, unlike many department stores. Better yet, TJX typically settles accounts within 30 days; other retailers don't pay for 60 or 90 days.

That's a key point for vendors, who need cash to buy raw materials for the next round of manufactured goods and to pay production costs, Businessweek reports.

TJX also benefits from a type of financing known as "factoring." This involves major brands selling their receivables to a third party, or "factor," for immediate cash, minus a fee. The factor then collects from the retailer. As retailers struggle, the intermediaries are demanding better terms on the payments, making TJX a trusted company because it pays promptly.

Department stores are also reducing the volume of their purchases as consumers hunker down and hold on to their cash. This often means expensive brand-name goods are available at good prices. Some of it, including designer jeans and fancy sweaters, are landing on the shelves of T.J. Maxx.

Equity analysts are split on TJX Companies, with CL King upgrading the stock to "strong buy" from "accumulate" and Lehman Brothers (you remember them) downgrading the stock to "equal weight" from "over weight."

TJX's success plays out against consumer confidence that's near a 16-year low and flat consumer spending in August when adjusted for inflation - and that was before the market plunged 777 points at the end of September.

Retailers have been hit hard; several have announced stores closures, including Foot Locker, Zales, Wilson's Leather and Charming Shops, parent of Lane Bryant and Fashion Bug.

But not TJX. Their pay-quickly policy explains why designer merchandise from Valentino and Calvin Klein show up in their stores. It also makes the company one of the few retailers worth a look in the current economy.
No positions in stocks mentioned.
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