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Are Unethical Sourcing Practices Helping TJX Win at Retail Right Now?

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It’s fun to find a steal at stores like T.J. Maxx and Marshalls. In fact, the off-price purveyor prides itself on that very treasure hunt. Now, however, some are calling into question the actual costs of getting the consumer such sweet deals.

A recent article in the Boston Globe said those deals are coming at the workers’ expense.

The article alleges, that to keep its selection fresh and on price point, TJX Companies sources from “no-name factories” both domestically and abroad, and those factories have been scrutinized for sweatshop conditions and substantially underpaying workers.

More and more brands are beginning to make product specifically for off-price as consumers are shopping these stores seeking core fashion and not just this season or last season’s leftovers. That allows off-pricers to have their pick of the perfect color polo they know their customers will buy. And big brands, like Ralph Lauren, will do license deals with off-price retailers because of the scale it affords them. However, to fill its 3,800 stores with 85 percent made-for-TJX product (that’s the amount former TJX chief Carol Meyrowitz said in 2011 that the company buys direct from manufacturers) at bargain retail prices means corners get cut in one place or the other.

(Read more about what’s happening with off-price: Off-Price to Benefit Big From Department Stores’ Demise)

“Officials have said that discount retailers like TJX buy clothes from manufacturers that pay their employees as little as $4 an hour to stitch those must-have blouses,” the Globe article noted.

TJX, the parent company of T.J. Maxx and Marshalls, did not respond to multiple requests for comment.

The allegation isn’t a new one for TJX. In December, the Department of Labor warned the company that it needs to do better at policing its manufacturers—especially considering many are engaged in subcontracting to factories that are unregulated and often rife with poor labor and safety practices.

TJX has since said its vendor code of conduct requires all vendors, both domestic and abroad, comply with U.S. labor and wage laws.

But in order to compete with fast fashion, TJX has had to make some on-trend items closer to home for quicker deliveries, and that’s where the Labor Department said the problems start.

In Los Angeles, factories are allegedly producing goods for TJX at pay rates lower than legal.

“We certainly have found goods destined for T.J. Maxx,” former head of the Labor Department’s enforcement division David Weil told the Boston Globe. “These are often blatant violations of the law.”

According to a 2015 Labor Department report following unannounced factory investigations, officials found that at factories in Los Angeles, some workers making product for T.J. Maxx, and other retailers like Ross Stores and Forever 21, were earning $4 an hour, which was less than the $7.25 federal minimum wage and considerably less than California’s $10 minimum wage. And the biggest part of the problem has been retailers’ lack of visibility of their suppliers and, really, their suppliers’ suppliers and so on.

And what might seem ill-timed for TJX considering this controversy, a recent article in The Wall Street Journal outlines how the company’s so far furtive model has made it king in a disintegrating retail kingdom.

The retailer is winning because of the treasure hunt it offers and sales are only rising, though at a slower rate.

In May, TJX reported net sales up 3 percent in the first quarter to $7.8 billion over last year’s 10 percent increase. Net income in the quarter reached $536 million.

“With our disciplined inventory management, our merchandise margin was up, which speaks to the resiliency and flexibility of our off-price retail model,” Ernie Herrman, TJX Companies CEO and president said, adding that he’s confident the company is gaining market share. “This positions us extremely well to capitalize on the plentiful buying opportunities we see for exciting fashions and brands in the marketplace and bring them to consumers at amazing values.”

TJX sells brand-name product at its stores for 20 percent to 60 percent off retail prices, and, according to the Journal, sells most of its product in an average of 25 days (a quarter of the time it takes Macy’s, say), and it’s able to keep consumers spending because merchandise buyers are hitting the nail on the head, making that consumer crave the treasure hunt for what they’ll find.

The question, however, is whether that constant fresh merchandise really comes at the cost of unethical labor practices. But TJX has stayed fixed in its statements, claiming it expects all of its vendors, subcontractors or otherwise, must abide by legal minimum wages, and the company continues to keep largely mum about how it does what it does.

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