THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Discounter hits the right note during the downturn

Valerie Lopez (above right) hunts for bargains at A.J. Wright in Fields Corner with her mother, Migdalia Diaz, earlier this month. The store sells a variety of items at a discount, including shoes and clothing for newborn babies. Valerie Lopez (above right) hunts for bargains at A.J. Wright in Fields Corner with her mother, Migdalia Diaz, earlier this month. The store sells a variety of items at a discount, including shoes and clothing for newborn babies. (Jonathan Wiggs/Globe Staff)
By Jenn Abelson
Globe Staff / March 15, 2009

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After more than a decade, discounter A.J. Wright is finally getting it right.

The chain, run by TJX Cos. in Framingham., recently reported turning an annual profit for 2008, the first time the merchant has done so since launching in 1998.

Now, as consumers scale back their budgets and look for ways to save money, A.J. Wright seems poised to continue its growth: Company executives are looking to capitalize on the current economic downturn to expand A.J. Wright and open 13 new shops this year for the 135-store chain. With more cost-conscious customers and an abundance of real estate as other chains languish, retail analysts see the potential for A.J. Wright to quadruple in size in the coming years.

"We believe that extreme value is where a retailer wants to be in these difficult times," TJX chief executive Carol Meyrowitz wrote in an e-mail response to questions. "We feel it is the right time to prudently step up the growth of this chain, especially in light of the real estate opportunities that we are seeing."

In its early years, A.J. Wright struggled to find its consumer base, targeting too narrowly to urban fashion and expanding too aggressively across the country. That lead to an overhaul of the chain, including 34 store closures in 2006 and a leadership shake-up that brought in outsider Celia Clancy to serve as president of A.J. Wright in 2007. Clancy had previously worked as a senior operations consultant in retail and consumer goods at private equity firm Cerberus Capital Management, which helped turn around companies, and she spent eight years at discount behemoth Wal-Mart Stores Inc. in senior merchant roles.

In the stores, company executives sought to differentiate the chain from other discounters by offering a broader mix of merchandise that appealed to a wider audience, including career wear, plus sizes, children's, and family footwear. A.J. Wright also recognized its diverse ethnic customers and increasingly targeted the growing group of Hispanic shoppers with new shops and marketing, according to retail analysts.

The company also worked on its merchandise selection. Compared with TJX's flagship T.J. Maxx and Marshalls chains, A.J. Wright features smaller stores with cheaper goods and different brands, such as Baby Phat and Coogi. The typical A.J. Wright customer has a household income of between $35,000 and $50,000, lower than shoppers at TJX's other stores.

The selection on display recently at A.J. Wright's shop in Dorchester included a mix of cheap basics and brand names, including $9.99 hospital scrubs, $3.99 girls' Easter hats, $29.99 Baby Phat brown and pink women's sneakers, usually priced around $60, and a men's Akademiks embellished yellow hoodie for $19.99, typically sold for $84.

Brian J. Tunick, a retail analyst with JPMorgan, said because of its improvements in merchandise and real estate locations and its focus on courting markets with larger, growing Hispanic communities, A.J. Wright is well positioned to tap into consumers trading down during the current recession and increase its market share.

"They weren't sure who their customer was at first and they weren't used to buying for this kind of customer. It wasn't where their heritage was," Tunick said. "But they've corrected the real estate and the merchandise."

It also helps that A.J. Wright has few direct competitors, except for CitiTrends, with over 300 shops, and dd's Discount, which is run by Ross Stores Inc. TJX says A.J. Wright merchandise is geared toward the entire family, unlike many of its rivals.

"We truly believe in the growth potential of the A.J. Wright business with its very large demographic customer base," Meyrowitz said.

There certainly is a huge untapped off-price market, retail analyst Tunick said, and A.J. Wright could steal share from moderately priced merchants like JCPenney, Sears, and Kmart. In 2008, A.J. Wright had $678 million in sales on roughly $3 million in profit, up from $633 million in sales and a $2 million loss in 2007.

TJX attributes the turnaround to improved overall execution, including better buying and merchandising, more effective marketing, and tighter expense control.

"It certainly seems like A.J. Wright has reached a new level of stability," Dana Telsey, of Telsey Advisory Group, said during a recent earnings call.

The May 2007 opening of the Fields Corner shop in Dorchester was one of the best in history, TJX executives told Boston officials last year, and by last spring it was the top performing store in the chain, according to Susan Elsbree, a spokeswoman for the Boston Redevelopment Authority. Boston Mayor Thomas M. Menino has pitched several additional sites for A.J. Wright to expand, including Downtown Crossing, the former Bay State Paper Co. in Hyde Park, and a location in Dorchester's Lower Mills.

"It's cheap, fashionable, and nice," said Dorchester resident Valerie Lopez, 17, who was shopping recently at the Fields Corner store and used to shop at another chain. "But now we just shop here."

Jenn Abelson can be reached at abelson@globe.com.

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