Tuesday Morning Corporation Business Information, Profile, and History

Company Perspectives:

Tuesday Morning stores sell a wide assortment of first-quality closeout merchandise. The merchandise can generally be described as gift merchandise and primarily consists of dinnerware, china and crystal, gourmet housewares, bathroom, bedroom and kitchen accessories, linens and domestics, luggage, seasonal decorations such as Christmas trim, toys, stationery and silk flowers. The firm's pricing policy is to sell all merchandise at 50 percent to 80 percent below the retail prices generally charged by department and specialty stores. Prices are determined centrally and are uniform at all Tuesday Morning stores.

History of Tuesday Morning Corporation

In spite of its name, Tuesday Morning Corporation does not always open its stores on Tuesday mornings. For about half the year the stores are closed entirely. During its four annual "sales events," which cover the peak shopping seasons, most of the company's stores are open seven days a week. Tuesday Morning sells upscale items at deeply discounted prices. Its merchandise, which the company describes as "first-quality, famous-maker giftware," generally goes for 50 to 80 percent below original retail prices. The company keeps its overhead costs in check by locking its doors during off-peak times of the year and by maintaining a no-frills atmosphere in its stores.

1970s Origins As Upscale Garage Sale

The name and concept for Tuesday Morning came from company founder, Chairman, and Chief Executive Officer Lloyd Ross. He came upon the idea for a part-year store while working for Rathcon, Inc., a manufacturer and importer of gift merchandise, in the early 1970s. Ross noticed that manufacturers had no reliable way to dispose of their surpluses of high-end inventory. He began purchasing excess merchandise from top-name manufacturers and selling it to department and specialty stores at a nice profit. The process worked so well that Ross decided to try selling a variety of products at what amounted to a single gigantic garage sale in a rented warehouse in north Dallas. The sale was a huge success, and it left no doubt in Ross's mind that there was a place in the retail world for an operation specializing in upscale closeout items. Naming the company was easy. Ross had wanted to run a company named after a day of the week ever since he was a teenager delivering copies of the Saturday Evening Post. He picked Tuesday because in his opinion, "Tuesday morning is the first positive day of the week," according to company press materials.

Soon after the initial success of his concept, Ross settled on the four-sales-a-year schedule. The sales quickly gained a loyal following. In addition to offering prestigious items at low prices, limiting the time during which they were available created a sense of anticipation and excitement for many customers. For its first several years, the company continued to operate out of temporary locations, such as vacant supermarkets or warehouses. New employees were hired for each season. Before long, however, a core group of returning sales personnel made up the bulk of the staff. Tuesday Morning soon began to expand geographically, primarily in the South and West. Eventually the company settled into permanent locations. Tuesday Morning management, however, avoided locating their stores in the posh malls of the well-known department stores that often sold the same merchandise for twice the price. Tuesday Morning stores have always been no-frills operations, relying on the merchandise rather than decoration to create their atmosphere. The typical Tuesday Morning customer was an upper middle-class woman who might otherwise shop at a place like Nieman Marcus. Many of those women purportedly transferred their Tuesday Morning purchases into big-name department store boxes when they got home.

Profitable Throughout the 1980s

Tuesday Morning went public in 1984, and by the following year there were 56 stores in the chain, generating sales of about $37 million. Sales events were handled by 1,400 part-time workers as well as 60 administrative personnel at company headquarters and 110 warehouse employees. Meanwhile, certain company policies kept Tuesday Morning on good terms with the manufacturers of their merchandise and even with the department stores that it was undercutting. Tuesday Morning generally did not include manufacturers' names in its advertising since some manufacturers felt that association with a discount chain devalued their products. If a brand name was used in an ad, it was only with the manufacturer's explicit permission. If a competing department store became upset about a markdown on a product it was still carrying, Tuesday Morning usually would take it off the shelves.

Tuesday Morning's sales and profits grew each year for the rest of the 1980s, with the exception of 1988, when earnings were held in check by a temporary increase in expenses, including the construction of a new warehouse. By 1987 there were 81 large, no-frills Tuesday Morning outlets operating in 16 states, still mostly in the South. To keep rental costs low, the company continued to locate its stores mainly in strip malls in outer ring suburbs, rather than in indoor malls or city centers. Labor costs also remained low since each store had only one permanent full-time employee, the store manager. The chain's army of part-timers were mainly housewives, who were often motivated by the opportunity to get first crack at the closeout merchandise offered at each sales event, not to mention a 20 percent discount. In 1987 the company earned $3.7 million on revenue of $66 million.

Company sales passed the $100 million mark in 1990. By the following year there were 132 stores in the Tuesday Morning chain, with locations in 21 states. Although still primarily a force in the South and Southeast, there were eight Tuesday Morning outlets in Chicago and ten in the Washington, D.C. area by this time. One of the company's strengths continued to be the loyalty of its employees. This applied not only to returning sales personnel, but to the company's growing permanent staff as well. As of 1991, 10 percent of Tuesday Morning's store managers had been with the company for more than ten years, and 400 salespeople had worked there for at least five years. As the company's reputation in the retail industry grew, buying became easier as well, since manufacturers now came to Tuesday Morning with their closeout items rather than the company having to seek out bargain merchandise. Since Tuesday Morning was able to maintain high quality standards for the merchandise it sold, the stigma attached to having products sold by a deep discounter was no longer as powerful.

As the Tuesday Morning chain continued to grow, its methods became more sophisticated. Although it still relied heavily on word of mouth to generate new customers, the company also compiled a mailing list containing two million names. Attractive, four-color brochures were sent to customers on the list just before the beginning of each sales event. An experiment in television advertising a few years earlier had proven to be almost too successful. Stores in the markets targeted by the ads were cleaned out of merchandise almost immediately. New TV and radio campaigns were more carefully prepared for. Most ads featured the company's tag line, "Gifts. 50% to 80% off everything. It's true and it's guaranteed." Tuesday Morning also experimented with a phone-order catalog, which was initially sent to a 170,000-name subset of its regular mailing list. In addition, the company's distribution center in North Dallas was equipped with cutting-edge computer equipment, which allowed for instantaneous communications between stores, warehouse, and trucks. Unlike its stores, Tuesday Morning's distribution center was active 12 months a year.

New Technology in the 1990s

Explosive growth made it necessary to completely refurbish the company's warehouse technology during the early 1990s. Prior to the upgrade, the company had relied on sheer manpower--in the form of 400 extra employees--to handle the crush of work during peak periods. Merchandise was arriving at the company's lone warehouse in such quantities that tracking it was becoming next to impossible. By 1992 the warehouse system was in utter disarray. The transition began early in 1993, when Tuesday Morning President and Chief Operating Officer Jerry Smith moved his office into the warehouse facility in order to observe the process more closely.

After months of examination, suggestions, planning, and design, a new computer system was unveiled in February 1994. The new system employed up-to-date gadgetry such as hand-held scanners, point-of-sale terminals, and radio-frequency technology. It was now possible to locate a single specific box from among the tens of thousands of items in the system at any given time with pinpoint accuracy. With the new tracking system, which included an innovative software package called "DC Wizard," worker productivity improved threefold. The system allowed Tuesday Morning's warehouse to handle up to 450,000 pieces worth $1 million per day with only 135 people, compared with the 500 people it took to process just $650,000 worth of merchandise using the old system. Once employee training was completed, the need for temporary help during peak periods, and the massive cost associated with it, was reduced dramatically. After incurring a $1.1 million loss in 1993, the first losing year in the company's history, Tuesday Morning earned $2.7 million in 1994. Company management was quick to credit the turnaround to the technological overhaul, which was completed two years ahead of schedule. For 1994 the company reported sales of about $190 million.

By 1995 the Tuesday Morning mailing list contained more than three million names, and the number of stores in the chain was approaching 250. That year, sales passed the $200 million mark, and the chain's geographical range covered 31 states. There were 271 Tuesday Morning stores in operation by the middle of 1996. Amazingly, no serious competitor selling similarly prestigious merchandise at deep discounts had emerged in the 20-plus years since Tuesday Morning was established. Now that the chain was truly national in scope, it was difficult for such a competitor to establish a foothold in the market.

Into the 21st Century

In 1997, Tuesday Morning was taken private by a group composed of the company's management, the investment firm Madison Dearborn, and some unaffiliated investors, who purchased all of the company's capital stock for approximately $325 million. The company operated on a private basis until April 1999, when it made an initial public offering of 13.2 million shares of common stock at a starting price of $15 per share. The net profit of $76.1 million realized from the sale was used to pay down debts incurred during the 1997 privatization.

From 1999 through 2004, the company experienced steady sales growth due to several factors: more high-ticket items, such as furniture and rugs, were offered to customers; advertising and direct-mail campaigns expanded the client base among the company's usual market of middle-aged, upper-middle-class women; and the successful development of e-mail notification lists began drawing younger women into the stores. This expansion sparked the need for infrastructure improvements. Beginning in 2003, the company began enlarging and remodeling stores. By July 2004 about half the Tuesday Morning outlets had been completed, with another 300 scheduled for remodeling in January 2005. The 1994 overhaul of the company's warehousing and distribution system continued to reap savings for the corporation as management and workers grew accustomed to new systems and fine-tuned operations to improve product allocation and reduce time spent moving product onto sales floors.

In the early years of the 21st century, the Tuesday Morning Corporation was named a defendant in several lawsuits. Three complaints were filed in 2001 and 2002 by workers who alleged that they were not properly compensated for overtime wages. In October 2003, the company settled out of court with a group of these workers, management trainees. The settlement agreement was approved by the court on April 2, 2004, but the case continued through appeals into the following year. In December 2003, another complaint was filed on behalf of workers who alleged a number of labor issues, including failure to pay for minimum reporting time, travel time, split-shift premiums, and meal periods. In addition to labor disputes, the Tuesday Morning Corporation was named in a suit filed by Liz Claiborne Inc. and L.C. Licensing Inc. over costume jewelry sales. The suit was resolved amicably in September 2004; details of the settlement were not released. In June 2004 the Thomas Kinkade Company filed a suit against Tuesday Morning that alleged copyright infringement and false advertising on goods sold in the second quarter of 2004.

Despite its legal issues, Tuesday Morning continued to enjoy increasing sales and a widening customer base at the beginning of 2005. At that time, the company focused on opening more stores, expanding its range of high-ticket items, offering goods to attract younger clients, and realizing cost savings by improving efficiency. By the third quarter of 2004, the company had 641 stores in the United States and Canada and appeared to be on track for continued expansion in the future.

Principal Subsidiaries: Friday Morning, Inc.; Tuesday Morning, Inc.; TMI Holdings, Inc.; TMIL Corporation.

Principal Competitors: Target Corporation; Bed Bath & Beyond Inc.; Pier 1 Imports Inc.; The TJX Companies Inc.

Chronology

• Key Dates:
• 1974: Lloyd Ross holds his first "garage sale."
• 1975: Tuesday Morning is incorporated.
• 1984: The company goes public.
• 1988: A new warehouse facility is built.
• 1990: Sales exceed $100 million.
• 1994: A sophisticated computer system is implemented to control merchandise traffic.
• 1997: Tuesday Morning is taken private.
• 1999: The company is taken public.
• 2003: The company begins remodeling all outlets.