TJX plans to offer cash as an alternative to vouchers in order to settle data breach litigation.
Hours before a federal judge demanded that TJX address key concerns about its proposed settlement, the merchant behind the biggest retail data breach ever agreed to some key changes, including offering a cash alternative to its voucher offer.
The biggest objection to the initial proposed settlement had been that consumer victims were only offered $30 vouchers for making purchases at stores owned by The TJX Companies. Under a new proposed settlement that was filed late Oct. 9, attorneys for both sides are now proposing giving consumers a choice: either the $30 voucher or a $15 check.
The objection to the voucher-only deal was that TJX could be using the settlement as a way to potentially boost sales, relying on consumers to buy more than $30 worth of merchandise.
The new proposal still makes the vouchers seem twice as compelling as the checks, but with the addition of a cash alternative, the proposal is more likely to get the approval of U.S. District Court Judge William G. Young.
Young expressed serious misgivings about the first settlement proposal, especially because of the vouchers. Attorneys for both sides are due to report to Young on Oct. 10.
Another change involves the proposal of a three-day sale, which has now been reduced to a one-day sale "with extended hours from 8 a.m. to 10 p.m.," according to a court filing.
In an attempt to respond to a court order to quantify the settlement more, TJX officials revealed some of the companys internal cost projections. The total amount of vouchers is no longer subject to any cap while the cash payments will be capped at $7 million. TJX said it has agreed to reimburse some consumers for any hard losses of more than $60 resulting from identity theft, with a $1 million ceiling.
The credit watch that TJX said would be offered to some consumers will bring $177 million of value to the consumer, the revised settlement proposal said. As for the cost of that provision, TJX said, "a regular consumer unaffiliated with the TJX class action would have to pay $389.95 for the package."
The agreement argued that the fact that TJX is likely getting a bulk-rate discount on the service is irrelevant because "an individual consumer could not get the discounted rate obtained by TJX for the bulk purchase, and many consumers do not even know such credit monitoring and identity theft insurance exists or how to get it. In any event, this benefit should be viewed from the perspective of the greater value received by the Class and not by the lesser cost borne by Defendants."
As for the national sale that will now be a single day, TJX, based in Framingham, Mass., reported that the "value" to consumers of the event will be $10.5 million because "TJX estimates that its average gross sales for a Thursday, Friday or Saturday in January, February, or July 2008 will be approximately $54 million.
"TJX further estimates that the Special Event will increase sales above the average anywhere from approximately 20 percent to 30 percent, and potentially as high as approximately 40 percent. Assuming a 30 percent increase in sales, then a 15 percent discount would equal approximately $10.5 million."
But TJX also argued that, far from being a windfall for the retailer, it would amount to a loss. "TJXs average profit margin on its aggregate sales is approximately 7 percent. Thus, the 15 percent discount offered in the Special Event is more than double TJXs profit margin. Thus, the 15 percent discount will result in a direct lossnot mere lost profitto TJX. In sum, the Special Event confers a substantial benefit on Class members at a significant cost to TJX."
The document didnt address the probability that many consumers attending this event could return to purchase substantially more at a later date. Thats why discount days are a popular marketing tactic for enticing new prospective customers to try a store.
The revised settlement increased the amount of time consumers will have to act on this offer, from the original 60 days to the 90 days suggested by the judge. The document also argued that Judge Young does have the authority to rule on this settlement on behalf of Canadian consumers.
Retail Center Editor Evan Schuman can be reached at Evan.Schuman@ziffdavisenterprise.com.
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