By Evan Schuman
October 9, 2007
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 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 company's 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
But TJX also argued that, far from being a windfall for the retailer, it
would amount to a loss. "TJX's 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 TJX's 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 didn't address the probability that many consumers
attending this event could return to purchase substantially more at a
later date. That's 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.
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