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TJX Revises Consumer Settlement, Agrees to Pay Cash




TJX Revises Consumer Settlement, Agrees to Pay Cash
TJX Revises Consumer Settlement, Agrees to Pay Cash



http://www.eweek.com/article2/0,1895,2193685,00.asp 

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.

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 
$10.5 million."

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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