Target Seeking Fashion To Gain Growth Momentum

Affordable fashionable merchandise are what helped Target make a name for itself in the U.S. retail market, before it decided to go aggressive on groceries that severely impacted its growth. However, it has once again resorted to its “known-for” categories and has seen tremendous customer response so far. The exceptional success of the Lily Pulitzer collection is indicative of the fact that Target still has its core brand essence intact and it only needs to sustain its push in this arena. The company has invested significantly to upgrade the product mix for apparel, beauty, baby and home categories, which has been well received by customers. In fact, the company’s online revenues increased by 40% in the first quarter of 2015 and two-thirds of this growth came from apparel and home. Overall, beauty delivered 5% growth in comparable sales in Q1 and apparel and home saw their comparable sales go up 4%. ^[1] This was some way ahead of the overall comparable sales growth of 2.3%, implying that apparel, home and beauty are indeed the categories where Target should focus.

Brian Cornell, who joined Target as CEO last year, has planned to bolster certain product categories that are likely to draw customer attention. He has said that the company will invest more on baby products (including diapers, clothes and gear), as well as children’s products including toys and clothes. Categories such as fashion, furniture, organic food and natural cleaning products are to get extra attention as well. Target even started making certain changes to its store layout to promote apparel, baby and beauty products. It enhanced the presentation of apparel in several of its stores, and refreshed the display of its beauty products early last year, gathering encouraging responses. Along with the updated product mix, this has worked very well for the company so far.

Our price estimate for Target stands at $78, which is just below the current market price.

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Brian Cornell’s plan to shuffle the company’s product portfolio was an important step and the recent success of Lily Pulitzer collection confirms that Target is indeed resorting back to the strategies it was known for. To this end, one of the company’s prime strategy is its recurring exclusive and limited edition collections at affordable prices. Though Target was widely criticized for not handling the Lily Pulitzer collection well, the fact cannot be ignored that this was a tremendous success. More than financial gains, the collection was about the reassurance that Target can in fact relive its golden days, provided that right aspects are leveraged. Earlier this year, the company had launched a limited edition collection of beachwear in partnership with designer Lily Pulitzer, which was sold out within hours of its launch. The collection was offered at a significantly lower price than its original market price and Target had announced that sold-out merchandise will not be replaced. This created significant excitement and a sense of urgency among customers, who waited for hours in store ques and swamped the retailer’s website.

Encouraged by the astonishing customer response, Target is making a risky bet for its upcoming fall collection as it plans to go heavy on one particular trend – tartan side. ^[2] The retailer plans to infuse this plaid style in over 360 products across the apparel categories for men, women, kids and babies. Though in apparel retail, there is always an element of risk involved in forecasting demand and predicting customer response to trends and styles, risk increases manifolds when a retailer is relying heavily on just a few styles.

However, this does indicate that Target now has ample confidence in its design and merchandising teams, looking at how they have done a good job in the recent past. The retailer believes that tartan style is one of the prominent on-going trends and it would be the same in the fall season. In fact, the company is so confident that it is also launching a special collection of cell phone cases and dinnerware with this plaid-only style. Although it remains to be seen whether Target’s bet on tartan would turn in its favor or against it, it is almost certain that the company wants to be aggressive on fashion.

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1. Target’s Q1 fiscal 2015 earnings transcript, May 20 2015 [↩]
2. Target Takes Tartan to the Limit, Women’s Wear Daily, June 3 2015 [↩]