Target Finds Success in Designer Brands

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Published August 10, 2002

| FoxNews.com

If its sales are any indication, Target has hit the bull’s-eye with its business strategy to become a high-end discount department store offering designer clothing and artsy home furnishings.

In the three years since the No. 3 discount chain began aligning itself with artists, fashion designers and architects like Michael Graves, Todd Oldham, Philippe Starck and Mossimo Giannulli, overall sales have grown steadily, even during the country’s economic downturn.

"My understanding is that Target is doing much better in the retail sector than its competitors," said Marian Salzman, chief strategic officer for the marketing communications firm Euro RSCG Worldwide. "The economy sucks, but they’re having a damn good time of it relative to the others."

Total Target store revenues jumped from about $2.6 billion in 1999 to about $3.3 billion in 2001, according to company financial reports. As of June of this year, store sales were at about $1.4 billion.

June sales were up 16.9 percent from last year for just the Target stores, and for Target Corporation – which includes the Marshall Field’s and Mervyn’s chains -- they were up 13.6 percent.

"I’m looking at overall Target sales as well as sales of individual brands and designers as an indication of (the designer lines’) success," said Marshal Cohen, president of NPD Fashionworld, a market research company specializing in fashion retail. "They’re doing very well."

In 1999, the chain decided to set itself apart from its two largest competitors, Kmart and Wal-Mart, by selling a line of housewares designed by architect Michael Graves.

Since then, home furnishings by fashion designer Todd Oldham and architect Philippe Starck have popped up in Target stores. So have clothing lines by funky designers like Mossimo Giannulli, Marc Ecko, Stephen Sprouse and Cynthia Rowley; cosmetics by makeup artist Sonia Kashuk and camping equipment by Eddie Bauer.

Target stores spokesman Douglas Kline said the designer brand lines have been integral to the company’s spike in sales and revenues.

"In general, these partnerships do very well for us," he said. "We’ve had overall growth in sales throughout the store. I can equate that to our designer partnerships."

Kline wouldn’t disclose sales figures specifically for the Target designer lines.

Companies generally don't reveal numbers for specific product lines because they want to keep the information a secret from their competitors, according to one industry insider.

But the insider, a retail expert who asked not to be identified, told Foxnews.com that Target's designer clothing accounts for 7 percent of its apparel sales, while its private label business represents 34 percent.

That is right in line with competitor Kmart, whose designer clothing lines like those of Jaclyn Smith and Kathie Lee Gifford account for slightly less than 7 percent, the retail expert said.

But the growth in mass retailers' designer clothing sales, which have jumped from 3 percent to 7 percent of total apparel sales in the last two years, has been fueled mostly by Target --not Kmart -- said the insider, because the chain has been aggressively building its designer brand business.

In addition to helping spike sales, the designer products have been crucial to Target’s image, which has evolved into something quite different from Wal-Mart and Kmart, the No. 1 and 2 discounters, respectively.

"Even if designers don’t sell a lot of product, they’re able to escalate the image of Target to attract customers who wouldn’t normally shop at a place like that," NPD Fashionworld's Cohen said. "The designer/artist Target is bringing in will add another dimension."

In essence, experts say, Target has created a new category of retailer.

"They’ve figured out a new class of stores that are neither discounters nor department stores," Salzman said. "It’s very smart."

The funky designer fashions Target sells are a far cry from the much more basic, less chic Jaclyn Smith/Kathie Lee Gifford clothing offered at Kmart. Kmart had already taken the high road with its popular, posh Martha Stewart line of home furnishings. Target's wide array of designers and artists is what sets it apart from competitors in the housewares arena.

"I think they’ve been able to take advantage of the changing consumer," Cohen said. "People are looking at Kmart for its Martha Stewart collection and at Target for its fashion assortment."

But going the designer route also comes with risks, he said.

"When it comes to bringing in any higher-end fashion product, there are very few successes in relation to failures," said Cohen. "If you can have 25 percent of your collection sell well, that’s a great season. The more brands they create, the higher the risk is."

He said the company has acted wisely by avoiding over-investing in high-end product lines or trying to sell too much of the fancier merchandise.

In any case, the discount retailer has carved a niche by offering upscale designer products to regular people at reasonable prices. So far, the strategy has spelled success.

"What Target is doing is translating high design for the real world," said Salzman. "Target makes a designer of world-class stature really accessible to the average Joe or Jane. It’s very clear it’s working for them."

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