Lily Pulitzer Collection Indicates A Probable Target Comeback

Just a month after he was appointed, Target‘s (NYSE:TGT) CEO Brian Cornell had announced that he is planning to aggressively expand certain categories that once provided Target an edge over other retailers. He said that the company will almost double the size of signature categories such as fashion, furniture  and baby products, etc., to rejuvenate its iconic “cheap chic” brand image. Mr. Cornell believes that these strategies will help the company regain its lost brand value, positioning it better to drive store traffic and compete with online retailers.

Under its previous CEO, Target had gradually shifted its focus from its “known for” affordable fashion products to groceries and general merchandise, in the wake of growing economic uncertainty. Although the company was trying to elevate its focus on groceries to protect future growth, its brand image became diluted. In response, the retailer needed a strong plan of action, given that it was struggling consistently in the U.S.. And last year’s data breach has only made things worse.

Brian Cornell’s plan to shuffle the company’s product portfolio was an important step on its front and the recent success of Lily Pulitzer collection confirms that Target is indeed resorting back to the strategies it was known for — exclusive and limited edition collections at affordable prices. The success of this collection has made it certain that Target is not out of the game yet.

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

See our complete analysis for Target

Lost Touch

Target was once known for its value-for-money, stylish and affordable merchandise, but it seems to have lost its essence due an aggressive push towards fresh foods. While this move made sense considering the success of Wal-Mart‘s (NYSE:WMT) grocery business, shifting focus from its core value proposition is proving costly for the retailer. According to Kantar Retail, only 32% U.S. shoppers had visited Target stores and websites in March 2014, while 38% shoppers had visited the retailer in the same month the previous year.

The contribution of Target’s signature categories to its overall revenue mix has been on a decline for the past five years. From 20% in 2009, revenue share of apparel and accessories declined gradually to 19% at the end of 2014. The share of home furnishing and decor in Target’s net sales came down from 19% to 17% during the same period. On the flip side, revenue share of food and pet supplies grew strongly from 16% to 21%. While the decline in revenue contribution of fashion and furnishing categories isn’t alarming, it clearly indicates that Target is shifting its focus from its iconic categories to groceries. This strategy hasn’t worked well for the retailer so far, which is evident from its recent results.

Plans To Refurbish Brand Image

Brian Cornell, who joined Target last year, planned to bolster certain product categories that are likely to draw customer attention. He said that the company will invest more on baby products, including diapers, clothes and gear, along with children’s products including toys and clothes. Categories such as fashion, furniture, organic food and natural cleaning products will also get extra attention. Target started making certain changes to its store layout to promote apparel, baby and beauty products. It even enhanced the presentation of apparel in several of its stores, and refreshed the display of its beauty products early last, gathering encouraging response. Going forward, the retailer will look to add its rejuvenated formats to more stores.

More than these steps, Target is looking to get aggressive on its iconic limited edition and exclusive products designed and launched in partnership with famous designers. This strategy had contributed tremendously to the retailer’s success over the years and the company is once again looking to repeat that story.

Lily Pulitzer Was A Successful Step

Though Target is being widely criticized for not handling the 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 month, 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.

Better than normal customer excitement is the response any retailer looks for with a limited edition collection launch. Response at Target however has exceeded all expectations and it has given the retailer a reassurance that it can once again make a solid name for itself in the industry. However, such collections in the future need to be handled well to avoid unnecessary criticism and negative publicity. The problem with Lily Pulitzer collection was that Target could not keep its website up to support the surge in incoming traffic. However, this issue can be fixed with additional investments. The more important thing for Target to rejoice about here is that it was able to garner so much customer attention that its website crashed, something that doesn’t usually happen to it.

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