How Target Is Looking To Develop A Competitive Edge In Apparel

Target (NYSE:TGT) recently began a revamp of its apparel merchandise, phasing out certain old brands and introducing several new private labels. This new line of curated clothing is aimed towards attracting customers to its stores by providing attractive merchandise that is not available online. Target is also working on a significant makeover of its stores so that they are easier to navigate and display products better. The new labels and store redesign are the company’s key initiatives to generate higher store traffic.  Private labels with their higher margins are more profitable for companies and their “exclusivity” can attract customers. However, in the current age of convenience where an increasing number of customers are looking at online or smart offline buying options, it is uncertain whether Target’s contrarian strategy to attract more customers to its stores will succeed. While players such as Amazon and Wal-Mart are working on several digital initiatives to make the customer shopping experience more convenient and quicker, Target is investing heavily on its stores and exclusive products to drive sales.

In Q1 2017, Target announced better than expected results with both revenue and earnings per share beating analyst expectations. The company’s digital sales in the quarter grew by 22% and accounted for more than 4% of its total sales. This is despite the fact that Target has been slower compared to Wal-Mart in its digital initiatives and is focused on store makeovers. The company’s store comparable sales declined by more than 2.2% in Q1 2017 and the digital channel contributed nearly 1% to the comparable sales. However, the major focus of the company’s investment this year is on its physical stores and the introduction of private labels, rather than digital initiatives. Target’s store makeover is aimed at making the shopping experience more efficient and convenient for its customers by creating “next generation stores”. The company is also modifying its aisles to improve product presentations, encouraging customers to browse through the company’s inventory of apparel, accessories and other products. It will also use new technology to empower store employees to search inventory and take payment from a mobile point-of-sale device. If this initiative attracts more customers to its stores, Target can increase the average revenue per square foot at its stores, which is a key value driver for the company.

As brick and mortar retailers face increasing threats from e-commerce players, they are implementing several strategies to stay competitive. Wal-Mart is investing heavily in its digital channel, through the recent acquisition of Jet.com and several other initiatives aimed towards a “smarter shopping experience.” Target’s strategy appears to be different, and the company is banking on a better store design and exclusive products to attract customers. Whether this strategy will indeed drive revenues for the company remains to be seen.

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