Designer Handbag & Purse Chat.. The Bag Forum - View Single Post - Barneys Loves Target: Retailing's Odd Couple Takes Marketing Leap

Jennifer · May 7th, 2008, 05:02 PM

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Bill Dreher, a retail analyst at Deutche Bank, said Target introduces Go designers so frequently because "they want the rotation every six weeks so they get that customer into the store every six weeks. On average, the Target customer goes to the store once a month. By contrast, the Wal-Mart customer visits a Wal-Mart unit once a week. The difference is food" with Wal-Mart's grocery business far more developed than Target's.

Armendinger said that Mizrahi gave Target a consistent image, which built recognition year after year. The retailer is certainly working on a post-Isaac strategy, but hasn't released any details. "They have to be looking at it," she said. "This is a difficult environment for a good company. When a company is losing it a little bit, there's nowhere to hide in this economy."

According to Retail Metrix, analysts' consensus estimate for Target's comp-store sales is a 4.3 percent increase for April. The retailer will offer a reading of April results on Thursday.

Target's financial performance picture hasn't been rosy. Same-store sales fell 4.4 percent in March, while comps in February inched up 0.5 percent. Same-store sales declined 1.1 percent in January. In February, Target's stock fell in the wake of a Citigroup downgrade that was critical of its women's apparel offerings. Deborah Weinswig, an equity analyst at Citigroup Global Markets, said there was a lack of focus in Target's women's fashions, risk in its credit card portfolio and the perception that Wal-Mart is the discount price leader. "On the apparel side, they've kind of lost their way a little bit," Weinswig said. "It's kind of a sea of sameness now. It used to be a very interesting place to shop." Weinswig also said there's been too much focus on Go International "because that's the sexy part" of the business, but not the bread and butter.

Target's slick advertising and designer cachet helped bolster its cheap-chic image, but now the retailer must continue to stay fresh to draw shoppers at a time when driving traffic through stores has been difficult. "The newness factor has probably worn off a little bit, so they just have to continue reinventing themselves," said Tiffany Co, debt analyst at Fitch Ratings.

In its single-minded quest to bring upscale brands to its stores, Target has sometimes lost sight of the bigger picture. An effort to upgrade its skin care offerings led Target to sell brands such as Origins, Bumble and bumble, StriVectin and Clarins by sourcing them from the gray market and without those companies' approval.

Target on Monday said it had agreed to sell an interest in its credit card receivables to J.P. Morgan Chase & Co. for about $3.6 billion. Charge-offs for accounts that are 180 days delinquent are rising and Wall Street continues to be cautious about investing in lending operations. The interest represents approximately 47 percent of the principal amount of Target's outstanding receivables.

According to Buchanan, Target's credit card business this year will account for more than 20 percent of operating profits or $1.15 billion in operating profits before interest expense. The company's total operating profit this year is around $5.4 billion, he said. "Target wants to continue to control the credit card and drive the marketing, but at the same time gain access to somebody else's capital," he said.

"The Target juggernaut is slowing," said Suzanne Hader, principal at 400twin Luxury Brand Consulting. "If they want to continue on this tack, they should look into spinning off a new retail concept where they can distill some excitement around these lines into a smaller format that's more easily adaptable to Manhattan. Barneys is looking for a way to differentiate themselves from Saks Fifth Avenue and Neiman Marcus, so this will help them seem hipper and less stuffy. If that's their aim, there are more effective ways of accomplishing that."

The names of Go guest designers are likely obscure to typical Target shoppers — Luella Bartley, Tara Jarmon, Erin Fetherston, Paul & Joe — but the company recently introduced a Go International private label line, New Next Now, sans the name of a designer, leading some experts to wonder whether the company will add a generic Go label to its permanent roster. New Next Now is less edgy than previous collections, with simple tank tunic dresses, one-shoulder jersey dresses in solid colors and high-collar, ruffle-front shirts
hose who know Gregory and his partner, Scott Hahn, said they were eager to sell to Target once they were assured the mass retailer was committed to producing an organic collection. Julie Gilhart, Barneys' senior vice president and fashion director, has a passion for the environment and was instrumental in enlisting top designers to create eco-friendly products for the store. She is said to have been keen on launching Rogan for Go International to show support for the mass merchant's nascent green efforts.

"Barneys and Target was kind of serendipitous," said Gregory. "We know it will be a benefit [to our business]. The Target thing came about this time last year. It's nice to be able to offer this true expression of my vision. Target is doing hundreds of thousands of garments. They gave me everything I asked for. I feel privileged to speak to both the high and the low end."

Asked whether Rogan customers will view the Target line as a conflict, Gregory said, "We don't do safari here. It's so much a different product, aesthetically. Every piece in here we make 10 of, whereas Target's minimum is 10,000."

Yet even here the supposedly cutting-edge mass retailer is behind the curve. Wal-Mart has been much more outspoken and proactive about the environment in recent years, selling 100 million energy-efficient compact fluorescent lightbulbs within a year, reducing packaging and using organic cotton in some of its apparel Again, Target's tie-ups with Rogan and Barneys may be as much about hype and hopping onto the bandwagon of an issue that is now in the spotlight as it is about any revenues.

"Clearly what Target is doing with Barneys is all about marketing and branding," said Wendy Liebman, founder and president of WSL Strategic Retail. "To have that opportunity to present the line there for a few minutes....In terms of the New York market, there's the prestige and it's a good marketing tool. For Barneys, this is a way to surprise people. There's all this fast fashion going on; Barneys is saying, 'We can take a little poke at [ourselves] and have fun with it. We can give our Barneys shoppers a chance to get a good value for a few days.' It will create a little bit of anarchy and a little bit of buzz."

Designers who have done a stint with Target were generally positive about the experience, but said it didn't boost sales of their core collections. "It helped my brand to gain exposure in a new market with a new audience," said Behnaz Sarafpour. "It has not had an effect on the selling of my designer collection."

"Since it was only a three-month capsule collection, it did not affect sales from our main collection in any way," said Holly Dunlap, who recently designed a Hollywould shoe and handbag line for Target. "People loved to be able to buy Hollywould products at such a low price, and we were able to reach a wider audience than we can at our usual price point. The products I did for Target were not too similar to our main collection, so there was never any confusion and the difference was kept very clear."

One Go participant said Target pays $100,000 for a designer's efforts — no matter how much revenue the line generates for the retailer. Another designer said, "They pay a designer fee and it's substantial. For the amount of exposure and credibility Target gives you, it's a pretty fair compensation. It's not something you can retire on, but it's a quick-turn project."