Wal-Mart's fashion star is rising just as Target's appears to be waning.
Two days after Wal-Mart Stores Inc. said early spring sales of its private label apparel, where key items cost $10, were "very promising as a leading indicator," Target Corp.'s stock fell Thursday in the wake of a Citigroup downgrade that found fault with the firm's women's apparel offerings. Wal-Mart's shares, in contrast, rose.
And Wal-Mart has a number of changes in the pipeline that should keep up the pressure on its smaller, though still huge, discount rival.
Over the next several months the Bentonville, Ark.-based retailer will introduce Ocean Pacific and L.E.I. fashions to its stores, and it is also gearing up investment in "growth businesses," including athletic apparel and shoes and licensed goods. And sources said there are more deals in the works at Wal-Mart to bring major brands in as proprietary labels, along the lines of the Op and L.E.I. agreements.
But that might just be the beginning.
Deborah Weinswig, the analyst at Citigroup Global Markets Inc. who downgraded Target with a "Sell" rating on Thursday, also said in a research note that Wal-Mart could rejigger its apparel supply chain.
"We expect that company to eventually use third party operations for all globally sourced apparel and home [goods] — similar to Kohl's, which utilizes Li & Fung for the majority of their globally sourced merchandise," she wrote. "This should lead to improved product offerings" at Wal-Mart.
It is not known how close Wal-Mart is to making such a move, or with whom or how that would impact its New York design office. A Wal-Mart spokeswoman declined to comment on the speculation, but did note that the company has "a robust global procurement team that's a key part of our sourcing for categories across the store."
All that would be in the future, though, and Target seems to have problems now.
At the bell Thursday, Target's stock declined 3.8 percent to $51.36, while Wal-Mart Stores rose 0.2 percent to close at $49.79.
The decline in Target's share price was steeper than the broader retail sector, which bled as continued recession fears from weak economic data spooked investors. The S&P Retail Index declined 1.9 percent to 389.73. The Dow Jones Industrial Average dropped 1.2 percent to 12,284.30, and the broader S&P 500 slid 1.3 percent to 1,342.53. The WWD Composite Stock Index, which includes retailers, beauty firms and vendors, was flat at 867.
Regarding Target's downgrade, Citigroup pointed to a lack of focus in the firm's women's fashions, risk in its credit card portfolio and the perception that Wal-Mart is the discount price leader. Weinswig set a target price of $48 on the stock.
Target, one of the few retailers to maintain ownership of its credit card business, also has to contend with the deteriorating conditions for lenders.
Summarizing the firm's credit performance in January, Weinswig said delinquencies were up in January to 4.03 percent, compared with 3.89 percent in December and 3.83 percent in November.
Charge-offs, or accounts that are at least 180 days delinquent, fell to 6.54 percent last month from 6.84 percent in December and 7.05 in November, but were up from a year earlier.
Target's reliance on its credit card business to drive profits has long concerned some analysts, who worried over the potential for skyrocketing delinquencies in the unit if the economy softened.
Last summer, Target faced pressure from activist investor William Ackman, who pressed the Minneapolis-based chain to improve profits. Since then, the company retained Goldman, Sachs & Co. to mull alternatives for its credit card business.
Just as worrisome, there is a growing sense Target's apparel business is in need of a makeover. In women's wear, Weinswig said Target is suffering from a bad case of sameness. Women's apparel accounts for an estimated 11 percent of total sales. Weinswig said key brands such as Mossimo, Merona and Cherokee are duplicating each other's offerings and that management has put more emphasis on brand panache than quality.
"There's very little differentiation, each brand used to have a distinct image," said Weinswig in a telephone interview of Target's women's offering. "There has been too much focus on Go International because that's the sexy part and not the bread and butter."
Through the Go International program, Target has temporarily sold offerings from Proenza Schouler, Erin Fetherston and Behnaz Sarafpour, though the initiative is not seen as a big revenue generator. The firm's successful collaboration with Isaac Mizrahi also is wrapping up this year, as the designer heads to Liz Claiborne. Analysts estimate Target will have to replace anywhere from $300 million to $500 million in lost revenue as a result.
In yet another fashion show shuffle, @elleryland is moving its show in sync with the Paris couture calendar — though the brand is still keeping one foot on the city’s ready-to-wear schedule. Their runway show in January will coincide with the launch of a new strategy: designing two main collections each year instead of four, which will then be released in four drops. “As we all know, the system needs to change. We need to show sooner to give time back to artisans and designers to do what they do best — create,” said founder Kym Ellery. #wwdnews #wwdfashion (📷: @kukukuba)
@maxmara’s classic 101801 coat was the cornerstone of its pre-fall 2018 collection. The design team expanded the traditional double-breasted, kimono-sleeved style into a trapeze coat, lean belted styles and a peacoat and presented them in monochromatic looks – like the camel one pictured here. #wwdfashion #prefall18 (📷: George Chinsee)
The @cfda has shifted the dates of #NYFW, with Men’s showing on February 5 through February 7, and Women’s will directly follow, running from February 8 through 14. The preliminary schedule will be released on the CFDA’s web site in the next few days, but Mark Beckham, VP of marketing for the CFDA, revealed that @rafsimons will be back to close the men’s-specific part of the week with a show on February 7 #wwdfashion (📷: Kelly Taub)
@ferragamo is introducing a new space dedicated to the development of women’s and men’s leather good samples. The laboratory, which is created eco-friendly materials and designed to reduce the environmental impact of the manufacturing processes, will allow the company to expand its accessories offering through traditional artisanal approaches. #wwdfashion (📷: @aitorrosasphoto)
How does a “regular, degular, schmegular” girl from the Bronx, N.Y., become a Grammy-nominated artist with a certified platinum record in less than a year? Call it the @iamcardib come up. The 25-year-old has become a musical sensation, and the fashion world is taking note. “If I could describe her style I would say drama. She’s really into the dramatics,” says Cardi B’s stylist @kollincarter. See how Carter styles her bold and out there looks with the link in bio. #wwdfashion
“There is no formula. There is no guideline. I can watch Ted Talks all day, but there is no one who can advise me on exactly what it is I should be doing,” said @ronniefieg, CEO of @kith, in an interview with WWD’s @ariahughes at the brand’s new SoHo office in Manhattan. Head to WWD.com to see how Fieg went from hanging out in shoe stockrooms at 13 to building his own business. #wwdfashion (📷: @weston.wells)
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion