Street Not Moved by Latest Target Fashion Play

Wall Street wants more from Target Corp. than designer collaborations.

Wall Street wants more from Target Corp. than designer collaborations.

This story first appeared in the May 23, 2014 issue of WWD.  Subscribe Today.

That appears to be the case after the struggling mass retailer’s shares fell 2.2 percent Thursday to close at $55.99 on the New York Stock Exchange, having risen by 1 percent the day before even as Target reported a 16 percent drop in net earnings for the first quarter ended March 31.

Target interim chief executive officer John Mulligan vowed on Wednesday that the retailer would begin moving faster in making changes to turn around its operations. But on Thursday, the retailer indicated it was sticking with at least one strategy it helped pioneer but which now is widespread: designer collaborations. Target said it would launch an Altuzarra capsule collection by designer Joseph Altuzarra.

But analysts said that, while no reflection on Altuzarra, designer collaborations are far from likely to fix what is truly ailing the discounter.

“Target lost its way in the U.S. They’ll regain their way, but it won’t be a function of snazzy designers,” said Jeff Edelman, director of retail and consumer advisory services at RSM McGladrey Inc.

According to Edelman, Target still has a strong franchise, but it needs to get shoppers back into the stores buying consumables. “Good fashion at reasonable prices” helps, but that’s not the key reason why consumers go to Target, he said.

It has long been questioned how much business the designer collaborations at Target have truly generated. For every hit like Missoni, there would be one that was less-than-stellar. Designers generally are keen because it provides a huge marketing bump for their brands, while for Target it helped reinforce its image as hip and cool.

“The allure with designer names is that it gives Target a marketing handle,” Edelman said. But he added that even that “cool” factor marketing ploy of “Tarjay” used from the late Eighties and into the Aughts might be too old to use in the current, more competitive retail landscape.

Walter Loeb of Loeb Associates said, “Designers don’t get customers into the stores at Target. Michael Graves Home Collection was popular, as was Isaac Mizrahi for fashion, but what Target is strong in is midtier fashion brands, such as Mossimo, Liz Lange Maternity and C9 by Champion. The high-end fashion names are just frosting on the cake. It’s real business is in the consumables category.”

Both the Michael Graves line beginning in 1997 and Isaac Mizrahi in 2002 were products of soft goods marketing concepts under former chairman and ceo Bob Ulrich. While those lines were popular at Target, industry sources believed the collections, financially, just hit the “break-even” mark. Both lines ended during the tenure of chairman and ceo Gregg Steinhafel, who was ousted earlier this month as a result of the retailer’s missteps.