Apparel dept. faces big adjustments post divestiture

DSN Retailing Today, April 11, 2005 by Emily Scardino

Having shed its other retail divisions--Mervyn's and Marshall Field's--Target the corporation is now synonymous with Target the store. Results will clearly reflect this at the end of its next fiscal year, when the strength of the strongest business division of the original three becomes apparent in 2005 gross and net sales results. However, there are some potential negative aspects to going it alone from a merchandising perspective.

From a financial point of view, offloading Mervyn's and Marshall Field's seems an ideal move from a cash-flow perspective.

"Fiscal year 2005 results are also expected to benefit from the company's strong cash position," (which is likely to be substantially higher year-over-year until the receipt of proceeds from the sales of Mervyn's and Marshall Field's are fully anniversaried) noted Patrick McKeever, SunTrust Robinson Humphrey analyst, in a recent report.

In addition, offloading these two divisions makes sense because these were consistently the poorest performers within the corporate portfolio, while "2004 represented another year of outstanding performance at Target," said Gregg Steinhafel, president of Target Stores.

Taking a broader outlook, however, there are some potential drawbacks to shedding Mervyn's and Marshall Field's. In doing so, Target will lose a powerful tool: the ability to see what fashion merchandise is tracking well in the department store channel and adapt that information to its Target stores.

Though apparel and accessory production lead times are shorter than ever, thanks to continued improvements in overseas sourcing capabilities, there is a difference between quickly responding to the fashion that is on-shelf at department stores that appears to be tracking well and having hard data regarding what merchandise is performing best. This powerful asset is now a thing of the past.

The company's prior ownership of mid-tier Mervyn's and traditional department store Marshall Field's also gave Target the flexibility to focus on whatever channel was performing best. Now, Target Corp. is completely dependent on the strength of the Target brand, and its brands, in the discount channel.

Another potential drawback: Target Corp. has, for now, ended its connection with a number of the higher-end national brands it once carried. Whether it was mid-tier branded merchandise such as OP or department store lines such as Kenneth Cole, Jones New York and Liz Claiborne at Marshall Field's, the company's array of such labels has narrowed significantly. While these names had remained discrete from the assortments at Target Stores, the ability of Target Corp. to leverage these national vendors into eventually selling it discount-channel lines has likely been affected. Target has tested Liz Claiborne lines over the past few years, but both Liz Claiborne and Jones New York typically sell their various sub-brands at the mid-tier level and above.

These kinds of prestige apparel, accessory and footwear labels are clearly important to Target. Its new C9 by Champion line was considered one of the major hits for 2004 and it also retails lines under other sub-brands of higher-end labels including Levi Strauss Signature.

Still, Target is known as much for setting trends as coming out with trend-right merchandise. Rather than relying on mass-priced knock-offs of couture fashions, or depending on its observations of sales trends at Mervyn's or Marshall Field's, it has frequently ended up inspiring rather than following trends.

Its designer fashion exclusives, including Mossimo and Isaac Mizrahi, have not only been a great success at Target, they have set an example that has prompted other retailers to partner with their own celebrity designers. H&M recently produced a hit line with Chanel designer Karl Lagerfeld, while Kohl's has had great success with its line by fashionista/model Daisy Fuentes.

Isaac Mizrahi has been a particular success at Target for a number of reasons. From the inception of the exclusive program, it was the most extensive apparel line at the retailer, and it continues to maintain a dominant presence on the floor. Each spring and fall season, the company touts designer Mizrahi's newest line, keeping him on par with the rest of the fashion world.

By positioning the latest Mizrahi designs front-and-center in its apparel-focused seasonal advertising campaigns, Target is able to establish itself as a destination for the brand and for mass-market fashion in general. While Mossimo is an important label in juniors, Mizrahi is a bona fide misses designer line, and has been recognized as such by the career women, moms and young women alike at Target.

With such a powerful fashion message, the absence of Mervyn's and Marshall Field's going forward will not likely have a strong impact on assortments. After all, if either apparel and accessories-driven chains had been performing exceptionally, Target Corp. never would have sold them in the first place, outweighing any side benefits to keeping the businesses.