Target (TGT +2.33%) has been adding private-label brands that it owns as a way to have merchandise that its rivals can't copy. Part of this effort has included collaborating with some big names like Chip and Joanna Gaines, Chrissy Teigen, and now Vineyard Vines for exclusive collections. The Vineyard Vines collaboration launched recently and it sold out nearly instantly. The problem is that many of the people buying the items purchased them to resell and that caused a bit of a negative shopping experience.
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This video was recorded on May 21, 2019.
Shannon Jones: Let's talk about Target. Over the weekend, preppies all over the world came together to go to Target with their collaboration deal with Vineyard Vines. I'm sure a lot of our listeners will probably recognize Vineyard Vines for the famous pink whale that's all over its branding.
Dan Kline: Before we get into the business of this, I'm not fashionable. Anyone who's seen me on the show knows I have a uniform. I'm either wearing this shirt or a long sleeve black shirt. I am not a fashion guy. Vineyard Vines is an Izod shirt. But instead of a lizard, it has a whale. What am I missing?
Jones: It's a pink whale, Dan.
Kline: I didn't even know that. What am I missing? Why is this popular?
Jones: Vineyard Vines really got its start, I believe the founder started that based off being in Martha's Vineyard. So you've kind of got this Massachusetts vibe, on the coast.
Kline: I am from Massachusetts.
Jones: It's been able to build up its brand around this exclusivity. They are premium retailers. Generally, their clothing is not going to start any lower than $50.
Kline: It's very expensive. I bought some for my cousin.
Jones: Pretty expensive, even on their lower end. So this collaboration deal with Target -- Target has been doing a lot of these collaboration deals with a lot of these exclusive retailers, really trying to open up the market, and also drive demand and foot traffic back.
Kline: Let me take you through the business story for Target. Target a few years ago decided it needed to differentiate its merchandise. They've been launching, call it 12 to 20 owned and operated brands. If you went to Target three years ago, they had a lot of merchandise that they didn't control. Now you go in, and you're like, well, what's Goodfellow & Co? There are three different ladies' underwear brands that they have. And you're looking, like, "I've never heard of this brand." So, to drive interest and traffic to that, they've done some big-ticket collaborations. They have home and hearth line with Chip and Joanna Gaines. They have a cookware brand with Chrissy Teigen. When I think cookware, I think supermodel Chrissy Teigen. [laughs]
Vineyard Vines is an exclusive high-end brand. And they partnered with Target not so much on clothing, more on stuff. Do you want a beach towel with the big pink whale on it? Do you want a bandana with it?
Jones: Do you want a wagon with the whale?
Kline: Yeah, it was a lot of really weird merchandise. But this is sort of a cultish brand at a price point that was more of a Target price point. And I'm going to argue it was a misstep. it got Target a ton of attention. And that's great. You come to the store, you see all these other brands, you realize that they have a lot of great merchandise. I really feel they've stepped up their merchandise in areas -- I would never have bought furniture from Target three years ago. I'd buy a desk from Target now, their quality is dramatically better. You see all this, that's great!
But what people did is, they rushed the Target stores, they bought whatever they could, and they put it on eBay. That creates, in my opinion, a negative customer experience. They should have figured out how to manage this a little bit better because you don't want people who are just walking in blindly scooping whatever they got. They should have figured out how to make it a little less exclusive, if that's a fair way to say it.
Jones: I totally agree! I think by Sunday, maybe 9,500 items were actually being sold on eBay's website, sometimes two, three times the amount of what they bought it for.
Kline: It's a tough position for Target to be in because they also run the issue of -- so let's say they're selling that beach towel for $25. A regular beach towel without the whale is $12. It could sell on eBay for $150. Is Target going to charge you $125 for that beach towel without also creating ill will? But maybe the releases should have been staggered, or somehow done a little bit more secretively. It's a very smart play, and I'd love to see Target do more of this. But they have to make it so it's not Beanie Babies. They don't want people rushing the store, buying the Princess Diana Beanie Baby, storing in their attic, and then realizing in three years it's not worth any money.
Jones: In 2015, for investors who've been watching and for shoppers, the Lilly Pulitzer collaboration was also a debacle. Literally had inventory sell out in store and online within minutes. Granted, I think they did a little bit better in terms of demand and inventory this go around. But you still had people who were pretty upset that stayed up until 3 a.m. on Saturday waiting for this collection to be released and weren't able to get it.
Kline: Right. And they could look to Black Friday tactics. Maybe you get a card, and you're only allowed to buy one. Maybe there's a managed line. What you want to do if you're Target -- and again, these are good problems to have. Their problem is, they did a deal and everyone bought it. This isn't a bad issue. But you might want to move to a system to make sure the most people possible get a chance to buy something. We've seen it Black Friday, you get rain checks, there's a line, you get a color-coded bracelet, whatever it is. I don't think you want to see this stuff end up on eBay. Great for eBay, which is another company I like sometimes. But this could leave a bad taste in the regular Target customer's mouth. Like, "Wait a minute, I've never seen this guy shop here before. I shop here three times a week." But, again, these are just little nitpicky operational things.
Jones: Yeah. Target has collaborated, as I mentioned, with Lilly Pulitzer, Alexander McQueen, and even Justin Timberlake's William Rast line at Target. So I do think strategically, it makes a lot of sense to offer these limited-time collections to really drive that exclusivity, drive some scarcity, and really have people excited about what's coming out in the stores. Overall, though, when you look at Target, fourth quarter comparable sales did grow 5.3% on traffic growth of 4.5%. I'll be looking, I know they're going to be reporting earnings, I believe tomorrow, just to see how holistically -- because I mean, ultimately, these collections are not going to be pushing the needle that much. But what it is about is driving traffic into the store, getting people to put more items into their cart.
