What Target Launching a Luggage Line Says About Its Growth Strategy

If you're planning to travel anytime soon, you might want to check out Target's (TGT -0.70%) new line of premium luggage that combines quality and style with a practical price tag.

The line, called "Open Story," is Target's newest entrant into its private-label scheme that's been a boon to its business. Target has 41 "owned" brands under its umbrella, 28 of which have launched since 2016, that mostly center on apparel, with a smaller focus on food and some home goods figuring in as well.

The majority of these brands are geared toward the younger bracket, with a heavy emphasis on young clothing and social impact. Does Open Story further those objectives?

Image source: Getty Images.

What private label does for Target

Target has been growing over the past two years, most recently reporting an excellent third quarter with a 4.5% increase in comp sales, digital sales growth of 31%, and adjusted earnings per share up almost 25%. 

However, its sales still lag behind those of general merchandise giants Walmart and Amazon and grocers Costco and Kroger.

Data sources: Target, Walmart, Amazon, Costco, and Kroger quarterly reports.

Target's owned brands give it a strong advantage in the marketplace and an edge that can help it move up in the rankings.

There are four main benefits from focusing on the owned brands:

Differentiation: Customers can't find Target-owned brands anywhere else. The company works hard to produce brands that offer customers value they won't find in competing stores, making it worthwhile for them to stop in at Target.

Flexibility: Owned brands give Target great flexibility with its product assortment. For example, in the third-quarter conference call, CEO Brian Cornell pointed out, "Our home decor assortment will feature more than 2,000 new items, and 70% of those items in our holiday Wondershop will be new this year." A Deloitte study recommended to retailers that what it calls "micro-brands" can create products "that are more aligned to the lifestyle or persona of shoppers."

Loyalty: A curated product assortment creates loyalty, as customers keep coming back to see what's new, leading to the last big benefit...

Margins: As the company supervises its own manufacturing and can produce products to scale, margins grow, as evidenced by Target's gross margin rate increasing 1.1% in the third quarter.

Challenging a different competitor

Over the past year, Target has heavily focused on its grocery line, expanding delivery options to challenge large retailers as well as bringing out its new owned food brand, Good and Gather. However, Open Story takes the company in a new direction and strengthens its path as a general merchandiser instead of steering it toward food. 

The Open Story collection opened in stores on February 9 and will launch on the website on February 13. It features almost 40 products that range in price from $19.99 to $179.99, which Target says is 25% to 30% lower than prices for similar luggage brands.

The collection was designed with stylish details and colors as well as functional features to match other premium brands. Julie Guggemos, chief design officer, said, "Our guests find a lot of joy in traveling, and we're thrilled that our new luggage owned brand offers them a high-quality assortment at Target-only prices, helping us fill a white space within the category."

Where Target is going

Target launched seven new owned brands in 2019 alone and one already in 2020. That brand, All in Motion, competes in the activewear sector, taking on brands such as Nike and Lululemon as well as the many new niche brands that have cropped up recently. As with Open Story, it found a white space where an up-and-coming trend that targets young and socially conscious people combines with value.

This is where Target really shines. Its private-label brands don't scream "cheap"; the company has carefully crafted a premium branding in areas where they can still offer value. In the Good & Gather brand, products are made with high-quality ingredients that contain no artificial colors or sweeteners and no high-fructose corn syrup.

This strategy has great potential, as the stores attract the affluent in addition to customers who need cheaper prices because they know they're getting quality. It's not embarrassing to shop at Target, and as more customers see its strengths, the company should see more growth and bring greater value to its investors.