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Target's Latest Partnership Expands Traffic

By Lawrence Rothman, CFA - Feb 4, 2021 at 8:45AM

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Target's new deal expands on an already successful relationship.

Target (TGT 2.46%) is offering more Levi Strauss (LEVI 3.40%) merchandise. This is important for the retailer, which relies on exclusive partnerships to offer its shoppers unique merchandise. Under the Levi's for Target program, Target will sell over 100 items in several areas, including home goods and pet accessories, with most selling for under $25.

Although the companies are only offering these goods for a limited time, this will undoubtedly help bolster traffic to its website and stores.

Exterior of a Target store

Image source: Target.

Expanding a successful relationship

For one thing, Target has sold Levi's goods for a decade. Starting in 2011, the retailer began stocking Denizen, Levi's value jeans brand. Although there is no sales data, the fact that it has continued the program for this long a period attests to its successful partnership.

Reportedly, Levi's Red Tab products were Target customers' most frequent request. So, in 2019, the company agreed to carry the label, a full assortment of its signature brands. These have done well, and Target will offer the products in a "curated in-store display," or a segregated area (i.e. a shop within a shop), in 500 stores (out of a total of nearly 1,900) starting in the fall.

While Levi's products are apparently doing well, those products aren't exclusively offered at Target's stores and online. That changes with the Levi's for Target lifestyle products.

Drawing traffic

Target will start offering these products at the end of the month exclusively at its stores and online. It has a successful history of using these types of offerings to attract shoppers. Not only does it help Target stand out, but these products have a higher margin than national brands that are also offered elsewhere.

The new Levi's collection will include many items beyond apparel, such as blankets, dog beds and outfits, dishes, and sleepwear. Broader offerings should help Target since apparel sales lagged for much of last year, although they started bouncing back in November and December. With Levi's products already doing well, the additional limited time offerings should spur customer curiosity and activity.

Overall, Target has been producing outstanding results, showing its merchandising and technology prowess. Its fiscal third-quarter same-store (comps) sales rose by 20.7%, driven by increased spending and traffic. More than half of the comps increase was due to strong digital sales, which grew by 155%. This was for the period that ended on Oct. 31, 2020.

The latest deal should help profitability, and Target has shown a willingness to share some of the riches with shareholders via dividends. In fact, when Target increased its quarterly payment last September, it brought its streak to 49 years. Since it's producing strong results, I have every reason to believe that it will become a Dividend King this year. The stock's dividend yield is 1.5%.

With this exclusive partnership, along with others, undoubtedly Target will continue to draw customers looking for these unique offerings. Aside from dividends, the higher profitability boosts the stock price. This is not a stodgy, slow-growth company, with the share price gaining 66% over the last year, trouncing the S&P 500's 17% increase. While that is hard to replicate, its ability to continue making exclusive deals that provide it with new merchandise makes Target attractive to long-term shareholders.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
TGT
$150.42 (2.46%) $3.61
Levi Strauss & Co. Stock Quote
Levi Strauss & Co.
LEVI
$17.31 (3.40%) $0.57

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