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Target's Exclusive Brand Strategy Is Working

By Pearl Wang - Feb 16, 2021 at 9:00AM

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The retailer scores another win with its All in Motion athleisure brand.

Target (TGT 1.13%) is one retailer that thrived before and during the COVID-19 pandemic as revenue increased 21.3% year over year in its latest report (for the fiscal third quarter ended Oct. 31, 2020). The company announced market share gains in all five of its core categories, and its adjusted earnings per share also rose 105% in the period.

The consumer discretionary company noted that its "differentiated assortment and a suite of industry-leading fulfillment options" helped to drive the strong quarterly results. One of the keys to Target's successful merchandising model involves its exclusive in-house brands and partnerships that make it a standout in retail.

Target staff in a Target store

Image source: Target.com.

Exclusive brand strategy boosting growth

Target's athleisure brand All In Motion cleared $1 billion in sales just one year after its launch. While the brand has likely benefited from the growing number of people staying at home and wearing more activewear and loungewear, the value and design of Target's line is clearly resonating with its customers. Since launch, All In Motion products received over 15,000 guest reviews and helped Target gain market share.

There are additional product categories with very popular Target-owned brands, including home goods, children's clothing, and food. Opalhouse, Threshold, and Room Essentials are winning over shoppers in the home space. Target also keeps the merchandise fresh by hiring new designers: In April 2020, the company teamed up with interior design group Studio McGee for its Threshold line with a focus on "elevated pieces at great values."

Kids' clothing has been a huge success for the company too. Launched in July 2016, the Cat and Jack line also reached $1 billion of sales within the first fiscal year. Another children's brand Art Class expanded in 2019 to include clothing for toddlers. These offerings are likely gaining significant market share as competitors like Gymboree filed for bankruptcy and The Children's Place closed hundreds of stores over the last few years.

Partnerships with other strong brands also key

Target continues to launch new partnerships and expansions with existing ones, and the resulting offerings are resonating with customers. On Jan. 26, the retailer announced the start of exclusive, limited edition "home and lifestyle" products as part of its partnership with Levi Strauss, extending its ongoing sales of Levi's denim. This exclusive line can help boost traffic to Target stores and Target.com.

Chief merchandising officer Jill Sando noted in the announcement, "Strategic partnerships like our work with Levi's have long been a key part of Target's success, allowing us to offer our guests the very best national brands alongside our incredible assortment of owned brands."

In Nov. 2020, Target announced a partnership with Ulta Beauty for shop-in-shop beauty destinations that also have long-term potential to drive additional traffic to its stores. This brings prestige beauty and curated product assortments to Target customers, improving their shopping experience.

Target is well positioned with or without COVID-19

Offering its guests socially-distanced shopping with its buy online, pick up in store and other e-commerce options, fiscal third-quarter comparable sales were up 20.7%, and digital comparable sales increased 155%.

"Within digital, we continued to see the strongest growth in our same-day services, pick up, drive up and ship, which, together, grew more than 200% in the quarter. These services are fast, convenient, reliable, and contactless, which explains why they continue to generate very high levels of guest satisfaction," CEO Brian Cornell remarked on the importance of omnichannel services on the third-quarter earnings call.

After the pandemic subsides, Target will likely see a rise in foot traffic at its stores. Furthermore, given some economic uncertainty, people will likely look to Target for value.

The company is thus well-positioned for both short-term and long-term growth. The stock is trading at a forward price-to-earnings ratio of 22, a discount to the S&P 500's 23, making this leading retailer even more attractive for a post-pandemic investment.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
TGT
$219.73 (1.13%) $2.46
Ulta Beauty, Inc. Stock Quote
Ulta Beauty, Inc.
ULTA
$395.89 (4.77%) $18.04
The Children's Place, Inc. Stock Quote
The Children's Place, Inc.
PLCE
$46.99 (0.75%) $0.35
Levi Strauss & Co. Stock Quote
Levi Strauss & Co.
LEVI
$17.41 (2.11%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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