Is Target killing department stores and specialty clothing chains?

Discussion
Photo: Target
Nov 21, 2019
George Anderson

Shares in Target were up 14.1 percent in trading yesterday as the retailer’s stock price hit a record high following a third-quarter in which its same-store sales improved 4.5 percent.

All signs point to a strong holiday season as Target continues to make gains in apparel and online sales, while improving its inventory management and profitability in the process. Particularly impressive for the chain was a 10 percent gain in clothing sales in the quarter and an uptick in profitability driven by fulfillment of online orders by the chain’s stores.

Speaking on yesterday’s earnings call with analysts, Target CEO Brian Cornell said the chain picked up apparel market share gains, with a wide variety of categories, including “accessories and shoes, intimates and sleepwear, young contemporary and women’s ready to wear,” all seeing improvement. Target also benefited from selling more full-price merchandise during the quarter, as well as from the introduction of strong private labels in recent years.

Profitability, particularly in light on a 31 percent comp gain in digital sales, was seen as another key point in Target’s story.

“Within our digital sales, 80 percent of our third-quarter growth was driven by same-day fulfillment options, in-store Pick Up, Drive Up and Shipt,” said Mr. Cornell. “Given that these same-day options rely on our store assets, team and inventory, they are much more profitable than traditional e-commerce fulfillment.”

While Target is typically evaluated relative to competitors Walmart and Amazon.com, its market share gains in apparel and the struggles of others suggest that its growth may also be coming at the expense of mid-tier department stores (J.C. Penney, Kohl’s and Macy’s) and specialty clothing chains (Gap).

Last week, Penney reported that its same-store sales fell 9.3 percent in the third quarter. Even when adjusted to account for appliances, which have been discontinued under current CEO Jill Soltau, Penney’s comps were down 6.6 percent.

Kohl’s reported a 0.4 percent increase in its most recent quarter after having seen declines in the two previous quarters. Women’s apparel, a key category for the retailer, was down one percent.

Macy’s, which reported lower-than-expected sales of seasonal apparel during its second-quarter earnings announcement in August, recently notified customers of an October data breach that some expect may negatively affect holiday performance.

Gap Inc.’s major chains — Banana Republic, Gap and Old Navy — all posted same-store declines in the third quarter and the retailer lowered its forecast for the fiscal year. The company replaced president and CEO Art Peck after he failed to get the business turned around since taking over in 2015. 

DISCUSSION QUESTIONS: What major retailers have the most to lose from Target’s gains? What is your assessment of Target’s prospects for the holiday season and into 2020?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Turns out Target has been a good student of the evolving retail paradigm, and now they are the teacher."
"Here’s the thing: Target actually sells clothing you want to be seen in. I can’t say the same for Kohl’s or J.C. Penney."
"This isn’t generational. Target has conveniently located stores with a relevant urban presence, and has the product mix that creates time efficiencies."

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20 Comments on "Is Target killing department stores and specialty clothing chains?"


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Mark Ryski
BrainTrust

Target’s latest results are a sign of what’s coming for the holiday season – I expect them to have a terrific season. The key to Target’s success is that they, perhaps better than anyone else, have focused their efforts on leveraging their physical stores to the greatest advantage. In particular, their early investments in creating a standout BOPIS process and managing online orders and the investments they’ve made in front-line staff.

Patricia Vekich Waldron
Staff

Mid-tier shoppers looking for value, convenience and fresh merchandise will chose Target over undifferentiated department stores like Macy’s.

Neil Saunders
BrainTrust

As Target’s apparel sales are growing at a much faster clip than the overall market, there is no doubt that it is taking market share from other players.

In terms of department stores, there is a customer overlap between Kohl’s and Target and our data show Target has made gains from Kohl’s over the past year. Overlap and gains from Macy’s and others, however, is fairly minimal. The sales declines at those players have little to do with Target.

On the specialty front, according to our data Target has made a variety of smaller gains. Interestingly, Old Navy and Gap are higher up on that list and there are even fashion focused players like H&M and Forever 21 on there. Target, it seems, is pulling in spend from quite a lot of consumer segments.

Paula Rosenblum
BrainTrust

I’ve felt that one reason Gap’s brands were not doing so well is that it’s easy to look at the styles and say “I could get that at Target.”

For me electronics at Target are an afterthought, but I’ll bet the everyday shopper is buying those there too.

But it really is in clothes and specialty items that Target is rampaging through the market.

Bob Phibbs
BrainTrust

Target is the department store for Millennials. This generational shift is proving vexing to many department stores and fast fashion outlets.

Lee Peterson
BrainTrust

Target is a factor for sure, but specialty and department stores rely on selling “fashion” apparel, which is a very slippery category right now. It’s slippery because the target demographic (mostly Gen Zers) have moved off the “uniforms” (A&F, AE, GAP, Express) of the ’90s that drove specialty retail to over-expand and become mainstays in malls across the country. Hence less footfalls, hence less stores, hence less revenue.

The Gen Zers we talk to shop used apparel extensively, plus new brands like DePop, Poshmark, Lively, The RealReal, on and on. The aforementioned ’90s brands, like Gap or even Macy’s, are seen as “mom’s brand” — which is actually true! But to sum it up, there’s macro and micro things going on causing the huge downsizing of specialty retail, and it’s not just Target making it happen.

Jeff Sward
BrainTrust

All of the recently announced numbers tell a simple story. Target is on a roll. Target is obviously taking market share from several mall retailers. So it would be interesting to know the difference (if any) in the performance of in-mall and off-mall Target locations. Is off-mall a primary advantage? It’s just plain easier to get in and out of an off-mall location, and Target’s big product umbrella makes it all the easier to be time efficient in one-stop shopping … ? Or when a Target location is in-mall, do they suffer from the same declining traffic patterns? In-mall locations are on a level playing field from a location point of view, so do Target’s better product and storytelling skills steal share from Gap and J.C. Penney? I suspect it’s all of the above. Off-mall locations don’t seem to be helping Kohl’s. Turns out Target has been a good student of the evolving retail paradigm, and now they are the teacher.

Stephen Rector
BrainTrust

Target has done an outstanding job with their most recent reboot of their private label brands in apparel. Where else do you see +10 percent increases year over year in apparel? They offer fashion at a price to the female customer, great basics in mens and the kids product is some of the best in the market. This just shows that when merchants are focused on merchandise that is right for their customer, strong sales will follow.

Dick Seesel
BrainTrust

Target’s gains are a credit to what it’s done right, more than what its competitors have done wrong. Target has put a lot of effort into the creation of new apparel brands and the underlying product development to drive those brands. Clearly it’s working, and it’s a good lesson about the power of product to those losing market share — whether Kohl’s, Gap or others.

It’s also worth pointing out that Walmart recently talked about the strength of its food business vs. its general merchandise. No doubt Target’s success in apparel is putting a dent in this part of Walmart’s business, too. Target seems to have found the sweet spot in between Walmart and the midtier retailers right now.

Mohamed Amer
BrainTrust

Target is not the culprit here, rather the company has had the leadership and capacity to take a long view, to pay attention to changing buying behavior, and to infuse technology into existing and newly created processes. Speed, agility and willingness to challenge their own business assumptions have created a culture prepared to thrive in a fast changing consumer environment.

The real culprits here are leaders unable or unwilling to carry out what they know is necessary. Kicking the can down the road is a short sighted approach to staying in the game, but the final whistle will assuredly blow early despite the frenzied hand wringing and pointing at unfair practices and other monsters under the bed.

Kathleen Fischer
Guest

Target appeals to younger demographics over traditional department stores due to product offerings, location, price points, shipping options, etc. so it is not surprising that it is doing well and is likely to have a productive holiday season.

Ray Riley
BrainTrust

This isn’t generational. Target has conveniently located stores with a relevant urban presence, and (it goes without saying) has the product mix that creates time efficiencies for shoppers.

Georganne Bender
BrainTrust

I absolutely agree, Ray. Target’s popularity is not generational.

David Naumann
BrainTrust

The retailers that are most impacted by Target’s continued success, and specifically in apparel, are Kohl’s, J.C. Penney, Walmart, and value-priced specialty apparel retailers. Target’s success has been a result of doing a lot of things right – product assortments, store layout, customer service, omnichannel fulfillment options, enhanced loyalty programs, and much more.

The other big difference is that it is much more enjoyable to shop at the consistently clean and orderly Target stores than at some of the competitors listed above that have stores that are often cluttered and in disarray.

Target is primed for an extremely successful holiday season and beyond.

Ryan Mathews
BrainTrust

Target’s success comes at the expense of any mid-tier, undifferentiated, generalist department store. I think we all know who they are. I expect Target to have a solid holiday season and that its momentum will continue into the New Year.

Rich Kizer
BrainTrust

The generation that started referring to Goodwill stores as Goodwill Macy’s is that same incredibly powerful population segment that is falling in love with Target. And Target deserves it. A great company that knows where THEY need to go and what they need to do from their own playbook. Bravo to them, and they won’t stop thrilling us and delighting customers.

Georganne Bender
BrainTrust

Here’s the thing: Target actually sells clothing you want to be seen in. I can’t say the same for Kohl’s or J.C. Penney.

Target gets it – gets the consumer. Its stores are bright and colorful and even though most of the product is displayed on gondolas it’s still a fun place to shop. Target has built a lifestyle brand that consumers are proud to embrace; we’ve joined its club. Target’s marketing messages, commercials and social media reinforce that it’s the place to be. Target listens to its customers, that’s the smart thing to do.

Ananda Chakravarty
BrainTrust

There’s plenty to go around this holiday season, but some like Target will take a larger share. Main reason: food business + private label brands. These are not revolutionary, but Target continues to improve and adjust.

Food is a draw and private label is a cost savings. For customers, the combination is convenience and the play may be just right for this market.

Craig Sundstrom
Guest

“Assisted suicide” might be a more apt term. Or at least if I thought the premise was true; but Walmart showed similar (if somewhat less spectacular) results. I suspect as we sort retailers by price level, we will see a pattern: the long term one of a continued shift toward discounters and a short term one, declining consumer activity.

On a sad) side note: I suspect George toyed with the idea of using this same data for the topic “Will this be JCP’s last Christmas?”

Ricardo Belmar
BrainTrust

Target wins the gold medal for understanding how stores are an asset, not a liability. They have maximized the value of their stores not just for same-day delivery but for the overall customer journey. Add to that their amazing operational efficiencies and they have truly made it easy to shop, and buy with them as promised.

These are the areas that department stores are suffering from, and even discount stores haven’t mastered them. One could argue even the mighty Walmart hasn’t leveraged its stores (outside of grocery) as effectively as Target has. Who stands to lose the most competitively? I’d say Kohl’s and J.C. Penney stand to lose the most to Target. But I also believe off-price/discount stores may also be losing on apparel basics.

There is much to like about Target going into this holiday shopping season!

wpDiscuz
Braintrust
"Turns out Target has been a good student of the evolving retail paradigm, and now they are the teacher."
"Here’s the thing: Target actually sells clothing you want to be seen in. I can’t say the same for Kohl’s or J.C. Penney."
"This isn’t generational. Target has conveniently located stores with a relevant urban presence, and has the product mix that creates time efficiencies."

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