Target Misses the Mark

by Alexandra Biesada, May 21st, 2008, 7:00 am

Target reported its first quarter earnings Tuesday and the results were disappointing, if not unexpected. The cheap-chic retailer posted net earnings of $602 million, down from $651 million a year earlier. Same-store sales, considered the best indicator of a retailer’s health, declined by 0.7% (vs. an increase of more than 4% over the same period last year). Ouch!

Target’s new CEO Gregg Steinhafel, who succeeded Bob Ulrich earlier this month, blamed the miss on a challenging economic environment and a disproportionate share of sales of low-margin goods, such as groceries and other essentials, relative to higher-margin stuff like apparel.

Speaking of apparel, a category that has long distinguished the nation’s #2 discounter from rivals Wal-Mart and Kmart, Target created a buzz in the fashion world earlier this month with its first line of eco-friendly clothing from former Gap designer Rogan Gregory. (Who?) However, all the green from the green-apparel went into the coffers of a Barneys store on Madison Avenue, which hosted the debut of the eco-designer’s collection, now on sale at Target stores. It was an unlikely, if inspired, pairing: luxe Barneys — a purveyor of $348 Warhol Factory X Levi’s slim leg jeans — with cheap-chic Target, where a pair of skinny jeans costs about 20 bucks. Actually, Gregory’s eco-friendly leopard-print skinny jeans represent the high end of the price range at Target where they retail for $39.99. (I’m guessing no real leopards were used or they wouldn’t be eco-friendly.)

I wonder, with Target’s patrons opting for more pedestrian items, like paper towels, will many shoppers toss apparel from Gregory’s 60-item collection into their big red shopping carts? To be fair, with prices topping out at $45, the line isn’t expensive. Target’s merchandisers are betting the sustainable fashions are an affordable treat shoppers can feel good about buying. Indeed, a bamboo-and-hemp t-shirt is cheaper than a Prius! We’ll just have to wait for May and June sales figures for a hint at how the line is faring.

Meanwhile, Target has just closed its credit-card deal with JPMorgan Chase, which Steinhafel says will provide enough liquidity for Target to go ahead with its business plans, despite slumping sales. Like JC Penney, which laughed in the face of danger by launching its upscale American Living Collection into the worst retail storm in years, it’s damn the torpedoes, full speed ahead at Target!