Target’s private label strategy – good quality, mid priced, great value – is driving growth whilst other retailers struggle

October 12, 2019

Target, one of the US’s largest retailers has bucked the downwards sales trend afflicting almost every other physical retailer across the planet by focusing on high quality, great value private labels.

The retailer currently has over 40 private labels — in its parlance “owned brands” — and has been leveraging them in a unique way compared to competitors. The retailer’s in-house brands carry more attractive margins than those it retails from third-parties, but Target has not used them as a a bargain range like many other retailers, instead positioning them as much more desirable alternatives.

Over recent years, Target has focused on building new and distinct brands that gain recognition with consumers. That, coupled with the fact that private labels are cheaper than third-party products, have helped the company grow profits while trying to differentiate itself from other players like Amazon and Walmart.

 

Clothing sales, for example, increased by over 10%, the company said. Much of the retailer’s offerings are its own brands — with lines like A New Day and Goodfellow & Co. With these, Target tried to offer affordable clothing lines. “Our teams have done a fabulous job of curating our own brand assortment, really having the right assortment in front of the guests,” said CEO Brian Cornell during the earnings call when asked about the apparel boost. “We’ve delivered exceptional quality and value in those categories.” These sales represent both Target’s brands and others — Cornell pointed out that the company added Levi’s to its roster recently. But the higher margins of in-house lines certainly padded its earnings.

Analysts agree. “The one thing that really stood out on the call was the sheer apparel growth,” said Edward Jones analyst Brian Yarbrough. Acceleration north of 10%, he said, is “a huge number.” What’s clear is that its apparel strategy is paying off. “They are obviously taking a lot of market share,” Yarbrough said. “We believe a combination of improved value and messaging and compelling private brand innovation are resonating with shoppers and driving physical store traffic,” wrote Cowen analyst Oliver Chen in his most recent research report.

Clothing isn’t the only private label strategy Target is promoting. Earlier this year, the retailer launched its new grocery line Good & Gather, which aimed to offer more affordable healthy food. The company said that, so far, this launch has been successful. Currently, there are 650 items available under this private brand, but Target plans to launch a total of 2,000 by the end of next year. “We expect Good & Gather will become our largest owned brand,” said Cornell.

This is clearly the next battleground Target wants to tackle. “Despite our strength in owned brands overall, we’re under-penetrated from a food and beverage standpoint,” said Cornell.

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