Target's Temporary Designers Are Critical to Its Long-Term Success

Target (TGT) made many adjustments to cope with the recession, but its initiative to coax renowned designers to produce fashion products for its stores has set it on the road to recovery and what looks like prosperity beyond.

Target has enacted a strategy that is very close to that employed by retailers who sell designer brands that manufacturers have overproduced or department and luxury stores have overbought -- so-called off-pricers such as TJX (TJX) and Ross Stores (RSS). The success off-pricers have enjoyed with lower-cost designer products has prompted retailers who sell them at full cost, including Nordstrom (JWN) and Bloomingdales, to ratchet up outlet store initiatives, building specialty stores so they can act as their own off-pricers.

Target is borrowing from that off-price/outlet strategy and one-upping it at the same time. Because much of what off-pricers and outlets sell has backed up in the distribution system through slow sales, it's usually a season behind. By employing designers to provide lower-cost versions of their products on a temporary basis and for a given season, Target can come in as close as it wants to the latest fashion sensibilities.

Target has been cutting deals with fashion designers who normally produce the looks sold at luxury specialty and department stores. In working with Target, they create inexpensive product lines employing their signature styles that the retailer carries for a few weeks. The impression among fashionistas has been that the designers were slumming in the recession, working with Target out of financial necessity until their normal retail partners turned things around.

Now, however, Target is the party saying that it wants to keep things on a casual basis. In a first quarter conference call last week, as transcribed by Seeking Alpha, Kathy Tesija, the retailer's executive vice president of merchandising said:

I think the beauty of the programs that we've brought in has been the fact that they are limited time, and that we're able to fit them to the season with the right aesthetic as well as the right color pallet and apply them to the right merchandise. So we like the ability to be able to move through different designers or partnerships that really help us to keep our content fresh.

Apparel was key to the strong numbers Target posted in the first quarter. Tesija identified temporary product placements from design houses including Liberty of London (pictured) â€"- which she termed an "undisputed success" -- Zac Posen, Cynthia Vincent and Eugenia Kim as contributing to store-level excitement that encouraged consumers to begin making additional apparel purchase. They may not be walking out with bags full of new duds, but Tesija said, "Both men and women are freshening up their casual wardrobes, replacing basic work pieces, and picking up new shoes and accessories for spring."