Target Corporation (NYSE:TGT) launched its newest designer collaboration last Sunday and by day’s end, most of the Phillip Lim collection was out of stock online.
Lim’s line seems likely to join Missoni’s 2011 debut in the category of rousing success. On the other side of the divide stands the Neiman Marcus collaboration from holiday 2012. The Neiman offerings included clothing and household items with prices up to $500. That proved too much for the average holiday shopper and Target Corporation (NYSE:TGT) was left admitting that the endeavor “didn’t work.”
Will this holiday season prove more successful for this dividend player?
The tidings weren’t good
The holiday season last year didn’t leave Target Corporation (NYSE:TGT) feeling merry and bright. Fourth-quarter comparable-store sales rose 0.4% compared to a 1% increase at Wal-Mart Stores, Inc. (NYSE:WMT). Sears Holdings Corp (NASDAQ:SHLD)‘ domestic eponymous stores showed a 0.8% increase, though Kmart lagged behind with a 3.7% drop.
It’s not that Target Corporation (NYSE:TGT) did anything particularly wrong; the Neiman line wasn’t driving customers away from the store. The holiday season happened to have fierce pricing competition as retailers tried to woo consumers who were still nervous about spending too much money.
That competition showed early through the layaway and pricing plans. Wal-Mart Stores, Inc. (NYSE:WMT) announced its free layaway program with no down payment in August last year. The store included popular gift segments such as toys and electronics. Sears Holdings Corp (NASDAQ:SHLD) also dropped its layaway fees and included any item in the store. Customers could also layaway items sold online and have the paid-off gift shipped to the house.
Target Corporation (NYSE:TGT)’s big push came through a price-match guarantee that included online retailers. That was a play to keep customers away from Amazon.com, Inc. (NASDAQ:AMZN). Target Corporation (NYSE:TGT) decided to continue this policy after the holidays, which could lead to shrinking margins.
But Target’s pricing and products will have company in this year’s holiday story.
Holiday expansion
Target will open more than 100 stores in Canada before year’s end. The company opened its first store in our northern neighbor this past spring. And this marks the first time Target’s ventured outside of the United States.
The expansion will keep costs high in the short term, but it’s worth the long-term potential. Canada opens up even more opportunities for limited-edition lines. Outdoor-clothing company Roots is already planning an exclusive line at the retailer.
Dividend wrapped in a bow
Target is currently trading at about 16 times earnings, compared to Wal-Mart Stores, Inc. (NYSE:WMT)’s 15x. But that’s still a better deal than Sears Holdings Corp (NASDAQ:SHLD)’ losses and Amazon.com, Inc. (NASDAQ:AMZN)’s forward P/E of 106.
