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Target Corporation (TGT), Macy’s Inc. (M): How Collaboration Is Pumping up the Volume for Fashion Retailers

Collaborating with hot designers has been a mainstay for Target Corporation (NYSE:TGT) and Macy’s Inc. (NYSE:M) the last few years and has mostly helped drive traffic with notable successes and a few failures. Kohl’s Corporation (NYSE:KSS) is also getting into the collaboration fray.

Target Corporation (TGT)

Macy’s Inc. (NYSE:M) and Target Corporation (NYSE:TGT) both have spring collections from new young designers, MADE Fashion Week for Impulse collection for Macy’s and Kate Young x Target following on the heels of its successful Prabal Gurang for Target line. Target is also collaborating with FeedUSA for a collection in late June, and Kohl’s has teamed up with Derek Lam for a 58 piece spring collection and Narciso Rodriguez coming this fall.

Why all the fashion fuss?

Retailers are increasingly competing not only with each other and Wal-Mart Stores Inc. (NYSE:WMT), (collaborating with an LA blogger on a clothing line) but also with eBay Inc. (NASDAQ:EBAY) and, Inc. (NASDAQ:AMZN) Fashion, which are being promoted on commercial television.

Since Target’s huge success with Missoni for Target (think afghans knitted by Granny), which sold out at stores and crashed Target’s website within hours, retailers are falling over themselves to catch lightning in a bottle again.

Brian Sozzi, an independent retail analyst and frequent CNBC guest, told the LA Times that these collaborations are a win-win and that the stigma around lower end retailers has gone away with consumers still craving affordable designer clothes. It’s not a sure thing, however, as sales of Target’s Designer Collection for the 2012 Holidays were underwhelming with the Neiman-Marcus collaboration resulting in 70% markdowns.

Ebay itself is being used as a measuring tape of how successful these launches are with the most popular items showing up within hours marked up considerably. Interestingly, Derek Lam’s first fashion collaboration was with eBay last winter.

Who’s doing it best?

We know who’s been doing it the longest, and that’s Target Corporation (NYSE:TGT), which started with Michael Graves in 1999. For a big-box retailer Target has been surprisingly experimental, even creating an indie designer Shops Within Shops. While it was a dud like the Neiman-Marcus fiasco, Target is quick to cut its losses and move on.

Its latest collaboration with Prabal Gurang sold out almost as quickly as the Missoni items. Target has really pioneered and refined the collaboration concept, teaming up with Gilt Groupe a few years ago to create a flash sale.

Target is attracting millennials who once wouldn’t go into a Target, much less a Wal-Mart. That’s its strength and its strategy, also downsizing urban Targets to appeal to young apartment dwellers.

Target is trading at a 14.77 P/E with a 2.00% yield. It has 1,784 stores in the US and  has been opening stores in Canada with twenty in Toronto on March 19. Target is close to a 52 week high, but its PEG hasn’t stretched out too badly, only to 1.24. For a mass merchandiser Target has a good five year EPS growth rate of 11.53%.

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