The Target-Neiman Marcus Partnership Looks Like a Winner

by Will Ashworth | July 16, 2012 10:45 am

The Target-Neiman Marcus Partnership Looks Like a Winner

Target (NYSE:TGT[1]) announced July 10 that it was marketing a holiday collection[2] in partnership with upscale department store Neiman Marcus. However odd that combination might sound, it isn’t as strange as you might think.

Consumers no longer shop in traditional ways. The man or woman with a Bentley who shops at Neiman Marcus has no problem walking into Target to buy toilet paper and sunscreen. It happens a lot.

Retailers must meet the needs of its customers. To me, this deal says both companies understand today’s consumers better than most retailers. Here’s why.

J.C. Penney (NYSE:JCP[3]) found out the hard way what happens when you don’t listen to the customer. Its everyday-pricing business model totally turned off its existing customer base, and revenues dropped 20% in the first quarter as a result.

Penney CEO Ron Johnson did a good job when he was at Apple (NASDAQ:AAPL[4]). However, he was dealing with products that sold themselves.In Penney’s case, he took a hard sell (the chain’s demise in recent years) and made it harder. Ultimately, he might be successful introducing everyday pricing along with fresh brands, but it’s going to take at least three to five years to come to fruition.

Kathee Tesija, Target’s executive vice president of merchandising, put it best: “We definitely have our differences … they’re high end, and we’re mass appeal. But we both love design.”

Cross-shopping has become a key buzzword in retail. Consumers are looking to be surprised when they go shopping; Target shoppers will get no bigger surprise than being able to buy a limited-time collection of products created by some of America’s best designers.

Also, people who normally wouldn’t go into Neiman Marcus because they think it’s too expensive will be pleasantly surprised. Not everything in those stores is cost-prohibitive, and this partnership just cements that message in the minds of consumers.

In the end it’s all about increasing traffic to your store and then converting some of that traffic into paying customers who’ll return in the future. This partnership should achieve that.

One day after the Target-Neiman Marcus announcement, Nordstrom (NYSE:JWN[5]) came out with its own bombshell: It’s opening 14 Topshop boutiques within its own stores in September. The British brand known for fast fashion similar to Zara and H&M has three flagship stores in New York, Chicago and Las Vegas, and this partnership will help spread the word as it looks to open more flagship stores.

Hudson’s Bay Co., which owns both Lord & Taylor and The Bay department stores, has a Topshop boutique within one of its Bay locations in Toronto that’s doing well.

Stacey Widlitz, president of SW Retail Advisors, believes the Nordstrom partnership[6] is a bigger winner because it gets the 15- to 30-year-old shopper into its stores, potentially turning them into long-term customers. The only problem with this kind of partnership is it’s tied to one specific brand for an extended period of time. If Nordstrom isn’t able to woo those young customers into its stores and the Topshop brand fades, it’s invested a fair bit of capital.

However, if the Target-Neiman Marcus partnership fails, the two can call it a day after one holiday season. No harm, no foul.

From where I sit, I see far less downside from the Target-Neiman Marcus deal than from Nordstrom’s because the latter is an attempt to serve a younger market with a trendy brand — and that could backfire. Nordstrom can’t be everything to everyone, and this arrangement seems to suggest that’s what it’s trying to do.

Target shareholders should be ecstatic about this deal because it brings positive PR to the chain regardless of the actual outcome. The same can’t be said for Nordstrom.

As of this writing, Will Ashworth did not own a position in any of the stocks named here.  

Endnotes:
  1. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  2. holiday collection: http://www.washingtonpost.com/business/in-unprecedented-partnership-target-and-neiman-marcus-join-to-market-holiday-2012-collection/2012/07/10/gJQA5LROaW_story.html
  3. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. JWN: http://studio-5.financialcontent.com/investplace/quote?Symbol=JWN
  6. Nordstrom partnership: http://www.cnbc.com/id/48174625http://www.cnbc.com/id/48174625

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