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Slow sales forced Target to eventually cut some prices by as much as 70 percent this hoiday season.

Jeff Chiu, Associated Press

Holiday sales were ho-ho-hum at Target

  • Article by: THOMAS LEE
  • Star Tribune
  • January 3, 2013 - 9:44 PM

Target Corp.'s 2012 ended with a resounding thud as a high-profile partnership with Neiman Marcus failed to lift holiday sales.

The Minneapolis-based retailer said Thursday that sales at stores open for at least a year in December were flat compared with the same month a year ago and missed the Bloomberg forecast of a 1.3 percent gain.

"December sales were slightly below our expectations as strong results late in the month did not completely offset softness in the first three weeks," CEO Gregg Steinhafel said in a statement. Sales at stores open for at least a year provide a key measure of retail performance.

Investors, though, seemed to shake off Target's problems. Shares rose 2.2 percent, or $1.34, to close at $60.16.

Nevertheless, the weak performance continues a string of holiday misfires for Target: Since 2009, the company has averaged a paltry same-store sales gain of less than 1 percent for December, the most important month of the year for retailers.

For some reason, "consumers just don't seem to equate Target as a destination for holiday gifts" in key categories like toys and electronics, said Carol Spieckerman, president of Newmarketbuilders, a retail consulting firm.

But this past December was particularly disappointing for Target. For one, the economy is in much better shape than it was in 2009 as the country was just emerging from the clutches of the Great Recession. Indeed, retailers overall enjoyed a 4.5 percent same-stores sales increase, according to the International Council of Shopping Centers and Goldman Sachs. Costco, Nordstrom and T.J. Maxx all handily beat Wall Street forecasts.

For another, Target seemed to throw considerable effort at Christmas 2012. For the first time, it matched online prices of select competitors, including Amazon, Wal-Mart, Best Buy, and Toys 'R' Us. The retailer also installed "gift trees" throughout its stores to encourage shoppers to buy merchandise from across multiple categories. In addition, Target unveiled an extensive digital campaign, including free Wi-Fi in stores, interactive bus shelter ads, and smartphone-friendly QR codes on select in-store products.

But the most potent weapon in Target's arsenal was its collaboration with Neiman Marcus, a collection of 50 products by 24 top designers, including Jason Wu, Oscar de la Renta, Rodarte and Derek Lam. Executives from Target and Neiman Marcus promoted the collaboration as the perfect blend of Target's cheap chic and Neiman's luxury brand, anticipating a robust crossover appeal.

Steinhafel previously told the Star Tribune the company timed the launch in early December to create excitement and attract shoppers during a relative lull in holiday sales between Black Friday and the last days before Christmas. But analysts say the merchandise was too expensive for Target customers. Slow sales eventually forced Target to cut prices by as much 70 percent.

"The Neiman Marcus initiative looks to have been a flop," Daniel Binder, an analyst with Jefferies & Co., wrote in a recent research note. "The sales and traffic we had hoped this initiative would generate ... did not materialize."

Lynn Switanowski, a founding partner with Creative Business Consulting Group in Boston, thinks Target's reluctance to aggressively cut prices like its competitors hobbles it during November and December. The company mostly relies on differentiation and value to win sales so when a design partnership like Neiman Marcus doesn't work out, Target's holiday sales ultimately suffer, she said.

Target is "not going to get down and dirty" with prices, Switanowski said.

In addition, Target continues to struggle with its online efforts, analysts say. Although the website did not crash, Target had trouble with inventory and performance, Binder of Jefferies said.

"Online execution was spotty," he wrote. "This included high out-of-stocks with toys, canceled orders, online gift lists that did not function properly, exceedingly large packages at delivery for relatively small contents and challenges with online coupon downloads."

Thomas Lee • 612-673-4113

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