Target’s ‘Chic’ Beats ‘Cheap’

I like to remind folks that consumers are actually people who happen to shop once and a while and look for something beyond “stuff.” This past May, I talked about one retailer’s return to past glories, and what I saw for its brick-and mortar future. Here's why chic beats cheap every time.

Cheap Chic Recaptivates Customers
OK, I’ve said this a thousand times, but here it is again, once more wrapped up with an in-market validation ribbon: Emotional aspects of a category count more to consumers than rational ones when it comes to engagement and brand profitability. The only time rational category aspects, on their own or at least primarily on their own, create the kind of consumer behavior that substantively boosts a bottom line is if you’re talking about a commodity, like bags of sand.

In our Brand Keys Customer Loyalty Engagement Index (CLEI) for the discount retail category, Target has generally ranked in the No. 2 spot, after Wal-Mart and just ahead of Kmart. Those are the only three national discount retailers, so the list isn’t very long anymore.

Target was originally a division of Dayton Hudson Corporation, got bigger, and finally became the name for all the company's divisions. Around the early ’90s, Target began to differentiate its stores by offering more upscale-feeling, trend-forward merchandise and clothing at lower costs. It created a category unto itself, even if just perceptually, called “cheap chic,” and was in direct opposition to the Wal-Mart model of focusing on low, lower, lowest-priced goods. Kmart didn’t actually have a strategy other than locations with low prices, but not quite as low as Wal-Mart.

Back then Target was rated No. 1 in our CLEI because its engagement strategy relied on the emotional value of style, rather than just the rational value of price. People felt good about themselves when they shopped at Target. They saw themselves as having good taste and they were getting a good deal.

Target held the “cheap chic” positioning for a decade or so and did pretty well with it, but when the recession hit, the retailer panicked and walked away from style and turned to a low-price strategy, hoping its logo alone would speak to the company's style heritage. Alas, logos only go so far and only speak so loud, and consumers’ memories of bygone strategies — however once engaging — were short. Target from then on seemed perennially destined to end up No. 2 on our national list.

Whether by design or happenstance, Target has recently returned to its cheap-chic strategy, finding that low-lower-lowest thing not as engaging as in recessions past. Target has refocused on the kind of fashion and style that resonated with consumers years ago, that when asked where they had shopped, would say “Tar-zhay” with a faux-French accent, putting an ironic spin on shopping for style at a discount retailer! Therefore, based on current increased levels of consumer engagement, I expect big things from Target in 2016.

Sure, nowadays everyone shops everywhere, but as Target has returned to style and chic for differentiating itself, it’s selling more expensive items to more shoppers who have more money to spend more frequently. In light of that, Target CFO John Mulligan recently said, “we’re letting consumers lead us to the right answer.” That's always the smart thing to do and the kind of strategy that shows up in business school case studies where brand success is the bottom line — and usually the result of increased consumer emotional engagement with the brand.

What Happened?
So did a return to cheap chic work for Target? Mais oui!

Target has been posting higher-than-expected quarterly profits and just did that again, its fifth straight quarter of sales growth. The brand raised its full-year earnings forecast, citing strong demand for chic clothing and merchandise at the center of its growth plan. Same-store sales rose 2.4 percent, beating Wall Street expectations and Wal-Mart’s 1.5 percent gain.

Along with a return to a more emotional positioning is the recognition that the retail game will be won according to what share of wallet and frequency of visits a brand can engender, which are, of course, rational aspects of business. Only in this case they’re driven by an emotional connection to a brand.

Robert Passikoff is the president of Brand Keys, a brand and research consultancy.