In my strategic management class this semester one hot topic that came up was when we were discussing substitutability for discount retailers such as Wal-Mart, Target, K-Mart, etc. I said that I thought that there was some substitutability with high-end boutiques and department stores. Not many agreed with me, and I have continued to think about this question throughout the semester and some information that has come to light after the discussion makes me believe that Target is assuming its consumers shop in both types of stores.
I often deal with the health and beauty industry and have noticed and heard about some new trends relating to how Target plans to move forward. Target has procured some brands that have been exclusively high-end for a number of years. The particular brands that I have heard up to this point are: skin care/luxury bath product brand Philosophy, skin care brand Kiehl’s, hair care brand Frederick Fekkai and hair care brand Pureology. All of these brands up to this point have only been available through high end department stores, free standing stores run by the brand, or exclusive boutiques.
While it is rumored that the suggested retail price between Target and Nordstrom are going to remain consistent, this brings the question of whether the customer’s who shop at Target are willing to pay $22 for a bottle of shampoo, or $60 for an anti-oxidant skin care serum. It seems to me that Target is putting money on the fact that many Target customers and department store customers are one and the same.
I also wonder if the inventory process on the high-end brands will have to be adjusted. Target is usually quick to mark items down at a heavy discount, getting rid of unwanted inventory to make room for new stock.>I doubt that the contract between these brands and Target will allow for a clearance markdown. If a markdowns are not part of the contract, a 50%-75% mark down could dilute the brand name in the eyes of the customers who may or may not be willing to then purchase the items at full retail value and instead wait for an expected mark down.
Anyway, I thought this was interesting and hope a couple of you might think so too. Thanks for taking the time to read my thoughts on the subject of substitutability between discount retailers and department stores.