By Paul Ziobro
Target Corp. is trying to win skeptical shoppers back by giving
them a year to return purchases of private-label brands such as
Merona shirts, Threshold book shelves and Room Essentials
towels.
The move is meant to show confidence in the brands, which make
up about a third of Target's $72 billion in annual sales, after the
retailer cut back on quality during the recession to get prices low
enough to appeal to an increasingly frugal shopper. Previously the
return period was 90 days.
Target made the move quietly last week in stores and on its
website with a small change in the "excluded items" part of its
standard return policy. A few conditions: Receipts must be
provided; clothing or bathmats can show some wear; and packages of
diapers, paper towels and other consumables can be returned even if
opened.
Competitors offer shorter return windows. Wal-Mart Stores Inc.
has a 90-day limit, except for some items like electronics. Gap
Inc.'s main brands have a 45-day window. Amazon.com allows returns
for 30 days after the shipment was received. Best Buy Inc. gives
shoppers 15 days to bring items back.
Target's new chief executive, Brian Cornell, is trying to shake
up the retailer, which swung too far in focusing on lower prices
during the recession and lost its edge. In his turnaround plan, Mr.
Cornell is leaning on Target's own roster of brands as a means to
offset some of the costly investments planned over the next few
years in areas such as e-commerce, where profit margins are
tighter. Ten of Target's private-label brands each generate more
than $1 billion a year in sales.
Though he came from a brand powerhouse in PepsiCo Inc., Mr.
Cornell has an affinity for private-label products, which typically
are more profitable for retailers than outside and national brands.
During a stint as chief marketing officer at the Safeway Inc., Mr.
Cornell led a revamp and broad expansion of the grocery chain's
private-label brands. At Wal-Mart's Sam's Club division, he
similarly spruced up the warehouse chain's private-label line.
Like Dollar General Corp., Wal-Mart and a number of other
retailers, Target is spending heavily as it fights for shoppers who
are just emerging from a multiyear slump to try to lure them back
into stores. After years of competing on discounts, retailers are
looking to improve their stores by paying workers more, better
stocking shelves and refreshing their offerings such as more fresh
food in grocery.
Target has started seeing the beginnings of a rebound. Its
fourth-quarter sales rose 3.8%, the fastest rate in nearly three
years. The amount of customers shopping Target rose, too, after
eight straight quarters of tumbling.
A Target spokesman declined to say how much the new return
policy will cost and said the benefits will far outweigh any costs
associated with the updated return policy.
Private label was one of the main areas where Target made a name
for itself by selling items that were once exclusive to department
stores, like Mossimo clothing, and tailoring them to the masses at
affordable prices. Those brands helped elevate Target over other
discounters but then the recession hit and the company became more
focused on value.
"We were really focused on offering low prices to our guests,"
said Julie Guggemos, senior vice president of Target's product
development and design team. "Our quality did suffer."
Target turned to lower-cost materials, packaging and ingredients
to keep prices low enough for consumers enduring a historic
economic downturn that sharply cut into nondiscretionary purchases.
Furniture was shipped entirely disassembled, and sometimes took
hours to put together for larger pieces. White ceramic dishes would
soon start to scratch after a year of regular use. Gift bag handles
would start to tear if the contents weighed more than 20
pounds.
In recent years, the company has been trying to make
improvements, like shipping some furniture pre-assembled. Some
dining chairs now come in just two pieces. Ms. Guggemos said both
returns and complaints related to quality have declined in recent
years.
But the company is making a bigger push on quality later this
year. It has identified 100 items to be revamped, including more
durable glazes on dishes and stronger yarn in T-shirts that hold
the shape better.
The changes cost more, and the company is searching to cut costs
in other areas of the production process. It all supports the
company's new objective for its own brands. "Before it was to
deliver real great quality at great prices, now we want to be the
best of the best," Ms. Guggemos said.
The shift also represents a change in Target's merchandise team
priorities. In the past, the group's compensation was tied to
gross-margin rate, a metric that can force compromises to maximize
profits on each product sold, Target's chief merchant, Kathee
Tesija, said recently at an investor event. The new mandate focuses
on gross profit dollars, which emphasize selling more of a
particular product.
The new return policy may not be enough to win over skeptics.
Nicole Lewis, a mental health therapist from Philadelphia, said she
has noticed inconsistencies in quality and now mostly avoids
Target's private-label brands. Among her complaints: Room
Essentials bed sheets that shrunk and pilled after the first wash;
picture frames that separated at the joints soon after being hung;
and Merona shirts that lasted for only a few wears.
"They shrunk terribly and faded after washing," said Ms. Lewis,
who said she shops at Target less frequently because of issues with
quality. A longer return period won't win her back unless she is
convinced quality has improved. "I don't care that I can return for
up to a year. I want to believe their products will actually last
for that year."
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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