innovation and creativity trumps price alone

This week’s BusinessWeek features two stories back-to-back that together make an important point for all businesses trying to navigate today’s recessionary times. First is a piece on Target’s apparent move down market, “Look Who’s Stalking Wal-Mart.”  target_logoIt outlines several moves by Target that seem to be taken from Wal-Mart’s playbook. Then there’s the article, “Why Old Navy May Still Be at Sea,old navy logorelaying the cheap-chic retailer’s struggles and successes over the past few years.

How They’re Similar

Both stories reflect the challenges presented by the changing consumer world.  Time was, both Target and Old Navy could thrive by offering cool designs at accessible prices. Both chains met with success by targeting savvy shoppers who were as concerned with the way a product looked as much as the price on its tag.  But the recession seemed to alter their shoppers’ desires – no longer did they seem as willing to spend a little more to indulge their design sensibilities.  Target saw its comp store sales and stock price slide while Wal-Mart’s surged; Old Navy’s partnership with designer Todd Oldham did little to revive the brand which had been floundering for several years already.

Both retailers have since adjusted their strategies in ways that seem to appeal more to today’s frugalistas than yesterday’s fashionistas – and both have met with some success.  Target just posted its first positive quarterly results in 8 quarters and Old Navy announced its fall sales were up vs. prior year, the first time the business has grown since the spring of 2004.

How They Differ

There are some important differences between the two brands’ stories, though.  Old Navy has been struggling with its identity from before the recession.  As early as the early 2000’s, Old Navy had lost its competitive edge.  Back then H&M and other retailers were gaining ground in the fashion-made-affordable category while, according to BW, Old Navy “didn’t change.  Its clothes started to seem uninspired, its stores outdated.

A new president brought in a fast fashion strategy, a focus on the “young, fashion-conscious woman,” and the partnership with hot designer Todd Oldham.  But the changes didn’t take hold while the recession did – so the chain has now reversed direction and is focused on attracting a more traditional customer with more traditional designs and more traditional (low) prices.

Target on the other hand had been experiencing such success with its brand platform embodied by the tag “Expect More, Pay Less” that it held firmly to the strategy despite the onset of the recession.  But since the business started to post poor results, the company has gone to work on new initiatives to emphasize the “Pay Less” part of the brand equation more.  These have included a new marketing strategy to emphasize its low prices (75% of its advertising budget is now devoted to price vs. 25% last year) and a more aggressive push into groceries to drive more frequent visits.  The BW article describes the changes as  a “role reversal,”  explaining, “Wal-Mart has long borrowed from Target.  Now Target is stalking Wal-Mart.

To me, though, these moves aren’t the usual check-check-mate game playing between the two rivals.  Target is responding to changes in consumer demand in ways that are strategically robust.  While its marketing communications have indeed taken on a more price-oriented message, it’s done in a way that reinforces the brand personality.  Their new webisodes feature Marie Claire fashion director Nina Garcia mentoring “frayed, broke moms on how they may feel poor but can still look rich.”  And the grocery expansion has been with fresh food and exciting private labels instead of the typical packaged groceries you’d expect from a mass retailer.  “Expect More, Pay Less” indeed!

Why It Matters

This demonstrates the power of innovation and creativity directed at a common business challenge.  Everyone is feeling the pressure to speak to consumers’ new budgets and mindsets, but that doesn’t mean you must focus on price exclusively or retrench to worn territory as Old Navy seems to be doing.  Target’s approach seems more rooted in its brand value and therefore more differentiating and compelling.

The BW article sums up the challenge facing Old Navy – and really any other business that doesn’t take advantage of these hard times to move their brand forward:  “When the economy improves, the company may find that all it has to talk about is price.”

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