Target extends private-label push with Cloud Island expansion

Target is expanding the product selection of its private-label baby brand, Cloud Island, in an effort to grab a bigger share of the baby-product market — especially in a vacuum left behind by the end of Babies “R” Us. It also lets it “own” a greater proportion of the baby brands on its shelves.

In a blog post on Thursday, the company said it’s expanding Cloud Island’s offerings to essentials products like diapers, wipes, toiletries and feeding products (it previously focused only on decor, bedding and bath products). Most of these items will cost under $10. Although the Cloud Island “essentials” products are affordably priced, that doesn’t mean Target is getting rid of its value private-label baby products which are sold under the Up & Up brand.

Target said the essentials baby products under Cloud Island address a gap in the market, and the retailer said it’s worked with parents to design them, but industry watchers say other factors are at play: an extension of its successful private-label strategy to grab more premium customers who flock to niche, DTC-type categories, and a defensive play against rivals looking to dominate the baby-product market after the demise of Babies “R” Us.

For Target, Cloud Island’s expanded product selection launch lets it cover more white space in the market.

[We] knew there was a gap in the marketplace for affordable baby essentials that don’t compromise on performance and durability,” said a Target spokesperson, in an email.

Others say it’s more of a defensive posture against rivals; Target, like Walmart, is appealing to customers who want more than commoditized offerings. Amazon is moving in, and retailers are staking a competitive position.

“Target is actively defending their territory, or vying to be a leader in the [baby product] space — a lot of the key players like Amazon, Target an Walmart are trying to grab a piece of the pie that’s left open from Babies “R” Us,” said Jessica Ching, senior principal at Gartner L2.

According to Gartner L2, Amazon is increasing its ad spend in the baby category, with Amazon’s visibility in search results for the baby category growing from 5 percent in 2017 to 24 percent in 2018.

Target launched Cloud Island two years ago to meet the market need for price-competitive, quality products. It claims the products are 30 to 40 percent less expensive when compared to similar products on the market. A diaper day bag from Cloud Island currently costs $12.50 (marked down from a regular price of $24.99), while similar products on Amazon cost roughly in the $20 to $40 range. A gingham fitted crib sheet from Cloud Island costs $9.99, while similar products on Amazon can range approximately from $6 to $38. The selling point is that they’re free from a range of harmful products; for example, feeding products are also phthalate free and made without BPA and PVC, and bedding, changing pads and play mats are free of more than 300 potentially harmful substances, according to the company. It’s a twist on Target’s cheap-chic ethos, appealing to millennials who are price conscious and care about product origins.

Millennials are getting older; they really care about product quality and types of ingredients,” said eMarketer retail and e-commerce analyst Andrew Lipsman. “It resonates with the model of DTC brands — they don’t care about having the brand name but they want quality ingredients.”

By offering baby products in both value and premium categories, Target expands on its successful private-label strategy (it’s released 20 private-label lines since 2016), and adds margin through the higher-priced offering, said Forrester retail analyst Sucharita Kodali.

“It’s not quite organic, but maybe a step below that — more transparent and more wholesome inputs,” Kodali said. “Whether this replaces Up & Up remains to be seen. It could just be a way for them to take more shelf space and own more of the assortment with higher margins.”

Target emphasizes that the product development process for Cloud Island was a customer-driven effort.

“Target’s internal team, which includes engineers and chemists, like me, created the line from the ground up,” said Target chemist Robin Beck, in the blog post. We held in-home interviews, focus groups and shopping trips with hundreds of parents to better understand what they’re looking for in baby essentials.”

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