Editors' pick: Originally published Jan. 7.

Target (TGT) got its cool factor back last year in its lucrative apparel business, and its latest designer collaboration suggests execs are not resting on their laurels.

On Thursday, the Minneapolis-based discount retailer, which rose to fame in the mid-2000s by working with trendy designers to launch clothing lines at its stores, said it's teaming up with SoulCycle to debut a limited-time collection. SoulCycle will release a small collection of mostly unisex apparel in Target stores, including a sweatshirt ($49), sweatpants ($49), tank top ($29) and men's T-shirt ($29). The prices for the items in the Target collection are, in some cases, less than half the price those offered on SoulCycle's website.

The two companies have also joined forces to offer people free pop-up fitness cycling classes (usually $34) in ten cities -- Houston, Seattle, Washington D.C., Atlanta, Denver, Nashville, Miami, Chicago, Minneapolis and Los Angeles --between Jan. 22 and Feb. 14, in addition to pop-up shops hawking wellness products in the participating stores.

SoulCycle is the red-hot exercise studio known for its pricey cycling workouts ($34 a class) and expensive apparel offerings that fanatical class takers just can't seem to resist buying. In a given year, SoulCycle releases 14 to 15 apparel collections, and according to the company's S-1 filing in December ahead of a prospective initial public offering (IPO), those collections represent a "significant" source of revenue.

"SoulCycle apparel has become the uniform of choice both inside and outside the studios -- our silver retail bags can be seen in airports, on street corners and in households across the country," the company boasts in its filing. The company currently has 55 studios spanning nine states.

By collaborating with Target, SoulCycle is showing would-be investors the brand has the power to expand beyond gym studios and reap sizable sales as a result.     

As for Target, a clever apparel partnership with SoulCycle hits at the core of its DNA -- offer designer apparel brands at Target's low prices. It's a business approach that got lost under Target's prior CEO Gregg Steinhafel, who served as CEO from 2008 to 2014 and sought to expand the company's grocery business.  

But re-energizing the high-margin apparel business has been a focus of Target's current CEO Brian Cornell, who took the helm in 2014. And that focus has paid off.

Despite the warmer weather this fall, Target's apparel sales, which represent about 20% of its annual sales, managed to rise 3% in the third quarter. The results outpaced those of larger apparel retailers such as Macy's (M) , Nordstrom (JWN) and Dick's Sporting Goods (DKS) , a group that blamed warm weather for sluggish sales.

Target's same-store sales of apparel increased a hearty 5% in the second quarter amid strength in swimwear, denim and kidswear. Apparel sales were boosted by rabid interest in a limited-time collaboration with Lily Pulitzer. In the first quarter, apparel sales rose a solid 4.5%.

"We are working hard to differentiate ourselves," said Target CFO Cathy Smith in response to a question from TheStreet on a Nov. 18 call. Smith, who joined Target in September from prescription drug provider Express Scripts  (ESRX) where she served as CFO, explained that investments in areas such as mannequins, better product quality and improved customer service are helping to attract customers that are not shopping for apparel at malls.

 

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