Target is Off Its Target

Target store

Target is Off Its Target
| Published May 21, 2014 |

By Thursday Review staff

Though its first quarter numbers have not been made public yet, business experts and analysts believe that retail giant Target today reported its worst 1st quarter results in over a decade. Coupled with a disastrous 4th quarter 2013, Target has been through one of its worst stretches in its history.

Last year its troubles began quietly with missed cues, poor pricing and underperforming stores in its newly expanding Canadian operations. Even as the novelty of the new stores lingered, much of the Canadian retail footprint suffered immediately as shoppers there balked at what were perceived to be high prices. In other words, new visitors went in, took a look at the shiny, shimmering stores, and left empty-handed. After a year of operating new stores north of the border, Target was reporting hundreds of millions in losses for its Canadian division.

Earlier this week Target fired Tony Fisher, the head of the retailer’s Canadian division, and replaced him with Mark Schindele—one of the architects of Target’s successful expansion into the grocery business during the aught years. Schindele’s challenge will now be to bring the Canadian operations to profitability as quickly as possible so that the retail giant will not experience another hemorrhage like it did in 2013.

But the Canadian roll-out was only the start of Target’s problems last year.

Under normal circumstances, a major retailer can absorb some of the pain of a poorly managed expansion by adjusting its sales goals at home or making up for losses in other areas. But in early 2013 Target was already having a fair-to-middling year. Then, in early December, it was revealed that a major data breach had taken place beginning in November, days before Thanksgiving. The news of the theft of millions of Target shoppers’ credit and debit card information brought Target’s U.S. sales to a halt, dragged the retailer though months of continuous bad press reporting, and left some stores largely devoid of shoppers.

Worse still for Target’s reputation, the massive data breach may have single-handedly triggered the start of the holiday mini-recession, the effects of which are still being felt this spring (though severe winter weather is also widely blamed for the recent economic downturn). The data breach also eroded the trust of many of Target’s most loyal customers. Though Target tried to be as proactive as possible in the wake of the security disaster—issuing apologies, offering to monitor customer credit activity for free, and providing some discounts—it was not enough. Target had it worst 4th quarter in the company’s history, and its sales in December and January were so dismal that layoffs were announced by early February.

Even this year some retail studies—by Target and by other business analysts—have concluded that many former frequent Target customers have never returned to the store. Still other shoppers have greatly reduced their buying at Target. Much of this consumer reticence is blamed on the data breach and fears by shoppers that things are not yet secure again at Target.

Like many credit card providers, Target arrived late to the notion that smarter card technology is required in the U.S., and it is now in the midst of an overhaul—including reissuing its customers smart chip credit cards early next year. Other retailers are following suit, but Target may get there first. The cost of upgrading will be staggering, though Target hopes that the new, high tech cards and card readers will boost customer confidence and bring shoppers back.

Still, these adaptations were too late for Target CEO Gregg Steinhafel, who was fired a few weeks ago—blamed in part for Target’s current woes and held directly accountable by stockholders for the data fiasco. Though Target has already paid more than $18.5 million in fees and fines because of the massive hack, its overall losses have been staggering. But it admits that the ultimate long term cost of the data breach may run into the hundreds of millions. Target sales were down by 50% in the last quarter of 2013, and this year sales are down another 16%.

In the meantime, Target faces a struggle to regain lost ground. Its shares have fallen about 10% in value this year.

Target temporarily replaced Steinhafel with chief financial officer John Mulligan, who will act as CEO.

Related Thursday Review articles:

Can You Protect Yourself From Credit Card Fraud?; Thursday Review; January 11, 2014.

Target Faces Profit Loss; Thursday Review; February 26, 2014.