Target Misses the Target, Again

Super Target

Target Misses the Target, Again
| published August 20, 2014 |

By Thursday Review staff


Target’s run of bad luck and misfortune seems to continue without relief. Its self-inflicted problems began last holiday season when it was revealed that hackers had breached Target’s security system and stolen the credit card and debit card information of as many as 70 million customers.

The breach occurred during late November and early December 2013, at the peak of the holiday shopping season. Target’s then-CEO Gregg Steinhafel made public apologies, offered free credit monitoring, discounts and gift cards, and still more widely-publicized apologies. But it was not enough, and business at Target fell off the cliff by mid-December. Worse, the breach had wider economic implications, triggering what many analysts believe was a credit card recession during the holidays. Coupled with severe winter weather across much of the nation, it helped to slow down what was expected to be a robust holiday shopping season and the final step out of recession.

But Target’s profits kept declining—all through winter and into spring. By mid-spring, it looked as if Target was suffering merely from the same slump affecting many other smaller retailers, including Kohl’s, JC Penney, Marshall’s and Kmart. But now, with second quarter reports arriving all this week, some of those mid-tier chains are experiencing welcome rebounds. Home Depot surged ahead with a great quarter despite dire predictions of a lousy spring, and T.J. Maxx also saw a better-than-forecast spring. But the Minneapolis-based Target continues to sink, albeit slowly—a victim, perhaps, of lingering fears and negative baggage from the worst security breach in U.S. history.

Target may also be reeling from the brunt of post-Recession blues. Its closest competitor, Walmart, has struggled back from recession, but appears to have done so by picking its battles closely and narrowly—advertising in specific markets about specific lower prices. Target, generally consumed by data breach problems, may have had little time to formulate a marketing plan beyond months of contrition, direct-mail apologies, testimonies before Congress, and shake-ups among top management.

Target is also suffering from its poor rollout in Canada. Its long-planned expansion into Canada was supposed to open up a fresh, new market for the giant retailer. Instead, many of those new Target locations were plagued with problems, some related to inventory and delivery. Shelves have been stocked erratically, and with uneven distribution of brands and products. This has confused many first-time shoppers. The Canadian stores also had difficulty convincing many customers north of the border that stores were offering products cheaper than those which could be found at other retailers in Canada, a problem also related to inadequate planning when it came to shipping costs and delivery costs. Dozens of major surveys found that many first-time shoppers in Canadian stores said flatly that they would not return unless the merchandise was demonstrably cheaper than other retailers.

Some analysts also said that Target overstepped its capacity, cutting ribbons on more than 120 stores in Canada. Speaking to Canadian journalists this week, Target VP John Mulligan said if he could travel back in time with the benefit of what he knows now, he would have opened only a dozen new Canadian stores. Then, only after working out the kinks and bugs, would he have given the green light to wider expansion among the Provinces.

All told, Target’s problems seem deeper and more complex than simply convincing consumers to come back and shop again. Second quarter earnings were down more than 61 percent, according to Target’s recent financial data.

The data breach has so far cost the company $111 million, with that total impact expected to rise this year. Some financial experts and regulatory analysts say that when the dust finally settles, the breach could end up costing Target as much as $250 million, not counting any charge-backs or other forms of compensation if fraudulent charges grow larger over time.

Target’s average sales per store are down about 4.7 percent over the same time last year. Its share price was down to 37 cents per share as compared to 95 cents per share a year ago.

As with all major retailers, there is, however, good news. Or, at least the need to create the perception of good news: Target says foot traffic into its stores has been steadily increasing this spring, a sign that consumers are venturing into the stores again, but are limiting their purchases to a few essentials.

Gregg Steinhafel stepped down as CEO earlier this year and was replaced with former PepsiCo CEO Brian C. Cornell.

Related Thursday Review articles:

Is There a Future for the Middle Tier Retailer?; R. Alan Clanton; Thursday Review; June 30, 2014.

Target Off Target; Thursday Review staff; May 21, 2014.