Management, Strategy and Operations

Three Strikes and He’s Out!

RR Target CEO Gregg SteinhafelStrike One

Spotty performance going into the recession and poor performance coming out.

Target Stores and its web business have been poorly positioned from a merchandise trend and strategic standpoint, and stores have been inexplicably and chronically poorly stocked. Empty shelves in a 200,000+ square foot discount store are as unappealing as dining in an empty restaurant. Frankly, it’s been a very long time since Target exhibited the “mojo” that successfully differentiated it from their competition.

Once upon a time Target was a hotbed of trend and value. Every endcap at the head or foot of every aisle used to tell an interesting story of fashion or value. And the stories were woven into a tapestry that worked as an expression of Target, the brand. No more. Today it looks, mostly, like just a lot of disconnected stuff. Just like Walmart.

Once upon a time the Target weekly newspaper insert was loaded with energy, trend and exceptional value. No more. Today it looks like a lot of disconnected stuff. Not quite as jumbled as Walmart, but close.

Trend and value-driven strategies need constant supervision, revision, and periodic reinvention. Designer collaborations work really well until they stop working — and then something novel has to be introduced in its place.

As a sidebar criticism, the expansion of food at Target may have been overplayed. Food businesses carry with them enormous incremental operating expenses and very thin margins. Whereas Walmart may have long ago surpassed critical size and mass issues in the category, Target may not. And then, of course, does a customer who shops just for milk actually shop the rest of an overlarge store often enough for apparel and accessories? Is the move to food really enough incentive to increase other sales?

Strike Two

Poor decisions surrounding expansion into Canada.

Target grossly overpaid for a portfolio of mostly poorly located Zellers stores. And failure to properly price inventory and stock these stores was inexcusable.  In the mid-1980s, Target moved into California via an acquisition of over 50 store locations from a bankrupt chain called FedMart. Though they renovated all the boxes, their location, size, shape, and configuration were both inconsistent and somewhat incompatible with Target’s prototypes. However, fortunately for them at the time, the acquisition was dirt cheap, unlike their investment in Canada. Also, for a time in California, the organization had terrible trouble adjusting its assortments to suit California’s inherent diversity of customers, lifestyles and climate; and they had terrible trouble keeping the shelves properly stocked. Though they eventually prevailed, the bad experience and missteps led management to swear they would never expand that way again.

Apparently, current management seems to have failed to read the after-action reviews of that troubled 1980s expansion into California. The Canadian consumer expected as exciting a store at home with respect to fashion and value as they had experienced while shopping in the US, both physically and online, and they didn’t get it.

Strike Three

The data breach appears to have been a gross failure.

Management failed to protect its customers, up front, and then failed again to properly respond to the data breach once it was discovered. There is increased evidence that Target’s management was alerted to the weakness of their network but somehow ignored the warning. Unbelievable!

Prior to the TJX breach in 2007, it might have been plausible to be blindsided in this fashion. But following TJX, every tech group, in every consumer facing business, should have been on a constant ready-alert footing. The consumer outrage, even in the absence of actual individual harm, triggered by the necessary issuance of millions of new credit cards, is something that may take a very long time to abate. It is unfortunately fueled, in part, by Target’s “over the top” long standing guest orientation. But it backfires, as their customers are now asking, “If I’m so special, how could you let this happen to me?”

And then, of course, there’s the paradigm shift in the marketplace brought on by the presence of the Internet. Target, like most legacy retailers, has been late to the party, and still struggles to provide their customer with the completely transparent and flexible omnichannel opportunities that shoppers increasingly expect.

Success comes from enlightened leadership and the very hard work of dedicated teams of people. Success, however, brings with it size — which then breeds insularity and the loss of touch and feel with the customer, as well as understanding the competition. All it takes then, is a lack of, or lapse, in leadership and the enterprise’s performance disappears. Target, like some of its retail brethren, has apparently fallen on its knees as a result.

Succession Plans

So now the media has gone nuts opining on who should be the next CEO at Target. The lists run the gamut from the reasonable to the ridiculous. There is also the ubiquitous commentary surrounding “a need to go outside the industry.”  All I can say is, remember what happened to Michael Jordan, when arguably the most talented basketball player of all time discovered he couldn’t hit a baseball to save his life.

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