Target’s Outgoing CEO Didn’t Make the Grade
By Sandy Skrovan, research director - US, Planet Retail
Following a rough year, which included the huge and well-publicized data breach debacle, underwhelming entry into Canada, and a traffic and sales slide in its core US market, general merchandiser Target has announced the resignation of Chairman, President and CEO Gregg Steinhafel. Effective immediately, Target CFO John Mulligan takes over as interim president and CEO.
Steinhafel’s Grade Card
Some parts good, some parts not-so-good, some utterly horrid. Overall, it’s tough to rate Steinhafel’s tenure as CEO as anything more than average (at best) given Target’s rapid descent from grace at the end of 2013. Target ended last fiscal year with sales declining 5.3 percent and profits falling 46 percent in the fourth quarter as shopper trust and traffic eroded following the data breach.
Further, I suspect the timing of Steinhafel’s departure – just as the retailer closes the books on the first quarter of 2014 – is too obvious to be a coincidence. In February, Target already warned that Q1 comps will be in the flat to -2 percent range. Planet Retail now suspects it may perhaps be worse than expected. We find out in two weeks. The retailer is scheduled to report on May 21.
Meanwhile, here’s how my grade card of Steinhafel breaks down:
PFresh remodel program: “A-” – The push to remodel Target’s store base began in earnest just as Steinhafel took the reins. In late 2008, Target began testing the first several PFresh units. The timing of Target’s consumables focus and grocery department expansion, including the addition of "fresh," couldn’t have been better. Target was refreshing stores to include the updated grocery area while the nation’s economy was in the doldrums and consumer spending on anything but household basics waned. Excellent idea. Excellent time. A couple of things I fault Steinhafel on related to the grocery strategy: lack of clarity around SuperTarget given the advancement of the more compelling PFresh prototype; and lack of ingenuity to bring "fashion to food" (e.g. a celebrity-endorsed grocery and fresh prepared offer) in keeping with Target’s MO on the general merchandise side.
CityTarget launch: “B” – Kudos to Target for making the move into urban retailing. This was a good decision in many regards since urban is one of the final frontiers remaining for U.S. retail expansion. But we can’t give an “A” since the format doesn’t quite make the grade in terms of full-on small-box urban convenience. And Target was (and continues to be) a bit late to the party given ongoing value retailer expansion and drugstore (e.g. Walgreens and CVS) urban unit makeovers, not to mention available online options. CityTarget in its existing format – i.e. size, mix and assortment – is not too far removed from a down-sized suburban Target.
Existing store productivity and performance: “C” – It’s been a bit of a roller-coaster in terms of Target comparable-store performance since 2008. Unlike other steady-as-they-go retailers (think Kroger, Costco, even Dollar General), Target has recorded its fair share of ups and downs. Since coming out of the recession in 2009, Target known for its cheap chic and merchandising prowess in apparel and home has failed to impress. Target stock has nosedived in the past half year, primarily because of the data breach, but other issues (e.g. Canada) as well. Target stock price per share finished the day on May 5 just under USD60 per share, down 17 perecnt from a mid-2013 high of about USD72 per share last July.
Ouch, Canada: “D” – Cheers for taking the plunge, finally venturing into non-U.S. waters – despite the fact that it’s only the northern neighbor. But Planet Retail, like I’m sure many others, including Target shareholders, expected Target to make more of a splash. Crossing the border didn’t seem like too much of a stretch for Target. Yet, the retailer has been plagued with several well-documented problems (e.g. merchandise and inventory management; marketing and price perception issues) all while racking up losses, stinging overall company profitability performance at a time when it can ill afford it.
Data security: “F” – The issues have been well-publicized and management berated for the mishandling of the situation until it was too late. The Federal investigation remains ongoing. When news broke of Target CIO Beth Jacob’s resignation in March, Planet Retail conjectured it was only the beginning of the fallout. It seemed nothing short of a miracle would prevent more heads from rolling. Now, Gregg Steinhafel has paid the ultimate price, leaving the company with a dark shadow cast over his previous 34 years of accomplishments. What’s now considered one of the biggest (if not #1) data security breaches in retail history will be difficult for the organization to overcome. Yet the damage – retailer reputation, shopper confidence, traffic declines, sales bleed – is done. Change is needed to pave a path to recovery.
What’s next?
So what’s next on Target’s horizon? For starters, the company has appointed executive recruiting firm Korn Ferry to help it begin a comprehensive CEO search. Interestingly, Gregg Steinhafel will remain in an advisory capacity during the leadership transition.
Speculation abounds that Target could look internally, possibly appointing one of its two leading ladies: EVP Merchandising Kathee Tesija or Tina Schiel, EVP store operations. A Target spokesperson indicates the company is searching both internally and externally, quite possibly outside of the retail sector.
We can only imagine the want ad: Retail Industry Executive - must have thick skin and strong stomach. Anyone stepping into Steinhafel’s shoes at this time will require nothing less.