TARGET Hitting the Bullseye
Talk about a moving Target.
It's Year Two of the Brian Cornell era, and the new CEO of the No. 2 U.S. retailer seems to have the company going in the right direction after a disastrous last few years. Target's profit for the most recent quarter was higher than expected, leading it to raise its full-year earnings forecast for the second time in 2015. Its stock is up 3 percent in 2015 and up 36 percent over Cornell's tenure, while chief rival Walmart's stock has fallen 12 percent.
Cornell, who in August 2014 became Target's first CEO hired from outside, is moving Target forward by, in a sense, moving it backward. His overall strategy is to take Target back to its roots as a moderately upscale mass merchandiser, especially of "cheap chic" apparel. It has concentrated on premium lines of clothing, baby and children's products, and wellness products. Sales of these items grew twice as fast as the company average in the first quarter of 2015 and three times faster in the second quarter.
Target's strategy on food roughly parallels that overall strategy. Food was introduced on a large scale in 2008 by Cornell's predecessor, Gregg Steinhafel, who envisioned it as a key to making Target a "destination" retailer.
That didn't quite work out, mostly because Target was never in a position to compete with Walmart and pure grocers like Kroger on prices for name brands, says Brian Yarbrough, a consumer research analyst with Edward Jones.
"What I think they're realizing is, they're not a destination," Yarbrough says. "People aren't coming to Target to buy groceries. I think what Brian's realized is that they need to elevate their game. They need to get away from competing with regular grocery stores and Walmart on jars of peanut butter and cereal. What I think they're going do [with food] is take it a little more upscale."
Broadly speaking, that means more emphasis on healthier options like natural and organic foods, and less on conventional packaged goods. In meetings early this year, the Wall Street Journal reported, representatives of mainstream food processors like General Mills, Kellogg and Campbell Soup were summoned to Target's Minneapolis headquarters and told that their products may get reduced shelf space. Plans are still forming, but will probably include more premium products under Target's Archer Farms store label.
To help transition the grocery operations, Cornell in April hired Anne Dament, his former colleague at Safeway and most recently a vice president at PetSmart, to head Target's grocery operations. It was one of a raft of recent shakeups in Target's c-suite. Chief merchandising officer Kathryn Tesija left in July after more than 30 years at Target, and her lieutenant, executive VP Jose Berra, was gone the next month. Also in August, chief financial officer John Mulligan was promoted to the newly created position of chief operating officer; Cathy Smith, an executive with Express Scripts Holdings, was brought in to replace him as CFO.
There's been turbulence in the levels below the c-suite, too. On April 7, 1,700 people at the corporate offices in Minneapolis lost their jobs, and the company announced plans to leave 1,400 more jobs unfilled. Another 140 corporate employees got the ax in June, as did 180 at Target's corporate branch in Bangalore, India.
Yarbrough believes these layoffs may have been motivated by more than just a desire to save money. He noted that Cornell, shortly after being hired, had remarked that it took Target too long to make and implement decisions.
"They're dealing with the realm of a retail environment that's changing rapidly," Yarbrough says. "With the likes of Amazon and these other internet-only players, I think Target realizes they have to be more efficient, be more nimble, react faster and operate while holding their structure."