We call reader attention to a rather provocative but revealing expose published by the Wall Street Journal this week regarding U.S. based retailer Target Stores. The article: Retailer Target Lost Its Way under Ousted CEO Gregg Steinhafel (paid subscription required) outlines a story that portrays a sequence of events, even prior to last November’s massive credit card security breach, leading-up to several of the retailer’s executive team delivering a message to Target’s board. “If Mr. Steinhafel didn’t leave immediately, others would.”
The article observes that Target’s core hip image of creativity in merchandising, affectionately dubbed “Tar-zhay” took a back seat to rigid performance metrics under the leadership of CEO Steinhafel. The premise outlined was that Target’s retail selections became more commonplace, similar to arch competitor Wal-Mart. Under the tenure of Steinhafel more retail store space was allocated to produce and grocery items as a sales growth tool.
For Target’s supply chain and online B2C strategies, suppliers, including smaller-sized ones, describe added pressures from Target’s buyers to wring-out additional costs. Target’s buyers stressed a placement system that awarded prime shelf space to highest and most cost attractive bidders. The retailer reportedly was slow to embrace online fulfillment and in 2001, outsourced its online web fulfillment operations to Amazon.com, only to bring it back in-house in 2011 after a two year internal development effort. Shortly after taking online B2C fulfillment in-house, the retailer suffered a series of highly public failures among highly marketed and promoted merchandise programs.
The article also points to Target’s 2013 feud with long time loyal supplier Procter & Gamble after discovering that Amazon was collaborating in establishing its Vendor Flex online fulfillment for Pampers diapers directly within P&G warehouses. When learning of the Amazon arrangement with P&G, Steinhafel ordered that P&G products be given less than ideal placement in Target stores for a period of a few months. That sent a buzz across the industry.
The WSJ further describes an ambitious but poorly executed move into Canada, opening 127 stores over a one year timeframe that has led to continued operating losses. In its most recent quarter, Target’s profits fell 16 percent having to ramp-up discounts to recover from consumer abandonment as a result of the recent massive credit card security breach. Lagging sales across newly opened outlets in Canada racked up an additional $211 million in losses. Target has experienced over a year and a half of declining store traffic while its online presence remains troublesome.
And then there was the coup de grace, with the highly visible credit card security breach involving the personal data of upwards of 70 million shoppers, which other media reports conclude could have been avoided from early warning signals and the company’s own installed security software.
Like any of these types of situations, there is always two-sides regarding perception of events. Steinhafel himself had 30 year tenure at Target and likely had full knowledge of the retailer’s corporate culture and management practices. After the massive and highly visible cred-card security incident, he might have been a convenient scapegoat for the retailer’s series of missteps. What astounded us was the action of Target’s board in accepting the direct feedback of many others of the existing senior management team in the midst of this crisis environment, in essence allowing for anarchy from the management ranks. Too often when this situation occurs, it takes a very long time for a new CEO to establish his or her’s leadership presence and overcome parallel lines of communication to board members.
We applaud the WSJ for its in-depth and candid perspectives on Target’s senior management missteps. However, it may not help this retailer in timely efforts for recruiting a strong CEO leader who can establish a new direction.