It’s a new world out there, where people regardless of sex, race, religion or political stance are taking a stand for equal rights. This includes the transgender community, who some celebrate and others condemn.
Fact is, some of the world is not ready to embrace transgender individuals, which is likely why corporations have stayed out of the topic altogether. In retrospect, it’s the same reason that politicians try to avoid questions on religion and abortion — too many people have strong opinions on it.
With that said, Target Corporation (TGT) has taken a stand. In a press release, Target said, “We welcome transgender team members and guests to use the restroom or fitting room facility that corresponds with their gender identity. Everyone deserves to feel like they belong.”
Now, TGT executives were most likely hoping that consumers would praise their bravery, much like Caitlyn Jenner when she won the Arthur Ashe Courage Award.
Instead of a positive reaction, a half million consumers have already pledged to boycott Target stores in response to this move, and the number is growing fast! On April 24, 340,000 consumers had signed the pledge to boycott Target stores. By the very next day, as of 6:30 PM ET, that number had surpassed 585,000 pledges. At this rate, the number could top one million, or maybe more!
So while the sub-700,000 people who identify themselves as transgender are ecstatic about Target’s decision, that excitement comes at a big cost.
What Cost for Target?
Somehow, someway, Target stock traded higher by 0.3% in response to this boycott. This illustrates that investors don’t view one million pledges as too big of a risk to TGT earnings. Investors might assume that the one million to pledge are not active TGT shoppers, or that the loss is insignificant relative to the $71.8 billion dollars in revenue that TGT is supposed to create this year.
However, investors must keep in mind that TGT already has enough challenges without adding another. In 2015, growth was moderate, and this year the company’s revenue is expected to decline nearly 3%.
One reason for this declined performance is Amazon.com, Inc. (AMZN), who grew its grocery/consumable revenue by 18% this year according to Cowen Research. Needless to say, AMZN has been a pain in the side of TGT, but so have Wal-Mart Stores, Inc. (WMT) and The Kroger Co‘s (KR) continuous market share gains in grocery retail.
With that said, Target is implementing the kind of changes that are honorable, like plans to raise its minimum wage to $10 per hour. The decision to be pro-trans had the same goals in mind, like being fair and treating everyone with respect.
However, it is not having the sought-after effect, and investors now have to worry if this move will leak over into earnings, or the goals that Target has set.
During Target stock’s last quarter, it grew comp sales by 1.9%, with about half of that growth coming from e-commerce and the rest coming from increased store traffic. From this strong performance, Target has set a bold goal to achieve 3% or more comparable sales growth long-term, starting next year.
TGT believes this growth will come from grocery, e-commerce and continued store traffic gains. However, with AMZN and Kroger winning the grocery retail battle, and 500,000 to one million consumers likely to boycott Target, it is quite difficult to see how the company achieves this growth.
In other words, holding Target stock seems like risky business at the moment, and investors need to see how serious protesters are in their clear dissatisfaction with Target’s newest policy.
As of this writing, Brian Nichols owns none of the aforementioned securities.
