By all accounts, Target Corporation (NYSE:TGT) seems to be doing everything right. The stores are always clean and well maintained, shelves are usually adequately stocked and consumers have tacitly noticed that Target Stores have something of a soul, whereas Wal-Mart Stores, Inc. (NYSE:WMT) locales continue to feel soulless and warehouse-like. Yet, owners of Target stock sense things (a feeling supported by quantitative data) aren’t quite right.
Same-store sales have now fallen for two straight quarters, gross and net profits are showing signs of trouble and analysts aren’t exactly thrilled with the company’s potential.
What gives? The retailer’s missteps are pretty well documented. Don’t confuse the symptoms with the illness though. In a bigger, philosophical sense — and this is the scary part — TGT’s management just doesn’t “get it,” yet apparently doesn’t know how unplugged they are.
TGT Stock: Too Many Mistakes, Misfires
None of Target’s gaffes and failures stand out as much as its data breach in 2013, which ended up exposing debit card and credit numbers of 40 million Target customers. Consultants from Verizon Communications Inc. (NYSE:VZ) later concluded there were “no controls limiting their [hackers] access to any system, including devices within stores such as point of sale (POS) registers and servers.”
The breach led to settlements of more than $100 million in total, but the real cost has been to its reputation — how can any company as big as TGT overlook such a simple, obvious digital defense?
Let’s also not forget, however, the retailer has treated Target stock holders to some less abrupt debacles. Case in point? Target Canada, for one.
It was a bold move, marked by the near-simultaneous opening of 124 stores in early 2013 in a Canadian market that superficially looks a lot like the U.S. market, where the retailer is well entrenched, even if it’s not doing “well.” Some would even say it was the speed of its entry into the Canadian market that ultimately set up its failure. That’s not what it was though … at least not primarily. Among several logistics screw-ups, TGT mostly didn’t truly understand the Canadian consumer market, setting those shoppers up for a less-than-thrilling experience.
Target Canada is still just one entry on a long list of poor decisions from TGT’s management that owners of Target stock have paid the price for, however. Add to that list the decision from CEO Brian Cornell early this year to not just change its bathroom-usage policies to allow transgender individuals to use the restroom (and fitting room) of their choice, but to vigorously tout the change.
[For the record, yours truly here is viewing the matter through an unbiased business lens, and will leave the sociopolitical debate to others. Translation: Don’t shoot the messenger.]
Yes, all humans have rights, and those basic rights include feeling comfortable while shopping. This includes the LGBT community. Conversely, if a policy aimed at making a small minority feel comfortable also makes a larger swath of customers feel uncomfortable, does that decision make good business sense?
TGT has since opted to spend $20 million to install single-stall private bathrooms to circumvent many consumers’ concerns, but without mandating who uses them, the move still doesn’t address the crux of the ongoing worries about the company’s controversial policies.
The entire maneuver — and the publicity it has brought — was a big solution to a small, manageable problem that has needlessly ended up becoming a major headache.
It’s not just misguided restroom and fitting room initiatives though, nor is it misreads on certain geographic markets. Target is missing the boat in its native U.S. market too.
The premise of becoming a grocery store as well as discount department store is compelling … on the surface. Owners of WMT stock have seen it propel Walmart and the stock forward for a couple of decades now. If WMT can do it, surely Target can too, right?
Well, maybe. Or, maybe not. Even after several months of stepped-up grocery offerings, shoppers aren’t happy with the company’s recently expanded food arm.
Sure, consumers as well as TGT stock owners certainly have to give the company some time to move further down the learning curve. Food isn’t completely foreign to Target though, and surely one of the world’s biggest retailers has enough technical know-how to take a bite out of competing grocery sellers.
As it turns out, TGT doesn’t have as much know-how (or forethought) to do groceries well. University of Minnesota business professor George John explains:
“If you’re a grocery-only chain, your distribution centers are going to look different from if you’re a dry goods retailer like Target. So, if Target adds grocery, you have this awkward fit from what you’ve optimized for your apparel, electronics, and the rest of it, and what the demands for groceries are, which is much more frequent replacement, much more fresh stuff.”
In other words, as was the case in Canada, the hacking debacle of 2013 and the fact that its e-commerce arm remains woefully noncompetitive, Target wasn’t nearly as ready to sell groceries as well as it thought it was.
And it’s in this light the true nature of Target stock’s woes become clear. The people trying to fix TGT’s problems are the problem themselves.
Bottom Line for Target Stock
It’s admittedly a more philosophical than tangible impasse, which the market doesn’t digest well. That doesn’t change the fact, though, that layer after layer of goofs and gaffes are stacking up for TGT stock.
It’s constantly becoming clearer that Target doesn’t have competitive headwinds and social paradigm shifts to overcome, but rather, it has an executive team that makes one bad decision after another, assuming one outcome, but getting another. These folks just don’t “get it,” but not enough that TGT stock holders have called them out yet.
A couple more quarters of the same, however, may wipe away any remaining patience.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
