Regret usually isn’t a celebrated emotion during the holiday season. With various faiths celebrating their heritage, December is typically a month of bonding, gifting and sharing time with loved ones. Of course, it is also a time of massive shopping sprees and last minute deals at major brick-and-mortars like Target Corporation (NYSE:TGT)
Retail stocks have generally experienced a volatile 2016. And considering the challenges facing traditional retail stocks, the cardinal rule should be to never take any sale for granted.
Yet that’s exactly what TGT has done with its controversial transgender restroom policy. An uproar was generated by conservative and faith-based communities, resulting in a boycott of TGT stores. In the immediate aftermath, Target stock tanked. It has since regained a majority of those losses, but concerns still linger.
It’s hard to ignore the fact that the primary rivals for TGT stock — Wal-Mart Stores, Inc. (NYSE:WMT) and, to a lesser extent, Big Lots, Inc. (NYSE:BIG) — have avoided causing unnecessary fuss. Although a qualitative statement, I believe the companies competing against Target stock look more technically stable. As evidence, WMT is running more than twice as high as TGT stock on a year-to-date basis.
There’s also the matter of the badly miscalculated political sentiment of the general public. If it’s best practice not to mention politics in the workplace, multiply that by five for retail stocks.
Every human resources team spends countless hours admonishing their employees to keep their noses clean. TGT executives thought they were above their minions, and Target stock paid the price. The evidence suggests, though, that the cost may be perpetual.
Missed Opportunity for Target Stock
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That’s a fairly obvious statement when TGT revenue is, on average, 16% that of its bigger brother. However, 2015 was a massive letdown for Walmart. WMT stock dropped 27% for the year, while sales growth dipped into the red.
It was an opportunity for TGT stock, which it advantaged by paring its own losses. So 2016 was supposed to be the year they stuck the knife into their rivals. Instead, they inexplicably choked. After its restroom policy was disclosed, the financials for Target stock took an ugly turn. In the first quarter of fiscal year 2017, year-over-year revenue dropped more than 5%. In the following quarter, it dropped more than 7%.
Another decline in the third quarter means that, so far, quarterly sales growth is averaging an abysmal 6% loss. This is so despite the fact that all three quarters featured an earnings beat. Based on these figures, unless something dramatic were to occur, TGT stock would be lucky to crack the $70 billion sales mark for FY 2017. True, it’s the holiday season, and the company has been making an aggressive push into e-commerce.
But from the data currently available, a bountiful Christmas is far from guaranteed for retail stocks. Even worse for Target stock, Walmart has regained its form, looking to put its disastrous 2015 behind it.
Target Ignores Millions
While it may seem silly to attribute some of Target’s problems to its controversial restroom policy, let’s consider hard facts. According to last year’s Gallup survey, “75% of American adults identify with some form of Christian religion.”
Even more startling, of those that expressed a religious identity, 94% are Christians. Based on sheer numbers alone, it would be foolish for any organization to offend the sensibilities of this community.
Admittedly, the total percentage of Christians has been declining over the years. It is still by far the largest religious group in America, though. Furthermore, multiple Christian denominations according to the Pew Research Center are becoming increasingly diverse.
Target didn’t just offend a single, conservative demographic. They essentially offended everyone.
If pure common sense isn’t enough, consider the economics of faith-based organizations. A socio-economic research paper published by the Interdisciplinary Journal of Research on Religion concluded that religious groups contribute $1.2 trillion to the economy.
Based on the aforementioned data, a large chunk of this total is attributed to Christianity. Again, it’s devastating for Target stock to continue ignoring the impact of the restroom policy.
TGT Stock Holders Deserve More
At this point, it’s not enough for TGT to merely reverse its policy. CEO Brian Cornell needs to step up and admit that he let his personal political self-interest come before the shareholders’ interest.
He needs to acknowledge the moral values of the overwhelming majority of Americans, and promise to make Target stores a truly family friendly environment.
Not only is this critical for TGT stock, it’s really not that difficult to do. By aligning itself with middle-of-the-road values, Target can frame the discussion as a matter of women’s health and security. It can then affirm its pro-diversity message while protecting its core revenue stream.
Until then, Target stock may still be in troubled waters.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
