Target Corporation Should Give Ron Johnson a Chance at Redemption

Target Corporation needs a big shake-up. Former J.C. Penney CEO Ron Johnson might be the best person to lead its comeback.

May 14, 2014 at 5:21PM

Retail visionary Ron Johnson spent the first 15 years of his career working his way up the corporate ladder at Target (NYSE:TGT). That was before he spearheaded a retail revolution at the Apple Store, and long before he oversaw the collapse of midtier department store J.C. Penney (NYSE:JCP).

Target is now looking for a new permanent CEO following the resignation of Gregg Steinhafel. It should seriously consider making Johnson its next CEO -- despite his colossal failure at J.C. Penney. Johnson has had more than a year to reflect on his mistakes at J.C. Penney, and he is the type of visionary who could reinvigorate Target's image and help the company return to growth.

Target needs a makeover
The proximate cause of Steinhafel's downfall may have been the company's massive 2013 data breach -- and its response to the fiasco. Criminals infiltrated Target's data network and stole credit card, debit card, and personal information for tens of millions of customers. Moreover, Target may have overlooked warning signs pointing to a security issue.

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Target botched its entry into Canada, where it is now racking up big losses.

However, it's not like everything was sunny at Target prior to the data breach. Sales momentum in the U.S. has been weak for the past two years or so, and the company's entry into Canada in 2013 has been a complete disaster so far.

Target's struggles in Canada can be attributed to market-specific factors that have affected its pricing and assortments there, but in the U.S. it is suffering from the broader malaise of big-box retailers. Comparable-store sales fell last year, due in part to weak consumer spending driven largely by government gridlock, as well as the impact of the data breach at the end of the year. In the few years before that, comparable-store sales growth remained in the low single digits.

Target's main strategy to jump-start sales growth since the Great Recession has been a move into selling fresh foods. This boosted sales of food and other household essentials to 46% of the company's U.S. sales last year, up from 37% of sales in 2008.

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Target's gains in fresh food have come at the expense of its traditional strengths.

However, one of the main goals of the fresh-food campaign was to drive store traffic and thereby boost discretionary sales. Unfortunately, sales have stagnated in home furnishings, apparel, and accessories -- previous areas of strength for Target. These categories represented 36% of U.S. sales last year, down from 41% in 2008.

The right man for the job
That's where Ron Johnson comes in. Johnson ended his previous stint at Target as vice president of merchandising, where he was in charge of the home department. In that role, he was instrumental in creating Target's "cheap chic" image.

Most notably, Johnson made a bold bet on a partnership with architect Michael Graves for a line of trendy housewares. The Michael Graves collection became a big hit and changed the way most consumers thought about Target.

Johnson's success in transforming the home department at Target 15 years ago makes him a logical candidate to lead a turnaround of the company's home and apparel businesses today. Many retail analysts believe that a drop in the quality of Target's design partnerships is a key reason that the home and apparel businesses are losing their appeal. Johnson had no trouble lining up star partnerships in his short stint at J.C. Penney.

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Ron Johnson may be able to recapture Target's "cheap-chic" allure.

Of course, Johnson's performance at J.C. Penney would give pause to any board of directors. He took a struggling retailer and tried to reinvent it too quickly, which merely accelerated its sales declines.

Fortunately, Johnson now seems willing to acknowledge that he moved too fast at J.C. Penney. Moreover, Target is not in nearly as much trouble today as J.C. Penney was when it brought Johnson on board in 2011. It needs fresh thinking, but not a completely new concept.

Hitting the Target
Johnson has been out of work for more than a year now, so he could be ready to take on a new challenge. While his vision for reinventing J.C. Penney was a stunning failure, he could still be the right person to lead Target.

Johnson spent the first half of his career at Target, so he understands the company's culture. His experience creating the "cheap chic" feel of the Target home department and connections with major designers could help him revitalize sales for the home and apparel sections. A Target-Ron Johnson reunion could be just what both need to get the magic touch back.

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Adam Levine-Weinberg owns shares of Apple and is long January 2016 $560 calls on Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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