2 Must Haves on Target's CEO Wish-List

Source: Flickr; Brenda Gottsabend

Months after the data breach heard around the world, megaretailer Target (NYSE: TGT  ) is ready to move on. And while interim CEO John Mulligan has been busy, there's still a need for the company to address it's permanent replacement for former CEO Gregg Steinhafel. Based on the company's biggest challenges, here are two things that should be on Target's CEO wish list.

1. Digital retail prowess
With the ever-changing environment for retailers, it's important that the new leader of Target has experience with innovative e-retail tools and their development. Though Target was not a member of 2013's top 15 e-retailers, the retailer's first quarter results showed that it's 20% growth in digital visits topped seven of its closest online rivals. This marked the second consecutive quarter of 20% growth for the chain's online retail sales.

As of the first quarter 2.5% of Target's sales were from its digital channels.

With the shift now focusing on mobile retail opportunities, Target is already trying to harness the power of its apps, but a new CEO will need to continue to look for new ways to capture a wider swath of consumers in order to gain more ground on the top e-retailers.

2. International expansion experience
Possibly one of the biggest challenges facing Target is the clean-up of its disappointing expansion into the lucrative Canadian market. Canadian consumers' perception of the new stores was lackluster, with shelves lacking key products and too-high prices were the oft-cited complaints from frustrated shoppers.

Based on new initiatives to better supply its Canadian stores with an appropriate product mix, along with other operational adjustments, surveys conducted by Target during the first quarter showed a big improvement in customer satisfaction levels.

But the retailer still has a long way to go before the new segment is deemed a success. Though revenue grew more than 350% versus the first quarter of 2013 thanks to the addition of 103 stores during the year, the Canadian operations reported a 3% year-over-year increase in its segment loss -- $211 million versus 2013's $205 million. To put that in perspective, the increase in stores from 24 to 127 reduced the per store loss from $8.5 million to $1.6 million -- a sure improvement, but still far from acceptable for investors.

With the deterioration of its gross margin continuing into the first quarter of 2014, due to implemented promotions to clear out excess inventory, the Canadian segment's 18.7% fell far below what investors are used to seeing from the retailer's U.S. operations -- which reported a 29.5% gross margin during the same period. The company will also have to better manage its Canadian SG&A expense margin, which topped 55% during the first quarter if Target's 2014 fiscal year -- 2.75x more than the U.S. operations' metric.

Though the company has already replaced and reorganized the failing Canadian management team, the Canadian expansion remains one of the biggest headaches for Target as it moves forward. Any CEO candidate should provide the retailer with expert knowledge of the challenges (and their solutions) to international expansion.

Big shoes to fill
Target is one of the nation's favorite retailers, but lately the chain's financial results haven't reflected that status. For any new CEO entering the picture, there are plenty of headwinds to contend with, but a solid foundation is already built for new progress.

For investors, it's a reassuring fact that shoppers are ready to move on from the data breach fiasco, but the uncertainty surrounding an empty CEO office (no offense to Mr. Mulligan intended) is one lingering reminder that the company is still reeling from missteps. With any new candidate for the top job, investors should be looking for the key qualifications that will help the retailer solve its top two hurdles -- new e-retail frontiers and international challenges.

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