Could Target See a Turnaround?

Can Target avoid succumbing to the power of

Jul 3, 2014 at 7:00AM

Target (NYSE:TGT), the third-largest discount retailer in the U.S, is struggling with various weaknesses, strategic mishaps, and fierce competition from online retailers such as (NASDAQ:AMZN).

The recent resignation of Target's CEO Gregg Steinhafel, a 35-year employee of the company, symbolized the fact that the retailer is desperately trying to change its business strategy to avoid following in the footsteps of other mammoth retail enterprises. Once a cool company, Target's corporate culture may have become too stagnant and bureaucratic to survive the battle against, known for its fierce take on pricing and creative cross-selling strategies. In this difficult context, could Target see a turnaround?


Source: Target

In the most recent quarter, Target's profit fell 16%, missing the Street consensus. Losses from Target's Canadian operation and extraordinary costs related to a data breach that took place in December last year, when information from more than 40 million credit and debit cards was stolen, contributed to this.

What went wrong
Sales came in at $17 billion, representing a 2.1% increase over last year. However, this was not enough for Target to avoid a decrease in earnings. The company had to spend $18 million in the first quarter just to deal with the massive data breach it experienced over the holiday season.

However, Target's issues go beyond a massive data breach. The company's customer transaction numbers have decreased for several quarters. And the company has lost more than $1.6 billion since it entered Canada.

These problems may have partially resulted from a poor corporate culture. According to the Wall Street Journal, the company was long known for a "cheap chic" style that drew shoppers who were looking to spend a few dollars on everyday basic items, but left with $100 worth of items that they did not expect to buy in the first place.

This was only possible because the company created a culture that let managers make their own calls on product picks and special promotions. The situation may be quite different now. Interviews with various executives suggest that the company may have become too bureaucratic.

The turnaround
After CEO Gregg Steinhafel's resignation, a group of executives headed by CFO John Mulligan have taken over the company's leadership until Target finds a replacement.

This could be an opportunity to turn around the corporate culture. In a nutshell, the company needs to become a fashion trend-setter. To achieve this, the company needs to enhance a creative corporate culture. It needs to give more power to local managers so they can make their own calls again on promotion strategies and product picks. 

More important, the company needs to make better use of its physical space. The company has more than 1,700 stores in the United States and nearly 130 stores in Canada. It could use some of its physical space to create stores "within-a-store". This would require it to establish partnerships with top fashion brands interested in promoting their products via Target.

Fighting against
The store-within-a-store concept has been successfully employed by Best Buy to promote Samsung products. It is probably the most effective way to fight against, which generated more than $74 billion in revenue last year.

Unlike traditional retailers, does not need to employ a massive sales force or rely on physical stores to generate revenue. The online retailer can do great by just operating a network of efficient distribution centers.

However,'s lack of physical stores makes it difficult for customers to "see" or "experience" the products before buying them. This is why a great number of customers check out products at physical stores first and buy them later on This trend is certainly not good for a physical retailer that uses product sales as its only revenue source. However, physical retailers could take advantage of this trend by selling their space to brands interested in building exhibition rooms.

Final Foolish takeaway
There's still plenty of value left in Target. After all, this is the third-largest retailer in the United States and the eleventh-largest retailer in the world. The turnaround certainly won't be easy. The first step will be finding a new chief executive capable of bringing a creative, innovative corporate culture back to Target. Finally, it should use a store-within-a-store concept widely to promote key brands, diversify revenue, and fight against

Leaked: This coming device has every company salivating
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we buy goods, but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns, you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Victoria Zhang has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information