Target (NYSE:TGT) has been making one of the most intensive efforts in retail to adapt to the omnichannel era. But massive, connected digital systems mean that when things go wrong, they can go wrong everywhere. Case in point: On Saturday, the company suffered a global point-of-sale machine outage -- in layman's terms, the cash registers all stopped working for several hours. Customers were not happy. On Sunday, due to what management said was an entirely unrelated issue at its credit card processor, the stores' cashiers were unable for a period to take credit or debit cards. (But at least cash and gift cards still worked.)
In this segment from MarketFoolery, host Chris Hill and senior analyst Ron Gross talk about Target's broad technology push, its problems new and old, the investment thesis, and more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 17, 2019.
Chris Hill: Whoever you are listening right now, however your weekend was, your weekend was probably better than Target's. On Saturday, Target suffered a global point-of-sale machine outage for more than two hours. That quite simply means the cash registers were not ringing. They had more problems on Sunday, where Target locations could only accept cash or gift cards. If he weren't out of the country, Jason Moser's head would be exploding because this goes directly against the war on cash. Target says this is not a security issue. This is not a hack. This is an internal technology issue.
Ron Gross: And they say the two things are unrelated. That's a double whammy. That's a bad two days, to have two technology-related issues not only impacting sales, but impacting people's opinion of how Target is taking care of business here. Target's in the age where they're spending heavily on technology to compete with the likes of Amazon for same-day fulfillment and increases to their online business. It doesn't give you a lot of confidence, really, when you see that they just keep continuing to have these problems. They're unrelated, they fixed it quick, the credit card thing theoretically has nothing to do with them; it was the credit card processor. But it doesn't instill confidence.
Hill: It really doesn't. I have to believe we're going to hear more about this story. To your point, I get the urge. I think this is the right instinct on the part of Target management and in particularly their communications team, to come out as quickly as possible with some explanation, particularly when the 2013 data hack at Target is probably still fresh enough in people's memories that they had to get out as quickly as possible and say, "Here's what this was not." That's fine, they did the right thing there. But to your point, I'm not even a shareholder and I want to know more about what happened here. Is this a vendor with some faulty tech? Also, if you're a retail analyst, and you're looking at this saying, yes, they had the problem in the past, in the same way that Home Depot had problems -- pretty much every big retailer has had some sort of tech issue. But I look at this and say, OK, well, I want to learn more about exactly what this was. Maybe I don't own shares of Target, but I own shares of Walmart or Amazon or something else. I want to make sure this isn't going to happen elsewhere.
Gross: For sure. From the credit card perspective, that seems to have been a problem with their vendor, NCR, who had an outage at one of their data centers. I don't think I can fault Target for that, except, make sure you're partnering with the correct people. The not being able to make purchases for two hours on Saturday is a bigger thing. It seems like that's their issue. They'd better get their ducks in a row. Investors only can handle this every literally blue moon. If it's still fresh on people's minds each time another thing happens, people are going to walk.
Hill: You look at all the investments that Walmart has made in e-commerce, and I would argue that they are decently ahead of Target in that regard, even though Target has bumped up their e-commerce sales each quarter to a nice degree. But look, just think about the average person who works during the week. They're doing a big Target run on Saturday. Again, this is a point of sale thing. You know there are just tens of thousands, arguably, of people who are going through their Saturday routine, they're getting all their stuff. And it's not until they're ready to leave and pay -- well, I guess, pay then leave, right? -- that they figure out this is going on.
Gross: That's annoying. But now, from a stock perspective, let's give them the benefit of the doubt and say they do get their act together and this doesn't continue to happen. Only trading at 14 or 15 times earnings. That's compared to Walmart at 22, Costco in the 20s somewhere, all the dollar stores trading around 20 times. Theoretically a cheap stock if they continue to put up good comp sales and increase those online sales that you just mentioned. This could be an interesting play.