Around this time last year, a group of Russian hackers were working to infiltrate one of America's most popular brands, just in time for the holiday season. Target (NYSE:TGT) got slammed by the group during the last few weeks of 2013, and the company still hasn't finished shaking the aftereffects. Now, just as it's finding its footing, Target's mess has come back to the fore, as Home Depot (NYSE:HD) was just hit by a similar attack.
Shoppers have once again been reminded of how poorly it all went last year at Target. With that sour taste in consumers' mouths, what can Target do to get shoppers back through the doors this holiday season?
Problems on top of problems
Apart from the data theft, Target is facing down customers who are increasingly calling for promotions to even get them in the doors. Across the retail environment, companies are cutting prices to drive sales. In its last quarter, Target's US gross margin fell a percentage point from the same quarter last year, down to 30.4%.
Last year, before the bad news broke, Target was able to push price-matching, extended holiday hours, and flash sales to get customers in. All of those things cost the company money, though, and in 2014, the last thing Target wants to do is spend too much money.
Unfortunately, Americans aren't too keen on spending money either. With middle-class wages still depressed and consumers keeping their wallets firmly in their pockets, Target is going to be fighting an uphill battle this year.
There's plenty to get excited about
Luckily, Target should have armfuls of fun, new items for customers to go crazy over. The iPhone 6, the Apple Watch, and a smattering of highly anticipated video games should all go a long way toward bringing in reluctant spenders. Those sorts of opportunities have made Target optimistic about its second half.
Management has said that the company is expecting things to be smoother in the back half, as customers are driven to spend by the occasion, not the sale. That should give Target a chance to run a tighter inventory-ship going into the fourth quarter as well.
When foot traffic is based on promotions, companies have to stock up on the promotional items in order to keep the traffic coming in. If it doesn't clear out during the initial round of discounting, it lingers into the next quarter, taking up space and continuing its promotional status. But if customers are just interested in Christmas shopping, then Target can work to have a better inventory mix on hand, reducing its later need for discounting.
Can Target actually do it?
The mix of good sales trends and exciting products with bad economic conditions and new data breaches could still go either way. Right now, given the scope of the Home Depot issue and the constant comparison to Target, I think the company is going to have a hard time shaking the nagging suspicions that consumers have about security.
That's going to make it a difficult holiday season. It also doesn't help that many of the biggest gifts are going to hit the market well ahead of the peak shopping season, meaning consumers might have already filled their pockets with new phones and covered their wrists with new watches by the time Black Friday rolls around. Still, it wouldn't be impossible for Target to turn things around this holiday season -- it's just a fine line to walk. Keep an eye out for deep discounts if it all goes pear shaped.
Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Apple and Home Depot. The Motley Fool 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.