In its heyday, Target distinguished itself from its competitors not by offering the lowest prices or the widest offerings but rather by creating a retail atmosphere that was, in the company’s own words, “fast, fun, and friendly.” Establishing such an atmosphere required parallel approaches at the executive and management levels too. Thus the corporate culture was “freewheeling.”
For example, executives, board members, and store managers often took store tours together. The managers had substantial autonomy to make merchandising and promotional decisions that would fit their market. Furthermore, Target’s price points were purposefully a little higher than those of their main competitors, because it hoped to attract slightly more affluent consumers who enjoyed finding quirkily designed kitchen appliances or designer dresses among the racks.
But in 2008, the chief executive who had established, maintained, and enforced this fun culture for two decades retired, and his hand-picked successor instituted some changes. As CEO, Gregg Steinhafel pursued improved margins and sought to institute more stringent performance metrics. One of the drivers of these changes was the altered retail environment in the midst of the global financial crisis.
Thus, Steinhafel required vendors to cut their costs, and Target limited the number of new or innovative products stocked in stores. Instead, it sought to increase its reliance on staples that consumers needed, rather than the fun impulse purchases they once might have enjoyed finding in stores. The product placement system adopted a new criterion, based on a vendor bidding process, such that vendors that paid more fees to Target enjoyed better shelf displays.
The performance review process also changed. The company motto, “fast, fun, and friendly,” became a mandate. Some store managers received negative reviews for not being fun enough, even when their stores performed well. Others claimed they felt compelled to demonstrate their friendliness by hosting ice cream happy hours for their staff. Rather than coming up with their own initiatives, the fun was being imposed from the top down.
These trends already had affected Target’s culture and performance before two well-publicized failures rocked the retailer. A massive data breach, in which hackers accessed the personal information of approximately 70 million shoppers, led wary consumers to avoid the stores altogether. Then Target’s ambitious effort to expand its Canadian operations, by rapidly opening 127 stores there, failed pretty miserably. High real estate costs, inventory issues, and exchange rates that created high product prices led to estimated losses of $1.6 billion for the chain.
The combination was enough for Target’s board. Whereas the previous CEO held his position for 20 years, Steinhafel was ousted after just 6 years. Now, even before a new CEO has been named, things have changed. Experiments with new concepts, such as adding mannequins to stores, have gone forward, after being delayed for years. New products are reaching store shelves more quickly, and several recently named executive suite members come with extensive merchandising experience. The hope is that those things that once made Target an exciting place to shop will soon reemerge, attracting customers back in through its red-and-white targeted doors.
Discussion Questions
- How did Target lose its way?
- Do you believe it can find its way back?
Source: Paul Ziobro and Serena Ng, The Wall Street Journal, June 24, 2014