Time finally ran out for Gregg Steinhafel — and now Target has the tough task of finding a new chairman, chief executive officer and president in the midst of the retailer’s ongoing struggles.
Steinhafel, 60, stepped down Monday after six years in the top job and several months of speculation he might be pushed out, sending Target’s shares down 3.5 percent on the New York Stock Exchange to close at $59.87. They have slowly recovered from the damage done by disclosures of a massive data breach in December since hitting a 52-week low of $54.66 in midday trading on Feb. 4.
Moody’s said this is “a very inopportune time for a change at the top of Target given the challenges the company is facing on multiple fronts, namely the credit card breach and its potential fallout, a sluggish start to its Canadian expansion and a difficult operating environment in its core U.S. market.” The credit-rating agency said it is not taking any action at this time.
Target tapped chief financial officer John Mulligan as interim ceo and hired search firm Korn Ferry to find Steinhafel’s successor. His departure — no reason was given for him stepping down; he still has to work out his compensation package, and he will remain a consultant to Target in the interim — set off an immediate guessing game as to who might take the reins of the nation’s second-largest discounter. RELATED STORY: Target's CEO Search — It's Complicated >>
The names that have surfaced as potential candidates cover familiar faces, long shots and simply speculation, including Ken Hicks, chairman, president and ceo of Foot Locker; Glenn Murphy, chairman and ceo Gap Inc.; Diane Neal, former ceo of Bath & Body Works; Greg Sandfort, ceo of Tractor Supply Co.; Peter Sachse, chief stores officer of Macy’s Inc.; Sharon McCollum, cfo of Best Buy; Mindy Grossman, ceo of HSN; Andy Bond, chairman of Asda’s executive committee; Neil Ashe, president and ceo of global e-commerce at Wal-Mart Stores Inc., and Sharen Jester Turney, president and ceo of Victoria’s Secret. Industry observers also threw out such names as Marigay McKee, president of Saks Fifth Avenue; Angela Ahrendts, senior vice president of retail and online stores at Apple, who just took the post after serving as ceo of Burberry; Karen Katz, president and ceo of Neiman Marcus; Roger Farah, president and chief operating officer of Ralph Lauren, and Bill Simon, president and ceo of Wal-Mart U.S., who no doubt would be barred from taking the job by a non-compete clause.
There also has been speculation that Target might lure back Robert Ulrich, 70, who was Steinhafel’s predecessor. He stepped down in 2008 when he reached Target’s mandated retirement age of 65.
Given the breadth of the names bandied about by industry insiders, one thing is apparent: There is no clear candidate. Target has always been an insular company, developing talent and promoting from within. Industry analysts seemed to believe that the fact that Target hired a search firm may rule out as a contender Kathryn Tesija, executive vice president, merchandising and supply chain, at the retailer.
“It’s a testament to the fact that they know what they like, they develop executives and they keep them,” said one search executive. “Clearly they’ve made the decision to go outside.”
Target has hired from outside the company in recent years, naming Jeff Jones executive vice president and chief marketing officer in 2012 and last month, Bob DeRodes was appointed chief information officer, succeeding Beth Jacobs, who was ousted as a result of the data breach. Target said it was continuing its search to fill two subordinate posts, chief information security officer and chief compliance officer. DeRodes, who will lead the company’s information technology, worked at the Center for CIO Leadership, the Department of Homeland Security, the U.S. Secretary of Defense and the U.S. Department of Justice.
“They have to cast a wide net,” said Kirk Palmer, president of Kirk Palmer Associates, a search firm in Manhattan, of finding Steinhafel’s successor. “It depends on how far afield they want to go. Certainly they could go into the grocery industry. Target has to be mindful of how [Wall] Street is going to respond. They have to look at companies with a certain scale. There aren’t a lot of people capable of running a company as large as Target,” which had $71.3 billion in sales last year.
“Target’s number-one challenge is Amazon,” said Matt Nemer, a retail analyst at Wells Fargo. “They’re going up against somebody that has more breadth, better shipping and a great loyalty program.” Nemer said Target has been playing catch-up with its Web site ever since it brought it in-house in 2011 from Amazon, which was operating the site.
“They could go outside the industry and hire someone with a digital background. Target is ripe for a new direction and an infusion of new leadership and new thinking,” said Carol Spieckerman, president of New Market Builders. “It has been insular, but looking outside may be gaining momentum. The template for the types of people who would be good choices include Marigay McKee and Angela Ahrendts. The two women have this right-brain, left-brain, open-minded-but-minding-the-numbers type of balance. Someone from Amazon or Google or platforms that are expanding into more of a retail sensibility and that have the digital DNA could be good. Retailers hiring from consumer packaged goods companies is becoming yesterday’s model very quickly. It’s going more toward the digital space.
“There are a lot of shifts happening in retail,” Spieckerman continued. “[Target] is in the midst of playing a mean game of catch-up in the digital space. In the meantime, Wal-Mart is really putting the pedal to the metal, and Target hasn’t fully awakened to the opportunity of leveraging its physical scale. One of Target’s top priorities has been to make sure online unique items are able to make their way into physical stores. It used to be that making sure online assortments matched in-store was important. Now, digital space is being viewed as an endless aisle. Target is one of the few retailers that remains store-centric.”
“Target is adrift,” said Max Goldberg, president of Goldberg and Associates, a California-based consultancy that helps businesses from start-ups to Fortune 500 companies formulate branding and business strategies. “Target is absolutely shell-shocked from what happened with the data breach. It really hurt the company financially. Now they have the expense of taking the step to move to chip and PIN technology. They need to take that step to rebuild confidence.” Target has said it will spend $100 million to implement chip and PIN technology. “When all the lawsuits are settled, it’s going to cost Target more than $100 million. Target could have prevented this breach. They were getting signals but weren’t picking up on them.”
“Certainly the data breach was the final straw,” said Amy Koo, senior analyst at Kantar Research. “Target has had a lot of challenges for the last several years. The loss of shoppers in general” has been the most troubling. “They’ve had a notable number of missteps in market expansion in Canada. And there’s how they’re approaching urban. They’ve reached a steady stage of saturation of the suburban box,” but Target’s efforts to infiltrate dense urban neighborhoods in the U.S. and Canada has been slow. Target is reportedly testing one Express store and eight City Targets, the smaller format retail concept.
A more fundamental question may be whether Target has lost some of its touch in terms of merchandising. “How relevant is Target in indicating what’s cool today?” said Koo. “It doesn’t have the same resonance that it used to have. For a retailer that rested its laurels on its fashion credentials, it can’t define what’s cool anymore. Target has to find someone who has some experience and knowledge of the fashion world, and they have to be very good at marketing.”
“Could they get someone out of retirement like Allen Questrom?” Nemer asked, referring to the retired ceo who turned around Barneys New York and J.C. Penney Co. Inc. “There’s not a lot of potential people, so you have to be creative. There’s Wal-Mart’s Bill Simon or Neil Ashe, who runs the global e-commerce business. Target’s long-term success over a decade-plus has been driven by merchandising, unique product and great marketing.”
Les Berglass, founder and chairman of Berglass + Associates, said Katz of Neiman Marcus “has done the most fabulous job of taking the wall down between the digital universe and brick-and-mortar universe. What Karen has does fabulously at Neiman’s is she challenges the consumer in a way that the consumer understands. She could return a patina to the business.” Katz would know Target from the holiday collection Neiman’s did with the discounter two years ago, although that was widely viewed as a failure for both retailers.
Berglass suggested Diane Neal, who is on the Fossil board, and previously ran Bath & Body Works, among other top retail assignments. “Diane understands contemporary retail better than most. She would be a dark horse,” Berglass said, citing her specialty experience at BBW as well as Gap, Mervyns and as a merchant for a long time at Target.
“Target needs newness at point of sale,” Berglass said. “That’s number one. It hasn’t lost its franchise with consumers, who are incredibly forgiving when they get newness.”
Other candidates Berglass would recommend include Ahrendts and Farah. “Roger was never given the platform,” Berglass said. “There would be no one between Roger and the consumer. I think he would be an extraordinary leader.”
Whoever takes over will face massive challenges in repairing Target’s reputation that was damaged by the data breach and fixing its ill-fated expansion into Canada while improving the merchandising in its U.S. stores. Steinhafel’s tenure was a troubled one, and industry analysts said his departure was the result of a confluence of factors, with the data breach perhaps being the last straw.
“In the last 10 years, the company has placed big investments on a number of fronts, including PFresh remodels, the 5% Red Card and deep investments in Canada,” said Charles Grom, a retail analyst at Sterne Agee. “We would argue that these investments have not delivered the returns that the company originally expected, which has led to significant deterioration in the company’s brand equity and uninspiring traffic and frequency trends. In retrospect, the company may have been better served developing a world-class omnichannel-Internet presence, which it severely lacks today, to compete with multiple retailers on a number of fronts.”
Steinhafel worked for Target for 35 years and was named president in 1999. He became ceo in 2008 and chairman in 2009. He started as a merchandising trainee with the Minneapolis-based mass merchant in 1979.
Target’s board cited his skills in leading the company “through unprecedented challenges, navigating the financial recession, reacting to challenges with Target’s expansion into Canada and successfully defending the company through a high-profile proxy battle.”
“The last several months have tested Target in unprecedented ways,” Steinhafel said in his letter of resignation. “From the beginning, I have been committed to ensuring Target emerges from the data breach a better company, more focused than ever on delivering for our guests. We have already begun taking a number of steps to further enhance data security, putting the right people, processes and systems in place. With several key milestones behind us, now is the right time for new leadership at Target.”
Following the news of Steinhafel’s dismissal, prior to the opening bell, Target’s shares slipped in early trading and didn’t rebound.
Target has had a tough time attracting shoppers lately. The retailer rang up 2.7 percent fewer transactions in 2013 than 2012, including a 5.5 percent drop in the fourth quarter, the worst result since Target began reporting the metric in 2008. The difficulties of getting its Canadian operations up and running contributed to a 45.9 percent reduction in Target’s fourth-quarter profits, to $520 million, and a 34.3 percent drop in full-year net income, to $1.97 billion. Hurt by the breach and excessively difficult weather, fourth-quarter revenues slid 5.3 percent, to $21.52 billion, while same-stores sales were off 2.5 percent during the crucial three-month period.
The recent data breach was ultimately a major factor in the company’s decision to halt share repurchases, which have been a mainstay of Target’s financial model. “In light of these challenges, Nomura believes that a change in leadership at Target could be a positive catalyst and could likely include an individual from outside the corporation,” said retail analyst Robert Drbul. “While this is clearly not the departure that we or Mr. Steinhafel likely envisioned, he was instrumental in many successful initiatives over the years and helped Target become a leader in the retail industry.”
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews