Target Corp. may have a new chief executive officer, but Wall Street’s reaction shows the amount of work ahead.
Target’s shares fell 2.9 percent Thursday to close at $59.59 on the New York Stock Exchange even as the retailer removed a major uncertainty by tapping Brian Cornell, former ceo of PepsiCo Americas Foods, as chairman and ceo, effective Aug. 12. While Cornell has solid retail experience with stints at Sam’s Club and Michael’s, and has fast-moving consumer goods covered through the PepsiCo job, retail experts said he might lack the digital experience needed to create Target 2.0. Nonetheless, the retailer said Cornell’s top priorities will be accelerating the company’s performance and advancing Target’s omnichannel evolution. Target’s profit has fallen for six consecutive quarters.
The appointment of Cornell, the first ceo to be hired from outside the company, caps a fraught four-month search for a new leader after embattled ceo Gregg Steinhafel left in May. John Mulligan, the retailer’s chief financial officer, has been the interim ceo.
“Brian Cornell feels somewhat safe,” said Carol Spieckerman, president of Newmarketbuilders. “I wouldn’t call Brian Cornell an old-school choice. This hiring from CPG [consumer packaged goods] companies has been at work for a while at retail. It’s very quickly going to become yesterday’s model.”
“He is a very experienced executive sitting on both sides of the manufacturer and retailer equation,” said Amy Koo, a senior analyst at Kantar. “There’s a lot of focus on supply chain and making sure things are in stock. Getting somebody so focused on execution and operations will be good for Target, not only for the food business and the consumables business, but in general. It’s not clear how much he understands about updating Target’s ‘Expect More, Pay Less’ brand message. How do you make Target exciting for Millennials and moms to shop? The top reason people go into the store is not to pick up consumable items, but to buy apparel and general merchandise. He needs to keep Target ‘Tarjay.’”
In terms of technology experience, Koo said Cornell has “done a few things here and there. It’s not the same level of transformative change that’s going to be necessary. There’s everything from supply-chain management to how to communicate with guests to using mobile to being able to sell and fulfill — it’s a massive amount of change, not just a one-off. He doesn’t seem to have that depth of experience. They picked an outsider because they knew they needed an outsider’s perspective. He’s an insider outsider.”
Koo said Cornell is “an executor. For a company that relies on pizzazz and marketing and always looking to the next new exciting thing, this was not a revolutionary choice.”
Target’s regimented and rules-oriented culture with a top-to-down hierarchy is hard to understand and difficult to manage, said Koo. “Looking at expansion into smaller stores and a more localized approach, you have to empower people at the local level to make decisions,” she said. “Target needs to look at its assortments for small boxes and localize and tailor them to the folks on the ground.”
“Cornell’s experience gives him the ability to take the Target business and hit the ground running,” said Ken Perkins, a retail analyst at Morningstar. “It’s understanding the motivation behind consumer trends and the overall value proposition for customers, while assembling a team that can execute that strategy. In terms of setting the vision, he has enough knowledge to take the company in that direction.”
Canada will be a big challenge for Cornell. Target has lost about $1 billion since it ventured north. In the U.S., Target’s traffic decline is due in part to a massive data breach during the Christmas season; the retailer is still trying to win back consumers. Longer term, e-tailers such as Amazon pose a threat. “How do you keep customers? You need to have the right platforms and need to cultivate loyalty,” said Perkins.
Target’s Technology Innovation Center in San Francisco’s financial district has given the company a foothold in Silicon Valley. However, it pales in comparison to @WalmartLabs, which makes frequent acquisitions and operates fairly autonomously from Wal-Mart’s corporate hierarchy. “You’re not hearing announcements coming directly out of that entity,” Spieckerman said of Target. “It doesn’t have the same autonomy and authority as @WalmartLabs. With Cornell’s hiring, will Target allow the California satellite to work in a more autonomous and authoritative way? It will be interesting to see if Target continues to be very headquarters focused.
“Target is at a bit of a crossroads,” Spieckerman said. “Have executives like Kathee Tesija [executive vice president of and chief merchandising and supply chain officer] been given incentives to stay the course, or is this going to become a departure point for some of them who’ve been around for a while?” Tesija is said to have been a candidate for the ceo job. “We’re wondering if the president position was left open to potentially give to Kathee,” Koo said.