Target Corp. is in the midst of a moment of truth.
“Target has to decide what kind of company it will become,” said Amy Koo, a senior analyst at Kantar Research. “It needs new energy. It’s at a crossroads.”
The retailer has been badly bruised by the massive data breach last holiday season, its struggles in launching in Canada and e-commerce that hasn’t kept pace with its nearest competitors. Just last weekend, checkout glitches were reported at terminals in Target stores; the company said this was unrelated to security matters.
Most significantly, Target has been without a chief executive officer since Gregg Steinhafel was fired in May. The problems are making it harder to recruit a successor. Korn Ferry is conducting the search.
John Mulligan, executive vice president and chief financial officer, was named interim president and ceo after Steinhafel’s exit, while Roxanne S. Austin, a member of the board, was appointed interim non-executive chairman of the board.
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Mulligan quickly moved Target’s entire leadership team to the 26th floor of its headquarters in an effort to become more efficient. He instituted other measures to speed the decision-making process and reduce bureaucracy. Mulligan is likely being considered for the top job as he leads the charge and goes on the road with executives to reassure Wall Street that the company is moving forward.
“John Mulligan is acting like a ceo and sounding like a ceo,” said Joseph Feldman, an analyst at Telsey Advisory Group, although he noted that Mulligan told analysts he doesn’t want the job. Mulligan became cfo two years ago, after a career in Target’s accounting department.
Austin, who has been cited as a potential candidate herself, outlined in May the key skills Target’s next ceo should have. “We want to aggressively move Target forward, and one of our three priorities is to transform our digital presence and become a leader in omnichannel retailing,” said Austin, who was president of DirecTV and cfo of Hughes Electronics. “That is one of the major focuses as we look for a new ceo, along with great leadership and transformational capability.”
Target is reportedly speaking to traditional retail leaders such as Roger Farah, former vice chairman of Ralph Lauren Corp.; Ken Hicks, chairman, president and ceo of Foot Locker Inc.; Matt Rubel, a senior adviser at TPG Capital; Sharen Jester Turney, president and ceo of Victoria’s Secret, and Sharon McCollam, cfo of Best Buy Co. Inc.
But the list of retail-based candidates is short and some, like Farah and Turney, might not be interested. Complicating the search is the fact that Kohl’s Corp. and J.C. Penney Co. Inc., both Target competitors, are effectively looking for successors to their current ceo’s. “When you have less than 10 candidates, [seeing them is] a week’s work,” said one retail expert.
Target’s short list also is said to include Rosalind Brewer, president and ceo of Sam’s Club; Glenn Murphy, chairman and ceo of Gap Inc., Angela Ahrendts, senior vice president of retail and online stores at Apple Inc., and Mindy Grossman, ceo of HSN Inc. But Ahrendts just joined Apple, so she’s unlikely to leave; Grossman is said not to be interested, and Murphy probably wouldn’t want to leave Gap Inc., still in the midst of a turnaround, to go to another turnaround situation.
The Minneapolis-based Target may have contacted Glen Senk, former chairman and ceo of David Yurman Inc., and Andrea Jung, Avon Product Inc.’s former chief. There’s also Brendan Hoffman, who has said he will step down as ceo of The Bon-Ton Stores Inc. in 2015. Hoffman was ceo of Lord & Taylor and ran bergdorfgoodman.com and Neiman Marcus Direct. But again, Hoffman is said not to be interested, while Senk just set up his own investment fund.
“I’m sure they’re considering Sharen Turney,” said Karen Harvey, ceo of the Karen Harvey Consulting Group. “She’s one of the best retail omnichannel ceos in the industry. Both Mindy and Angela are brilliant. Angela [recently] went to Apple. She’s not going to change anytime soon. Mindy would be brilliant. Does she want to make a move like that right now? Brendan is fantastic. This is bigger than anything he’s done before, but he has significant online experience from a long time ago.”
It couldn’t be determined whether Brewer has a non-compete agreement at Sam’s Club parent Wal-Mart Stores Inc. It is believed most of the retailer’s executives do, although Joel Anderson, former ceo of walmart.com, recently joined Five Below Inc. as president and started right away.
“Although Rosalind has a great background and has implemented some positive changes, she won’t be able to leave on a high note until Sam’s performance picks up to at least be on par with Costco’s,” said Carol Speickerman, president of Newmarketbuilders. “Any offer from Target would be hard to resist, but she has an opportunity to leave a better legacy at Sam’s before moving on. Target needs a digital-forward star who can help the company shed its store-centric past and take it to new multimedia heights. I would love to see Target woo Mindy Grossman away from HSN. She’s made a huge mark there.”
Murphy would be a great hire, said Elaine Hughes, founder and ceo of E.A. Hughes & Co. “He didn’t necessarily have a track record in the [apparel] industry when he was hired at Gap,” she said. “But Gap understood that the company was full of merchants.” Murphy cut his teeth at Loblaws in Canada, “a supermarket chain that’s delivered to the market some very good candidates,” said Hughes. “You’re looking for an executive who understands direct-to-consumer and the global marketplace,” Hughes said. “You don’t have a lot of U.S. executives with that exposure. You could look into packaged good companies. Starbucks has done a good job and Pepsi within its ranks has multibrand strategy. TJX has global distribution.”
Carol Meyrowitz, ceo of The TJX Cos. Inc., is admired for running 3,000 stores in six countries since 2007 and taking revenues from $16 billion to about $27 billion. In fiscal 2013, revenues and profits grew by double digits. Hughes believes Meyrowitz or one of her deputies would be a good candidate for the Target job. “Carol Meyerowitz took care of the whole credit card issue,” she said. “However, [TJX executives] don’t leave so readily and the people closest to Carol Meyeritz are close to the succession plan.”
Retail experts suggested looking for a ceo in Canada or in Europe at chains such as Asda, part of Wal-Mart Stores Inc., and Carrefour. A ceo could be plucked from a pure-play e-commerce company such as Amazon, if the candidate had prior experience with brick and mortar.
For most retailers, succession is just a natural part of retail’s circle of life, but to the surprise of experts, Target didn’t have a succession plan in place. “Some companies circulate their management so they have exposure to all areas of the company,” said Hughes. Wal-Mart moves executives across divisions and geographies. But Target doesn’t seem to have a very deep bench when it comes to talent.
Target’s search for a ceo could take as long as a year, although Charles Grom, an analyst at Sterne Agee, said the company wants to have a ceo in place before the holiday season. “Normally, we’d hear something,” said Harvey. “Either they’ve identified somebody quickly or they have nothing to say.”
“It may not be the expected person,” said Les Berglass, founder of Berglass + Associates, “and it may not happen in the time frame everybody would want.” Grom said, “There are not a lot of obvious choices. It’s not an easy fix for whoever takes it over.”
“Target is not one of the more aggressive companies from a compensation standpoint,” said another analyst. “It’s going after the best people, and the best people make more money. Will it step up and pay these people? So much of Target’s leadership is homegrown, it’s not used to going out and buying huge staunches of stock.” Steinhafel’s total compensation for fiscal 2013 was $13 million. His base salary was $1.5 million.
While Target’s board is under pressure from Wall Street to find a leader from outside of the organization, Koo said Kathryn Tesija, chief merchandising and supply chain officer, is being considered. “She already has a fundamental block of the company reporting to her, including dot-com,” Koo said. “She was recently given responsibility over Canada. The latest shift in Canada makes me [think] it was an implicit nod to Kathee. It seems she is still in the running. It could go either way. Are you going to stick with who you know? Target has been hiring outside the company for technical positions.”
“They probably want to bring in a brand name to please the Street, but that may not be the answer,” said Grom. “Target has gone down the wrong path and focussed on yesterday’s news, adding grocery and going into Canada. It would have been better off focusing on an omnichannel [strategy]. They need someone very entrepreneurial, someone with Internet savvy who can fill the merchandise holes.”