Target Corp. (TGT) Interim Chief Executive Officer John Mulligan said that even before December’s massive data breach, the retailer had lost its way by becoming too cautious and bureaucratic.
The theft of credit-card data for 40 million customers has forced the company to refocus on pleasing shoppers and reconsider everything from how it presents apparel to how it makes decisions, Mulligan said today in an interview.
“That came out of it, but I would have preferred to have gotten there a different way,” he said. “We got a little bit risk-averse in making sure things were perfect and we understood the economics. Now, it’s really unshackling ourselves.”
Earlier this month, Mulligan, an 18-year veteran of the second-largest U.S. discount retailer, was promoted from chief financial officer to replace Gregg Steinhafel as CEO on an interim basis while the company searches for a permanent replacement. Target had already been trying to improve lackluster results in the U.S. and a botched expansion to Canada before hackers infiltrated its computer systems.
At a test store in Minneapolis, Target is reworking the baby, electronics, toys and clothing sections because presentations had become stale, Mulligan said.
The changes include opening up floor plans, improving lighting and introducing mannequins, which were used for the first time two years ago with the debut of its smaller CityTarget locations. The remodeled baby area went from initial concept to introduction at 200 stores this summer in seven months, Mulligan said.
“We are accelerating how we make decisions,” by giving design and store teams more autonomy and requiring fewer initiatives to be approved by top management, Mulligan said. “It’s just getting more comfortable putting things out there.”
The moves are all part of an attempt to get Target back to its roots of upscale discounting, Mulligan said. While its design collaborations get a lot of attention, the chain’s ability to apply its cheap chic mantra to basic products is what set it apart, he said.
“People equate that with the big designer things,” Mulligan said. “Those are important, but that’s frosting. It’s the everyday innovation. That’s the secret sauce. That was our success.”
Shares of Minneapolis-based Target rose 1.6 percent to $56.76 at the close in New York. They’ve fallen 10 percent this year. That compares with a 2.4 percent drop for larger rival Wal-Mart Stores Inc. (WMT) and a 4.1 percent increase for the Standard & Poor’s 500 Index.
Target last week cut its annual earnings forecast to $3.60 to $3.90 a share, down from a previous range of as much as $4.15. It projected adjusted earnings of 85 cents to $1 a share for the second quarter, compared with an average estimate of about $1.03.
The company is holding off on stock buybacks as it works on its comeback. The retailer said it probably won’t repurchase more stock before the second half of the year.
U.S. comparable-store sales will grow as much as 2 percent this year, and product promotions will push its gross margin below 30 percent, the company said. The sales will “be flat to slightly positive” in the current quarter, Target said. Sales by that measure declined 0.4 percent in its most recent fiscal year, the first annual drop since the year ended in January 2010.
Target’s Canadian business lost $211 million before interest and taxes last quarter, a wider deficit than the $205 million it posted a year earlier. In the last fiscal year, the division lost $941 million before interest and taxes, reducing the year’s profit by $1.13 a share. The company replaced the top executive there, Tony Fisher, with Mark Schindele last week.
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