Five Challenges New Target CEO Can’t Address Soon Enough

July 31 (Bloomberg) -- Target hired Brian Cornell as chief executive officer, choosing the former head of PepsiCo Americas Foods to take the job after Gregg Steinhafel was ousted following a hacker attack and a botched expansion in Canada. Bloomberg’s Duane Stanford reports on “In The Loop.” (Source: Bloomberg)

Brian Cornell, Target Corp. (TGT)’s new chief executive officer, just stepped into a hot retail mess.

CFO John Mulligan alluded to the challenges when he dropped by Bloomberg News a few weeks ago and acknowledged something industry watchers have long known: “Tarjay,” inventor of cheap chic, is scared to take chances.

“We got a little bit risk-averse,” said Mulligan, who was interim CEO until today, when Target said it had hired Cornell, a PepsiCo Inc. executive, as its first outside chief.

Related: Target Chooses Former Pepsi Executive Cornell as Next CEO

Of all the challenges facing Cornell, firing up the culture may be the most important. Without making it OK to take risks, Target won’t be able to fight off the competition coming at it from every corner, transcend the company’s outdated big-box roots and win back shoppers who’ve come to see the chain as little more than Wal-Mart with red shopping carts.

Cornell, who has also worked at Sam’s Club and Michaels Stores Inc. has the retail chops to get Target growing again. But it won’t be easy.

Here, in no particular order, are his five biggest challenges:

ME-TOO GEAR Retailers that don’t differentiate themselves with exclusive stuff on their shelves are doomed to irrelevance. Target once stood out for trendy clothes and home goods -- Michael Graves teapots, Missoni dresses -- and won the hearts of snooty urbanites who wouldn’t be caught dead at Wal-Mart. Then everyone else stole the idea and cheap chic even started showing up at Kmart. Have you looked at a Target circular lately? There’s a big focus on groceries, which you can get all over the place these days, even at the corner drug store. Where’s the cool gear you can’t find anywhere else?

Photographer: Beth Hall/Bloomberg

Brian Cornell, an executive vice president at Wal-Mart Stores Inc. and chief executive officer of Sam's Club, leads a cheer during the during the annual Wal-Mart shareholders meeting in Fayetteville, Arkansas, in this June 4, 2010 file photo. Close

Brian Cornell, an executive vice president at Wal-Mart Stores Inc. and chief executive... Read More

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Photographer: Beth Hall/Bloomberg

Brian Cornell, an executive vice president at Wal-Mart Stores Inc. and chief executive officer of Sam's Club, leads a cheer during the during the annual Wal-Mart shareholders meeting in Fayetteville, Arkansas, in this June 4, 2010 file photo.

SMALL STORES News flash: The big box is dead -- or at least headed for the retirement home. Small stores are where it’s at. The company’s initial answer was City Target, a 100,000-square-foot format about three-quarters the size of a regular location that could fit in more urban areas. The idea is to lure shoppers with everyday needs in the hopes they visit more often and buy the cool stuff one aisle over from the milk and eggs. The first City Target opened in 2012 and two years later there are only eight. Most retail analysts agree that’s not fast enough.

BROKEN CANADA It took years for Target to finally open a foreign outpost and it chose America’s northern neighbor, where shopping habits are supposedly similar. Even better, Canadians already knew about Target because they routinely crossed the border to shop there. Imagine their surprise when they discovered that the same merchandise cost more at the new Canadian Target stores. Cue: huge losses.

TECH WOES Target has a technology challenge -- and we’re not talking about its inability to thwart a massive data breach that exposed millions of customers’ credit and debit cards to hackers last year. Like many retailers, Target needs to get its brick-and-mortar and online operations more in sync. Only last Christmas did the chain begin allowing shoppers to pick up online orders at a local store. Sears, which is even more challenged than Target, has offered that service for years.

RED TAPE Back to that cautious culture CFO Mulligan talked about. Bureaucracy is rife at Target’s Minneapolis headquarters. In the few months when he was running the place, Mulligan claimed a few victories in his fight against red tape. He moved the entire leadership to the 26th floor to speed up decision making and get everyone on the same page. Cornell will have to pick up the baton.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Kevin Orland at korland@bloomberg.net Robin Ajello

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