Off the Mark: What’s Gone Wrong With Target?
It’ll be an extra big Target run. She’s off to Italy in three days, so Parker Ewing beelines for the travel sizes, until—“This set is so cute”—a mannequin lures her in, and she carts a checkered pant set.
“Whoopsie.”
The TikTok influencer (nearly 500,000 followers) was demonstrating what the Minneapolis-based retailer has for decades touted as its competitive advantage: the joy of discovery. You go for toothpaste, only to walk out with the adorable cookie tin, the green vase, the surprisingly cheap overalls.
Target isn’t just Target. By the mid-’80s, the public was calling it “Tar-ZHAY,” that faux-French accent playing along with the retailer’s claim to chicness. Its slogan—“Expect More. Pay Less.”—promised a balance of low prices and upper-end cred. You confessed to a Walmart or Kmart buy; you bragged about Target finds. Its marketing was artsy (a woman waffle-ironing her hair on a New York City billboard—you can buy beauty products and waffles here!) and its partnerships intriguing, with high-design weirdos and trendsetters like Philippe Starck (2002) and Isaac Mizrahi (2003).
But today, some say there’s less “zhay.” Partnership choices have seemed less risky. The retailer collaborated with Kate Spade this spring, although a tie-in with that mainstream (past-its-prime?) brand hardly felt daring.
Posted in late June, Ewing’s 147-second video elicited sunny comments about Target—but also a few grumbles about how prohibitively expensive her haul must be. Through the sheen, cracks are showing.
In some corners of social media, it’s more like a chasm. “Too bad you are partnering with a company that is on the wrong side of history,” someone commented on Instagram when chef and Minneapolis restaurateur Ann Kim posted about her new Target frozen-foods partnership.
The 2000s were a long time ago. Today, Target is in the middle of a PR storm. If CEO Brian Cornell’s leadership helped the company thrive during the pandemic, it may also have cost Target some of its retail magic.
Metrics Malaise
From Wall Street, the retailer looks way off the bull’s-eye. Target’s sales have missed expectations, and its stock has tumbled. The story caught fire late last year, when Target turned in its worst quarterly earnings in years: 0.3% year-over-year growth in same-store sales. It was 20% short of earnings-per-share expectations. Around the same time, competitors were growing. Walmart reported a quarterly comparable sales increase of 5.3%; Costco, of 5.2%. And Amazon noted a 11% boost in net sales.
Target said it would right itself after a rocky 2024, but that didn’t happen in Q1. In early May, comparable sales again fell short, with a 3.8% year-over-year drop. “Ten years of nothing,” decreed CNBC journalist David Faber on the May 21 Squawk on the Street, noting Target’s stock was 14% above where it had been a decade earlier, whereas Costco’s and Walmart’s were up 633% and 144%, respectively.
Target cut its full-year outlook. Cornell blamed headwinds that have buffeted retailers generally: low consumer confidence, high inflation, tariff pressure. He also announced an “acceleration” office, meant to tap technology and speed up processes. Some analysts saw this as too little, too late.
Meanwhile, the company has an authenticity problem. Seemingly in response to President Donald Trump, Target reduced efforts around diversity, equity, and inclusion. It stopped responding to external diversity-focused surveys, including the Human Rights Campaign’s Corporate Equality Index, which assesses companies on LGBTQ+ workplace inclusion. DEI policies Target launched or expanded amid the racial reckoning of 2020 included a five-year pledge to carry more products from Black- or minority-owned businesses. That concluded this year. Cornell has suggested the reaction to “updates we shared on belonging” contributed to Target’s limp Q1.
-60%
Target’s stock price off its 2021 peak
Not long ago, the retailer was soaring. Sales rose more in 2020 than they had the prior 11 years combined. Its stock notched an all-time high in 2021, as the company pivoted harder into delivery and curbside pickup. Target stores were ready for pandemic-rattled customers who wanted to get in, get all they needed at one place, and get out. About a year later, Target’s board of directors extended Cornell’s tenure by three years.
But since Target’s stock hit its peak, it has tumbled—by more than 60% as of mid-July.
Now, Cornell’s time is winding down. Will an outsider come in to shake things up? Executive vice president and COO Michael Fiddelke—the ultimate insider, who has spent his entire career at Target—captured attention after a Minnesota Star Tribune article positioned him as the heir apparent.
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In some ways, Target’s malaise looks familiar. The retailer’s model is discretionary; its niche is general merchandise—non-essentials like decor and apparel. Target has always been a little pricier than its retail competitors. When shoppers have less to spend, they focus on basics and choose Walmart.
But some have argued Target’s higher-end appeal shouldn’t box it in. With a recession underway in 2009, activist investor Bill Ackman is said to have groused, “Target is not Gucci. It is a business that is supposed to do well even in difficult economic times.”
Jerry Storch was vice chairman at Target in the ’90s and 2000s, where he founded and ran the company’s e-commerce and grocery segments. Now CEO of Storch Advisors, he raises a similar concern: “That performance gap [between Target and Walmart] is too large.”
Some say Target has lost its mojo. The downturn didn’t start with Cornell, Storch says. “Everything ties back to strategic decisions that, in retrospect, look terrible.”
The Grocery Dilemma
According to Storch, groceries are Walmart’s ace-in-the-hole—as well as the joker in Target’s deck.
When the company introduced SuperTargets in 1995 (most Targets are now branded identically, whatever the size), they included broad-selection grocery stores. But Target didn’t fully embrace the category until CEO Gregg Steinhafel retrofit remaining stores with limited-scale grocery sections, known internally as “PFresh,” in 2009. The vision was that perishables and frozen foods, along with existing stocks of shelf-stable dry goods, would drive traffic.
“[Steinhafel] believed that, for Target to grow the business more, they had to have greater [visit] frequency,” says Thomas Paulson, vice president and head of market insights for Advan Research Corp. in New York City. When consumer confidence is low, people don’t splurge on decor that delights, but they’re still buying food. In Target’s scenario, grocery shoppers would wander into general merchandise, too.
“For that model to work, you have to be the primary grocery store for the consumer,” Storch says. “Otherwise, they don’t come once a week.” PFresh didn’t persuade shoppers to abandon Cub or Walmart, but it did complicate Target’s business model.
Today, Walmart is the country’s biggest grocer. Groceries, including health and beauty, made up nearly 60% of its U.S. net sales in its last fiscal year. Target’s food and beverage category accounted for more than 22%.
Target’s grocery strategy is “totally backwards,” Storch says: Shoppers come for general merchandise and grab a low-margin grocery item out of convenience. Target forfeits primary-grocer status, “and that’s why Walmart is thriving right now.”
35+%
Growth in Q1 same-day delivery
This “grocery-lite” model doesn’t appear to help the “pay less” side of Target’s equation, either. Walmart is down mid-single digits in price on general merchandise; Amazon, a similar amount, Paulson says, noting this has been the case for two years. “It’s harder for Target to mark down its prices because [general merchandise] is a bigger piece of the business mix.” (Target announced an end to price matching with Amazon and Walmart in late July.)
Grocery is a tricky business. It’s an expensive investment in warehousing, trucking, and spoilage. And it’s low margin. The more space Target gives to grocery, the less it has for high-margin goods.
The company last August reported grocery sales had grown by more than $8 billion since 2019. John Conlin, senior vice president of food and beverage merchandising, said the category “is really a trip-driver to Target.”
And Target is still building in the space. Its Good & Gather private label isn’t on the level of, say, Costco’s Kirkland, Paulson notes, but it’s set to become the company’s first $4 billion brand. When spending tightens, grocers find more success with these often cheaper house brands. “They need to do a lot more of it,” Paulson says. Private label makes up about a third of Target’s merchandise sales, and it’s growing.
But Storch returns to the big picture. “The value proposition is out of whack,” he says. “If [the problem] started in grocery, it spread to everything, in the sense that Walmart is just less expensive, period. And the differentiation that Target applied has been copied by many other retailers, so Target is not as different as it used to be.”
“Once [the creative side] started to lose priority, you’re just running a business.”
—Anne Mezzenga, retail consultant and former target marketing executive
Ambitions Misfired
Target Corp. used to be like Camelot. It was a bastion of high ideals, teamwork, and creativity, according to a former marketer who worked there most of the 2000s. As with many Target expats who lamented the retailer’s decline, they prefer not to speak for attribution.
Bob Ulrich, CEO from 1987 to 2008, is widely credited for Target’s glory period. Notoriously demanding, he nonetheless trusted his direct reports to flex their expertise. The company was gut-driven, the former marketer says. Launching a Rockefeller Center pop-up store for the Isaac Mizrahi partnership may have struck Target’s merchants (team members responsible for buying and selling goods) as excessive, but the marketing team made it happen—and “the publicity and the buzz around it overperformed and demonstrated its worth.”
Today, there’s a frustrating lack of trust within the company, says a merchandising manager who has worked at Target for more than 10 years and also requested anonymity. Bureaucratic layers of approval-seeking can hinder speed to market, they say, with “those who are closest to the business decision not having autonomy to make the business decision.”
Still, another staffer says Target merchants struggle with perspective at times. They blame this, at least in part, on remote work, citing blowback over Pride merchandise two years ago. Among other things, some shoppers took issue with transgender-inclusive swimwear in stores. The staffer suggests that, had these buying decisions been examined as they would have pre-remote work, the risk of backlash would have stood out to the buying team.
Another past employee says Target has filled leadership with “numbers people” at the expense of creative vision. They complain the company focuses on the “Target run”—consumers buying basics—over the distinctive, eye-catching goods that have long defined the retailer.
Cornell, by some accounts, has that number-crunching mentality. So does Fiddelke, his presumed successor. Former Target executives who spoke to TCB anonymously say Fiddelke moved through roles—CFO, now COO—to learn the business. But he’s a data guy, and some doubt he would be able to rekindle the magic.
“[Target is] not trying to create art for the masses anymore, but I don’t think you get anywhere by trying to please the most people,” says Anne Mezzenga, retail consultant, co-host of the Omni Talk retailing podcast, and a Target Corp. marketing executive from 2013 to 2017.
She says Target is locked in pandemic-era inertia, with logistics top of mind. “Once [the creative side] started to lose priority, you’re just running a business. You’re in direct competition with an organization like Walmart and Amazon. You’ll never beat them. … You don’t have the number of stores, you don’t have the distribution centers, you don’t have the reach.”
A decade before the pandemic, Target faced a different set of headwinds. Steinhafel took over for the retiring Ulrich in 2008, and the financial crash hit as he was implementing his strategy. Beyond grocery, it included a disastrous venture into Canada that ran aground because of embarrassing logistical failures.
Afterward, “they lost their confidence,” Paulson says. Steinhafel resigned in 2014 after a broadscale data breach of customer financial information. “When [Cornell] came in, he had to go through a process of rebuilding the competitiveness of the business that had been distorted by Canada.”
Cornell pulled Target out of Canada, at a reported $5.4 billion loss. He put more than $7 billion into digital growth and store evolution. “When the pandemic hit, [Target was] very, very fast on its feet,” Paulson says.
That digital growth helped to correct what some consider a strategic blunder from 2001, when Target tapped Amazon to host Target’s website. Paulson says the move let the fox into the hen house. He is echoed by Matt McClintock, founder of M Squared Capital, who has followed Target for nearly 20 years: “[Target] let Amazon learn their business.”
E-commerce, which Storch says the retailer neglected for too long, is still growing. Comparable digital sales rose 4.7% in Q1, as comparable store sales dipped 5.7%. The company credited a lot of that to more than 35% growth in same-day delivery, facilitated by the Alabama-based Shipt delivery service Target acquired in 2017.
But Target can’t compete in online sales with Walmart, much less with the behemoth that is Amazon. Walmart reported 21% digital growth in Q1, and its e-commerce is now profitable. No longer must Walmart shoppers set foot in stores, McClintock notes, a likely perk for what Paulson calls its fastest-growing customer segment: households making $100,000-plus a year.
Digital may have allowed Walmart to close some distance on quality, too. “The retailer is ‘Tar-ZHAY’-ing its assortment to appeal to more affluent households,” Paulson says.
300+
Target stores set to open in the next 10 years
Another battleground: third-party digital sales. “[Third-party merchants] are hypercompetitive because they want the sale, and they’re hypercreative, so that means there’s a lot of experimentation,” Paulson says. Walmart as well as Amazon can parse back-end data for insights and trends, he says, noting Target’s third-party marketplace is comparatively tiny, although it’s now an area of strong internal emphasis.
McClintock might counter with Target’s brand reputation. “Walmart will never get that Kate Spade partnership, right?” he says.
Target reports the Spade partnership produced the company’s biggest digital-launch day for a limited-time collection. But another unnamed source, who worked at Target during its peak designer-collaboration years, says the luster has dimmed: “Target was the place designers went to get famous. But it’s become commodity-based, uninspired.” Target will bring in a brand and then try to replicate the product under a house brand, they say. “That never used to happen.”
A key insider says there’s some recognition in middle management that Target needs to take risks again. But that mindset hits a wall in senior management, which is waiting to find out who the next CEO will be.
Meanwhile, Walmart has been catching up to Target on in-store experience via remodels. Mezzenga has seen the retailer taking a page from Target’s merchandising book, emulating a department-store feel. Target has reported its own recent success with renovations, increasing traffic and sales. But it also faces complaints of in-store messiness, understaffing, long lines, and chronic out-of-stocks on staples like milk.
McClintock points to consumer confirmation bias: A company’s low performance can feed negativity. Target agrees. “From the overall purchasability of our total assortment to the in-stock position on key items, we’ve seen improvement year-over-year, building on the increases we’ve delivered for well over a year now,” Fiddelke said in Target’s Q1 earnings call.
Uncertain Outlook
McClintock says Target’s leadership suffered from insularity under Steinhafel—it’s how the Canada debacle happened. Similarly, a former executive says Target’s board is composed of Cornell loyalists who don’t offer enough pushback.
A few corporate employees note other cultural issues. Target’s DEI message angered some headquarters staff and confused veterans. Then there are the layoffs, the return-to-office initiatives, the seemingly slow technology systems. (A Target spokesperson notes the company’s “acceleration” office aims to improve deployment of tech and data while streamlining operations.)
The company, meanwhile, is growing its footprint. Target announced in its Q1 earnings call it is pursuing long-term growth through “an outstanding pipeline of new stores, ongoing remodels of existing locations, and robust investments in technology and our supply chain.” Part of Target’s strategy, after a decade building small-format stores, is to open more than 300 stores over the next decade, most of them large-format.
It has been lowering prices, too. The retailer this summer launched 10,000 items starting at $1, with thousands under $20.
Some find the doomsaying overwrought. The retailer is profitable. Although its Q1 operating margin was among the lowest it’s been in 10 years, it is not likely to go the way of Kmart. Still, it may also be true that Target is trying to straddle two models, a 1990s store model and a 2020s digital model, without winning at either.
Target declined to make senior management available to TCB but issued a statement from the CEO: “Target is built for long-term, profitable growth with nearly 2,000 stores and a growing $20 billion digital business, which offer a differentiated experience and a mix of owned brands, national brands, and world-class partnerships. We’re proud of the work we do to support our team, guests, and communities across the country. Our assets, capabilities, and talented team make us confident in our ability to accelerate near-term performance and keep innovating and serving guests—today and in the years ahead.”
In a video posted to YouTube late April, Mezzenga visited Walmart’s “store of the future”—a high-tech upgrade to its largest Canada location. “A few years ago, if I had to guess what store I’m walking into, this is Target,” Mezzenga says. Look at the cross-category merchandising, the snazzy mannequins, the vignettes showing off tableware. Add friendly lighting, a hot-food bar, and a QR-enabled pickup system with automated retrieval, and Mezzenga was calling it “the future of retail.”
Target departed Canada unable to stock its stores. Now its rival is nurturing something fresh and exciting in the same soil. That can’t be encouraging news at 1000 Nicollet Mall.
Allison Kaplan contributed reporting to this story.
