Target is having an identity crisis.
The nationwide retailer is struggling to find its place in the minds of American shoppers.
Once known for what were called cheap chic fashions, Target faces competition from trendy chains like H&M. The discounter hasn’t been able to change the image that its prices on staples such as milk are higher than rivals. And it is battling the fallout from a massive data breach that has hurt its reputation.
It has fired the president of its Canadian operations following some missteps in that country. The ousting came two weeks after the Minneapolis-based discounter announced it was looking for a new CEO after the abrupt departure of Gregg Steinhafel.
All of Target’s challenges come as the broader retail industry is dealing with a slow economic recovery that hasn’t benefited all Americans equally and a move by shoppers away from buying in stores and toward shopping online.
As a result, Target reported its first annual profit decline in 2013 for the first time in five years.
“The nature of the retail landscape has changed,” said Brian Yarbrough, a consumer products analyst at Edward Jones. “I don’t think Target has addressed the changes well.”
Here’s a look at the some issues:
Problem: Cheap chic strategy
Target was the first low-price retailer to team with designers to create affordable lines when it forged a partnership with Michael Graves in the late 1990s. But that niche has been copied by traditional stores and foreign imports such as H&M. Analysts say Target lost focus when trendy offerings were replaced by attention on expanding its food business since the recession.
Target also has muffed some of its designer collaborations. During the holiday 2012 season, its collaboration with Neiman Marcus was criticized for being too expensive.
Target says it’s moving more quickly to test the latest items in stores. “We’re getting back to what we were known for,” said John Mulligan, Target’s interim CEO, in an interview with the Associated Press last week.
Since the economic downturn, Target has battled the perception among tight-fisted shoppers that its prices are too high. That challenge only increased in competition with Walmart.
According to a pricing survey conducted in January by consultant Kantar Retail, Target’s prices on an overall basket of more than 40 nationally branded groceries such as health and beauty items were nearly 4 percent more expensive than Walmart. That lead widened from a year ago when Walmart was only 2 percent cheaper.
Target has been pushing the “Pay less” part of its advertising slogan “Expect More, Pay Less.” Last year, it touted prices on products in holiday TV ads, the first time it had done so in at least a decade.
Target’s data breach late last year exposed big flaws in its security system. Analysts criticize the company for being too slow in creating a seamless experience to jump from physical stores to the web. It just rolled out a program late last year that allows shoppers to order online and then pick up at the store when rivals have been doing that for years.
Target is overhauling security and technology. It’s also been accelerating its $100 million plan to roll out the more secure chip-based credit card technology in all of its nearly 1,800 stores. Beginning in early 2015, Target will be able to accept payments from all Target-brand credit and debit cards — becoming the first major U.S. retailer that will have its own branded cards with this technology.
Target’s expansion into Canada with more than 100 stores last year has been difficult. Shoppers have complained that prices are too high, and the stores have been wrestling with inventory problems. Sales were weak, and it recorded a nearly billion-dollar loss for the latest year.
Mark Schindele, 45, who was senior vice president of merchandising operations, will now run the Canadian operation, effective immediately. Schindele, who was senior vice president of merchandising operations, played a key role in launching an expanded grocery area, among other achievements.
Last week, Target posted first-quarter profit figures for 2014 that missed analysts’ estimates. The company also cut its annual forecast.
Net income fell 16 percent to $418 million, or 66 cents a share, from $498 million, or 77 cents, a year earlier, the company said. Analysts had projected 71 cents on average.
“It’s too early to start playing the recovery theme of Target,” Paul Trussell, an analyst for Deutsche Bank AG, said in a research note before the earnings release. “While the management change is a positive long term, in our view, we still see more pain before gain.”
Sales rose 2.1 percent to about $17 billion last quarter, which ended May 3, in line with estimates. While U.S. same-store sales dropped 0.3 percent, that was better than the 1.1 percent decline analysts had projected.
Target 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.