Target says it has to get smaller to get bigger
In the world of retail, getting smaller doesn't usually translate to bigger sales.
Yet Target (TGT) chief executive Brian Cornell is banking on a radical strategy that will cut thousands of jobs while also retooling its merchandise and technology, all with the goal of pulling shoppers back through its doors. Target is still struggling with a hit to its brand after thieves stole data on millions of customers, with some of those shoppers complaining of inadequate help from the retailer.
That debacle brought about an executive overhaul to Target, with Cornell hired last year from PepsiCo to replace outgoing CEO Gregg Steinhafel. Now, Cornell has his plan in place to revamp Target, and it's not going to come without some bloodletting: The company on Tuesday said it would eliminate "several thousand positions" over the next two years. Most of those cuts will be made at its corporate headquarters, where about 13,000 people work.
"We are in the very early stages of a real shift in our business," Cornell said at an investor presentation on Tuesday. Those changes will allow Target to be "more agile, more efficient," he said.
The company stressed that the job cuts will be focused at its Minneapolis headquarters. "We have not announced any comprehensive changes to any store-level positions," spokeswoman Molly Snyder wrote in an email to CBS MoneyWatch.
While the cuts will come over the next two years, Target hasn't shared the timing of the corporate restructuring. It expects to reveal more details in the next few weeks and months, Snyder added. The company expects the job reductions will save $2 billion annually.
One risk is that by reducing staff, customer service could lag, creating the type of death spiral that's hurt other struggling retailers such as Sears and the now-defunct RadioShack. Reducing services and knowledgeable staff can lead to disaffected shoppers, who then take their business elsewhere.
But by Cornell's reckoning, the plan will help the retailer to create new initiatives by freeing up money to invest in technology and its supply chain. Target also plans to get rid of a silo-like management structure that created redundancies in planning and relied on decisions by consensus, the Minneapolis Star-Tribune reported.
For consumers, the biggest changes will likely be seen through the expansion of new technology and services, such as expanded ship-to-store capabilities. The company will also invest in smaller stores, such as TargetExpress locations, with plans to open eight new locations this year.
Merchandise will become more tailored to regions, with stores offering products that are relevant to those areas, while Target also plans to overhaul its grocery experience by selling more organic and natural products. All those moves go toward reaching out to the group Cornell describes as Target's core audience: "demanding enthusiasts."
"Today's guests are increasingly families," he said at the investor conference. "A growing percentage are Hispanic. They are digitally connected. They love to shop and they demand great value."
Cornell conceded that the retailer lost its way during the recession. "We lost our brand balance," he said. Referring to the company's slogan, he said, "We decoupled 'expect more' and 'pay less." We will not lose our balance again."
So far, investors seem to like what they've seen from Cornell, with the stock rising 28 percent in the past six months. The real test will come over the next several months, as shoppers vote with the wallets on whether Target is back on track.