Target outlines plan to recapture its ‘Tarzhay’ magic after dismal earnings, admits it has to change to return to growth
Target executives are trying to make changes to return to growth after several underwhelming quarters with declining or near-flat sales year over year.
Alongside its first-quarter earnings report Wednesday, Target announced Christina Hennington will step down as evp and chief strategy and growth officer on May 25 and serve as a strategic adviser until Sept. 7, when she will leave the company, per an SEC filing. Amy Tu, evp and chief legal and compliance officer, will step down Wednesday, according to the filing. The company refers to both as involuntary terminations without cause. The company also said it established an “enterprise acceleration office” led by COO Michael Fiddelke to drive speed and agility across the company by simplifying cross-company processes and using technology and data in new ways.
“We are committed to delivering on our strategic priorities faster. With the enterprise acceleration office, we’re changing how we operate to create the conditions for our team to advance our priorities more quickly and remain adaptable to the changing landscape for our business,” CEO Brian Cornell said in a call with analysts. “This will not only help us meet the demands of today’s environment but enhance our performance for years to come.”
The company is searching for growth after reporting net sales of $23.8 billion for the three months ending May 3, down 2.8% from the same quarter a year ago. However, executives only sparsely addressed how tariffs will affect customer demand or how its pullback of some diversity, equity and inclusion programs lost its trust with some shoppers.
On the call, Fiddelke said he will partner with leaders across the country to “more boldly” harness the power of technology and AI. Last year, Target introduced an AI virtual assistant as an app on team members’ devices to answer questions, coach new and seasonal team members, and support store operations management. On Wednesday, Fiddelke said the company has more technology projects in the works to modernize and streamline inventory management and allocation processes to support long-term growth.
“As a natural extension of our roadmap for growth, our priority will be enabling more efficient and cost-effective ways to work,” Fiddelke said. “This work goes beyond improving efficiency and includes finding ways to use assets more effectively and more intentionally prioritizing the work of our team, allowing them to move faster than we have in the past.”
But, finding new ways to harness technology doesn’t solve all of Target’s problems. The company disclosed that comp sales were down 3.8% year-over-year during the quarter. Part of that was due to a decline in foot traffic, which was down 2.4%. Average ticket was also down 1.4%.
As Cornell noted during the earnings call, Target, and other retailers, have faced “five consecutive months of declining consumer confidence.” But Target also faces a perception problem after its pullback on certain DEI programs. Faith and civil rights leaders organized a 40-day Target boycott that kicked off in the beginning of March, that would have impacted the last few weeks of Target’s first quarter.
Cornell and other executives on the call also outlined other merchandising changes they would be making to drum up further excitement at Target stores and appeal to value-conscious shoppers. The company plans to introduce more than 10,000 new items this summer, and will also be bringing new products to its Bullseye Playground, a section at the front of Target stores consisting of $1, $3 and $5 items. Cornell said specifically that Target would be bringing more beauty items and seasonal food and beverage products to this section.
Sky Canaves, principal retail and e-commerce analyst for eMarketer, said it’s still unclear how exactly Target will make growth happen.
“They need to find a path to growth, or executives who can come up with a new vision for growth,” Canaves said. The company announced plans earlier in the year to drive more than $15 billion in sales growth by 2030 through new investments in its product assortment, shopping experience, fulfillment and loyalty programs — and she noted this isn’t a large goal for a company with more than $100 billion in annual sales. “But clearly it’s a challenge because they’re not growing; they’re contracting, and that is what is very concerning.”
Canaves said greater headwinds around tariffs will have knock-on effects on Target because the company is so dependent on discretionary categories like apparel and home goods where customers may cut spending. Its loss of trust due to its DEI announcement earlier this year won’t help, she added.
The new growth office “shows that they’re very much aware of the need to catch up to the competition and innovate at speed and at scale,” Canaves said, adding that they could be adknowledging “the need to make substantial improvements across the board.”
Bryan Gildenberg, founder and CEO of Confluencer Commerce, agreed with Target executives that the company needs to focus on acceleration. “If you are going to be a retailer that creates value through trend in today’s retail ecosystem, the need to get faster is essential,” Gildenberg said. “Trends move much more quickly than they used to.”
He also noted that the company has to understand its value proposition is in the key category of apparel and in categories where it’s not holding market share. “They’re certainly not buying as many discretionary products, but the biggest problem is they’re not buying them at Target,” Gildenberg said.
On the earnings call, Target’s chief commercial officer, Rick Gomez, said the company held or gained share in 15 of 35 categories last quarter compared to the previous three months and saw especially strong gains in apparel categories such as women’s swimwear, activewear and toddler clothing.
“I think what they’re discovering that it is essential for them to be a value-centric alternative to something more expensive and to figure out exactly what that combination is of value and trend,” Gildenberg said. “That’s a market space that I would think Target can win.”