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Behind the Numbers: an EMARKETER Podcast
Did Target Bet Right on Its New CEO? The To-Do List That Could Make or Break the Brand | Reimagining Retail
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- [00:05]
A
Hey, gang. It's Wednesday, September 3rd. Blake, Ariel and listeners, welcome to Reimagining Retail, an E market podcast that explores how retail collides with every single part of our lives. I'm Marcus, your guest host for today. And joining me, we have two folks living in New York, both senior analysts, practically twins at this point. Ariel Fager. Welcome.
- [00:26]
B
Hi. Thank you for having me.
- [00:27]
A
Of course. And Blake Drosch.
- [00:29]
C
Hello, Marcus. Good to be here.
- [00:31]
A
Hello, sir. Target. So on Wednesday, August 20, Target named its COO Michael Fidelke as its new chief executive starting early next year. After two and a half years of unimpressive sales figures, notes Sarah Nassauer of the journal. In its Q2 earnings, the big box retailer reported that comparable sales, those from stores and digital channels in operation for at least 12 months, were down nearly 2%. And that's better than the 3% decline expected by analysts. But it was the 11th consecutive quarter of flat or falling sales. Blake, I'll start with you. Are you surprised that Target didn't bring in an outsider to right the ship? Because Mr. Fedelki has been at target since 2003 when he started as a summer intern whilst he was at business school in Northwestern. He's worked in merchandising, hr, ops, finance, etc, etc, CFO for a couple of years, CEO last year, now the CEO. So almost every position. Are you surprised they didn't bring someone from outside to fix things?
- [01:40]
C
Yeah, only really from an optics perspective though. Right. I think we all saw how the stock basically how the shareholders reacted to that news.
- [01:49]
A
10% down.
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C
Right, right. Like you'd, you'd think that, you know, in order to create something of a counter narrative to the fact that sales have been so bad, bringing in a fresh new face might be sort of a temporary insurgents re energizing the company a little bit. But the fact that they decided to keep someone from the inside doesn't really necessarily tell me anything about whether or not this is going to be a good tenure for the CEO. Right. I mean, I think there are people that come in from the outside and do great things. There are people who come in from the outside into new companies and do a terrible job. Right. And the same thing goes for internal candidates as well.
- [02:35]
A
Depends on what they're trying to, to achieve, I guess. I'm surprised, Ariel, that maybe folks were looking from someone from the outside based on what it looks like they want it to get done. Because in terms of the investors, there was a survey from Mizuho securities they did of medium and large investors, basically everyone 96% of the over 50 people who responded say they would prefer an external candidate as Target's next CEO because the research firm who did the survey said feels as though investors essentially saying Target's gone off the rails. I didn't think that was entirely fair. If you zoom out and look at their share price this year, Target share price has been struggling for way before this new appointment is down nearly 40% in the past 12 months. It's down over 65% since its 2021 peak. And it seems Arielle like Target needs to stabilize, it needs to get back to what it was doing. Well, it doesn't need some kind of radical new development. So what do you make of the internal employment?
- [03:35]
B
Yeah, I think it's interesting that you said that because I think when things are going bad have a knee jerk reaction to immediately completely change course, you know, and, and do something like you said, radically new and sometimes that works. I, I certainly, you know, I'm not saying it wouldn't but I also thinking about, you know, you, you kind of touched on his resume there. Fidelky has kind of done everything in that company and I do think that that provides a really interesting perspective for someone who's now in charge of turn think when you have a more holistic knowledge of a company. I think you have a little bit of a head start when you're coming into a CEO role versus an outsider who would maybe have to take a little bit of time to get to know the business, get to know how things work.
- [04:25]
A
I think that's a huge pro. But Neil Saunders to what you're saying. Neil Saunders, managing director at Global Data Retail believes Mr. Fedelki, he says talented, slightly fresher perspective than the current CEO Brian Cornell, but is concerned that the internal appointment doesn't remedy the problems of entrenched group think and inward looking mindset that have plagued Target for years. But what I was saying, when the plan is to get back to basics and it seems like that is the plan, we'll talk more about what's top of Mr. Fedelki's to do list later on. But I don't know. To me the question was is that really a con? Is it really bad that he knows how the business works? He remembers a time when things were working because he's been at the company for 20 years. We're talking about them going back to basics and turning the ship around. It's because of their recent struggles. And so we want to look at in a bit more detail at those struggles and figure out what's most to blame for Target's recent struggles? So we're going to play slice of pie. The gang has each created a pie chart of reasons why they think Target has been struggling as of late. Blake, what does your pie chart look like?
- [05:29]
C
So I have, I have three, three items in my pie and the first that takes up about 50% of it are just the macroeconomic headwinds that Target has been dealing with over the several years. So if you look at their, their product mix, home furnishings takes up a big chunk of their business. And they're also very dependent on, on beauty sales and you know, for the former, for furniture and other discretionary items like consumer electronics. Sales have been very slow across the board of the last couple of years and that's hurt Target. And then if you look at the sort of the beauty sector, a lot sales, both beauty and personal care items have moved online to the benefit of Amazon and Walmart. Right. So I think just those sort of larger shifts in the retail market have really hurt Target in terms of how they are competing with other larger retail players, mainly Amazon and Walmart.
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A
If I could jump in quick. Yeah, I think you're spot on there. And TD Cowan analysts describe this to retail dive as bread over blazers. As shoppers pursue needs over wants given discretionary remains under pressure. So food going well, Target doesn't do as much food. Other things, apparel, home furnishings, decor not doing as well.
- [06:55]
C
Right, exactly. And that sort of leads me into the other 40% of it which I think is really, you know, what Walmart has been excelling at over the last couple of years has been a direct detriment to Target's business. Right. Because they're really moving in on that territory of attracting that, you know, middle class, upper middle class shopper who is looking to save on the cost of everyday essentials. Walmart is an attractive place for grocery shopping. They've brought in a lot of higher end consumers and once they are in the Walmart store, they then have access to all of the other product categories that maybe that type of shopper would historically go to a Target for. Right. So I think the fact that Walmart's business is centered around grocery and then has really been building upon new product offerings that appeal to, you know, middle class, upper middle class consumers, has given the nation's largest retailer has put them in a new light for a different class of shoppers that is really, really impactful to, you know, what tart where Target used to thrive.
- [08:14]
A
So 50% economy, 40% competition, 10 going.
- [08:19]
C
To the 10% I think is just the, you know, the blowback they've had in terms of the 2023 Pride stuff. The, the DEI stuff. I think it's, that's the type of thing that has a long term, very difficult to measure but real impact on a, on a brand. Right. And, and some, and consumers affinity for brands. And I think that, you know, the floundering back and you know, getting sort of caught in the cross, in the crossfire a little bit in terms of the sort of the culture wars, it's sometimes unavoidable, sometimes they've stumbled. And I think that, you know, that has had definitely an impact on the way that the brand is being perceived by the American public. Maybe not, you know, quite as solid as, you know, sort of the other stuff that I have in the pie, but I think we'd be remiss if we did it included here as you potentially being a factor on just sort of the brand losing a little bit of its class.
- [09:24]
A
Yeah, I'm surprised it's such a small share because it has been in the headlines so much and has dominated a lot of this year, particularly with the DEI stuff. Just to recap exactly what Blake said. In 2023, there was controversy over Pride month product reduction. The next year it was forced to remove black history educational items that misidentified key individuals. And then this year, 2025, it pulled back on its DEI polic. Charlotte Post was noting that the boycott wiped $12 billion of market value off the company in the following month. And I thought it was interesting because the DEI retreat hit Target especially hard. There's been a lot of folks who have pulled back from their DEI policies. But Ann Di Incensio of the AP was pointing out that although Walmart retreated from its diversity initiatives first, Target has been the focus of more concentrated consumer boycotts. As organizers have said they view Target's actions as a greater betrayal because the company previously had held itself out as a champion of inclusion. CNN's Nathaniel Myerson also noting that Target has a more progressive base of customers than any of those competitors. Arielle, it's interesting because Blake's gone 50% with the economy. You could argue it's hard to control that 40% with competition. Hard to control what the competition is doing, even though you can try to match them. And then 10%. What's happened with regards to the, these DI policy rollbacks? A lot of these missteps seems kind of, I would argue, a self inflicted wounds, DEI pride, et cetera. What does your pie chart look like, because this pie chart, Blake, if I'm correct me, if I'm wrong, doesn't look like it's that much of Target's fault directly.
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C
I think that's an interesting way to look at it. Right. I mean, you could say that basically the fact that they haven't been necessarily successful in building out their grocery business, for example, has not insulated them and has actually made them, you know, increase their exposure to shifts in macroeconomic conditions.
- [11:27]
A
Right.
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C
I think that is not, you know, entirely outside of its own doing.
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A
Right.
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C
So I think that there are ways that the business is set up in terms of its product assortment, the revenue streams that it relies on. That has not helped it in this sort of current environment. Right.
- [11:45]
A
Yeah, it's really quickly, Ara, before you go, it's interesting because I think there's things that Target could have done, but when you really, really zoom out, it look like Target was doing okay for a long time and it massively benefited from the pandemic. If you look at their share price and sales growth, their spikes coincide almost precisely with the pandemic, and so they're doing okay. The share price from 2007 to 2017 for target was basically flat. Pandemic hits, they spike, and then the summer of inflation in 2022, they come right back down to normal. Mr. Myerson pointing out that in 2022, the chain bought too much merchandise, so it had to glut of unsold inventory just as decades high inflation pressured the wallets of many shoppers. Post pandemic shoppers stopped buying treadmills, TVs, home goods, especially as inflation started to bite. And so I wonder how much of this REO is Target doing the wrong things and how much of it is maybe them maybe standing still a bit and letting the market impact them to their detriment. What does your pie chart look like?
- [12:50]
B
Yeah, so, I mean, some of it's very similar to Blake's. I gave 40% to product assortment. It's a very broad thing, and that kind of encompasses a lot of what Blake was talking about in terms of, you know, the. Just the weird. You know, consumer electronics is super sluggish. Furniture is really sluggish. So relying on those categories isn't necessarily going to be a home run. And Marcus, I think it's really interesting that you brought up that inventory glut, because I think they've just never really been able to catch up since then. I think that really set them back, and I think that they've been playing catch up ever since. So I think that they just haven't figured out the right mix of products that are going to attract people to the stores or to shop with them, whether that be grocery, whether that be. I saw they're doing really well with trading cards, which I think is particularly interesting. I'm not exactly sure what the right mix is, but I do think that they kind of have some work to do there.
- [13:49]
A
So pulling people into the stores is certainly a problem. I was looking at place array idata Target store traffic has fallen or basically every week this year. So it's absolutely a problem.
- [13:58]
B
That's, it's a good lean into my next, my next struggle, which I also am giving 40% is their physical locations. I think that the reputation that Target has is like, it's just you, you go into Target for one thing and you come out and you have spent $300. Right? It, it's in its heyday was a place where you go to feel happy and to shop and to, to, to just grab whatever. And I don't think that their stores are providing that experience anymore. You know, you're seeing people report there's no staff, you're seeing a lot of product locked up, long lines. And again, none of this is specifically unique to Target. But for a retailer that had for so long relied on its joy of shopping experience to really carry it, I think think losing that is, is a really big deal. And I think that that's, that's gonna really hurt them, you know, if they're not also doing great product, you know, merchandising and all of that stuff.
- [14:59]
A
Yeah, 20 left 20%.
- [15:01]
B
I'm giving a little bit more than Blake did to just struggling reputationally after the pride rollbacks, the DEI rollbacks. I do think that that's a pretty significant hit and certainly something people will remember. And I do think there's going to be some ripple effects to come.
- [15:18]
A
Y real quick before we move on to the last question here, Zach Stambor. Pointing out ad revenues is one bright spot for the company. Ad revenues way up, year over year reaching over $217 million. Ads represent about 1 1/2% percent of Amazon's advertising business. So too small to offset the broad struggles. But I thought worth mentioning because it was a bright spot on the list of shoppers grievances. We have quite a lot it seems Ariel, to what you were saying. Number one, products aren't as exciting as they were. Two, prices are too high. Stores are often disorganized and understocked. The AP reports that the new CEO Mr. Fidelke said he would step into the role with three urgent priorities. First, reclaiming the company's position as a leader in selecting and displaying merchandise. Second, improving the customer experience by making sure shelves are consistently stocked and stores are clean. And third, investing in tech. Ariel, what should be the top of the new CEOs to do list?
- [16:21]
B
I think you know that, that second thing you mentioned, getting stores to be in stock, making sure they're clean, making sure they're organized, making sure you have plenty of staff. It's so basic, but it is also so important to have as a retailer. You just can't, you can't have a bad experience in the store and expect people to, to continue coming back. So I would say that should be pretty much top, top priority. And then also, you know, I say secondary is, is that merchandising part is bringing in more exciting brands, being more trendy, figuring out what are those niche categories like trading cards that are going to get people in. And I think those are, those are two pretty big orders. But I think that would be my advice.
- [17:07]
A
Yeah, getting your house in order, I think is a, it should be number one priority. And that's making sure that the staff in stores are taking care of those stores, making them look presentable. And then I'm sure they feel more pride in their work, working in a store that is well stocked and clean and organized. But also staff appear across the board, whether they're in store or corporate, appearing frustrated with the retailer as well as customers. As a June company wide survey found, around half of respondents don't think Target is making necessary changes to compete effectively. And 40% of workers didn't have confidence in Target's future. However, Most, I think 80% said that they did want to stay at the company. So they do want them to figure it out, but aren't impressed quite yet. Blake, what's top of the CEOs to do list in your opinion?
- [17:53]
C
I mean, I totally agree. It's just getting the fundamentals right, getting back to basics. And I think that, you know, just to bring this conversation full circle, the benefit of Fidelke, of having an insider step in and take the reins here is this is a guy who knows retail, right? And retail is, it's an infinitely complex business to get very simple things to run correctly. Right. And there aren't that many people out there who have that high level experience at a major retailer. So when you think about the potential of bringing someone in from the outside, I mean, someone who, you know, ran a great brand right, there might be many of those people and that that might, you know, help Target certainly build back a little bit more of their clout and a lot of the, you know, places that they've stumbled for in DEI and things like that. But I think the real core benefit of having an insider take the reins is the chance of really getting those retail fundamentals, you know, back into working order. And I do think that is going to sort of make or break Target's success in the next five years.
- [19:08]
A
An excellent point to end on. That's all we've got time for for today's episode. Thank you so much to my guests.
- [19:13]
C
Thank you to Blake, always a pleasure.
- [19:14]
A
And to Ariel.
- [19:15]
B
Great thank you.
- [19:16]
A
And to the whole editing crew, to everyone for listening in to Reimagining Retail in the Market podcast. Hope to see you on Friday for the behind the Numbers show where I'll be speaking all about how the new ESPN app will change t.