Target's Folly

Something about Bill Ackman's Target (TGT) talk today on Bloomberg really bugged me after I listened to it. Took a while, but it sunk in.

Watch it again:


So, does Target take its best shoe associate and place them in electronics without any training? Would they take the head of marketing and give them the job of CFO? Of course not.

So, why then, as their business grows and expands into different areas, do they lack those who have extensive knowledge in those areas on their Board? It makes no sense. For Target's board not to have expertise that covers the major areas of its business is just irresponsible at best and negligent at worst.

Selling groceries is not the same as selling shoes. The fact that the food is at the front of most Target stores is a mistake. Food is something folks need to buy. People will make more trips there to buy milk than socks. Put it in the back or in the middle and force people to walk past clothes and through homegoods to get to it (like Wal-Mart (WMT) does. Ackman is right that people there for food will pick up other items, but let's make them go buy them for the impulse buy.

Target execs are making a huge mistake buy just saying "no" to Ackman. As their sales and stock price deteriorate, shareholders are going to take an increasingly close look at whatever he proposes. Last year it was just the TIP REIT idea. Now it is board seats. Eventually even the most management-loyal shareholder is going to look at it and say, "Ummm, why are this guy's ideas so bad? What have you done to turn things around?"

Last time I checked "doing nothing" was not really an action plan.

Note to Target management: Hole dug...

Disclosure ("none" means no position):None

Comments

[jadziasman:]

What Target stores do you shop at? The Target stores in the Midwest do have groceries in the back of the store. When you walk in there are women's clothes and the jewelry department, then health and beauty,and last of all grocery. Only Super Targets have groceries at one of the main entrances - just like Meijer and Walmart Supercenters do.

Are you shorting Target's stock?

Mar 16 08:03 PM

[mjkoski:]

Here, Here...
The WalMart's that I have been in have the groceries at the side just as all the Super Targets I have seen.
Mr. Sullivan, if you have a point to make use a relevant and fact checked examples. Much of Target's problem in connected to this little thing going around call the world recession, maybe you have heard something about this. Frankly have I had some money to invest I would be putting it into Target. Looking around the retail landscape I do not see anyone able to put out the same quality of goods for the price point. I have not heard about any mass closing of stores. At 50% down Target right now is meeting market exceptions, and will have good up side potential.

On Mar 16 08:03 PM jadziasman wrote:

> What Target stores do you shop at? The Target stores in the Midwest
> do have groceries in the back of the store. When you walk in there
> are women's clothes and the jewelry department, then health and beauty,and
> last of all grocery. Only Super Targets have groceries at one of
> the main entrances - just like Meijer and Walmart Supercenters do.
>
>
> Are you shorting Target's stock?

Mar 16 09:31 PM

[donzelion:]

Jury's out on the choice of executives, but in terms of store layout, you can't willy nilly order Target to rearrange their stores to put food in one place, clothes in another, etc. You can't even advise "emulate Wal-Mart" until you know the costs of changing matters, which can be massive - electrics, loading/unloading, local roads and access ways, zoning regulations, handicapped access, and many other items all come into play.

And that's assuming that "store layout" is the problem in most stores. I'm not so confident that assumption is viable, given previous comments.

Point is, the folks building these stores are seldom idiots. The reliability of the business case behind any specific store is a different matter, but on balance, the folks executing and managing tend to have a clue what they're doing and why.

Mar 17 03:26 AM

[User 29021:]

I can't say I agree with everything Target is doing but you are short on information. I haven't been in many Target stores where the groceries are up front. The Walmart here on the West Coast not only have Groceries to the side but there is a separate entrance in most cases. That doesn't sound like a set up that encourages impulse buying. I guess target could cut a hole in their stores to provide a second entrance to be "like Walmart".


On Mar 17 03:26 AM donzelion wrote:

> Jury's out on the choice of executives, but in terms of store layout,
> you can't willy nilly order Target to rearrange their stores to put
> food in one place, clothes in another, etc. You can't even advise
> "emulate Wal-Mart" until you know the costs of changing matters,
> which can be massive - electrics, loading/unloading, local roads
> and access ways, zoning regulations, handicapped access, and many
> other items all come into play.
>
> And that's assuming that "store layout" is the problem in most stores.
> I'm not so confident that assumption is viable, given previous comments.
>
>
> Point is, the folks building these stores are seldom idiots. The
> reliability of the business case behind any specific store is a different
> matter, but on balance, the folks executing and managing tend to
> have a clue what they're doing and why.

Mar 17 10:53 AM

[reddog:]

The company is full of experts in all aspects of retail. The board is about having a wide range of expertise in many industries. And Target believes in developing managers and putting them in challenging positions. The current CIO came from the credit card side of the business, not IT.

Ackman is a short term opportunist and anything he proposes is to get his money out of the company, not improve it for the long term. He messed up by concentrating on one firm in a down market, how stupid is that?

Mar 17 09:10 PM