Glenn Alperin's  Instablog

I'm probably going to say a few things here which would otherwise be considered politically unwise to say here.  I'd feel better about that if I got the whole disclosure thing out of the way first.

I own approxcimately 300 shares of Target stock, held long, vested in my Target 401k account under a Target stock fund.  I worked for Target for over six years.  The separation was not amicable for either of us.  I'll spare the details of what happened.  They are not so important to what I am writing about here anyway.

I learned much about the company, both how it projected itself to the outside world and how its internal functioning left me wondering on more than one occasion.  In the six plus years I worked for Target, I saw the company repeatedly make the same economic mistakes year after year.  Granted, one of those years was particularly rough economically, and while I have not stepped foot in a Target store since I left the company, I imagine that traffic is probably fairly light about now, and those who remain with the company as non-management hourly employees are probably well aware of how much Target does not really care for them right now.  Yeah, "Target the family" is great, but in tough economic times, family doesn't matter as much as survival and executive compensation at the top. 

One year, after a particularly successful holiday season, Target made great strides in its internal publication to thank everybody for their hard work while simultaneously cutting off all credibility by reducing all non-management and non-supervisory hourly employees to less than 20 hours a week.  I really shouldn't have been surprised.  After all, it was an annual ritual.  It is therefore difficult for me to believe that Target cares about its employees, but more importantly for the purpose of this article, it is difficult for me to believe that Target cares about its shareholders.

In retail especially, retention rate of employees is a very important factor.  It costs a lot of money to hire and fire employees.  A lot of time is spent in training, and the quality of employee is rarely ever a factor in who stays around after the holiday season is over.  I saw good people let go and poor performers kept around on a regular basis.  I saw my own pay rate "capped" despite my ability to run circles around most of the people I worked with in regard to speed, friendliness, and an overwhelming and genuine appreciation for the guests who came in the stores I worked in. 

But okay, lets forget about employees for a second.  After all, they are a mere expense on the annual and quarterly reports anyway.  Who really cares about them?  So on to more mundane topics, like merchandising.

As I said, I worked for Target for over six years, and repeatedly saw them make the same merchandising mistakes every year.  During my career at Target, I worked at three different stores in Massachusetts.  The weather can be rather fickle up here in the New England area, especially in the months of February through April.  I never understood why Target insisted on clearancing out winter merchandise toward the end of January through February when every year, there would be a snow storm in March when we would never have the supply to meet the demand of the guests who came in the store, and our profit margins were reduced on all of the clearanced merchandise when it would have been easy to sell it at full price in the middle of a winter snow storm.

As both an investor and a former employee, it has been with great interest that I've watched Pershing Square's Bill Ackman over the past several months try to put Target on a different corporate path.  As a former employee of Target, I understood the need and desire of Target to market its Target Red Card program as an integral part of its business strategy.  It drove sales to the stores on a regular basis, leveraged Target's competitive skills as an ILC even while Walmart somehow failed to make a compelling case to compete with Target in this area (one that I personally think it should have won), and gave Target something chic to market to it's current and potential clientele.  As the recent economic troubles have shown, and as Ackman had been trying to say for months prior to Target finally agreeing to sell a portion of its credit card portfolio a few months ago, credit markets can be just as risky, if not more so, than they are profitable. 

On this particular issue, I consider myself quite a flip-flopper, but now, I'm firmly committed.  Because of my issues with failure in proper merchandising mentioned above, I must give my hand to Ackman here.  Back then, you never would have heard me say this, but Ackman was right all along.  Target set itself up for significant credit risk, and has suffered some substantial losses as a result of the economic downturn.  Now, Target wants me to believe, as a shareholder, that it has the proper expertise available to navigate this current economic situation, and that I should also believe that it has selected a qualified collection of people to be up for election on its board of directors. 

To be fair, I do not agree with all of Ackman's claims pertaining to the directors selected by Target.  In particular, Target does have a mini-restaurant section in most of it's stores which they refer to as "Food Avenue", and so a director familiar with the food service industry would be a worthwhile contribution for Target to have on its board of directors.  However, I find Target's claims even less compelling in trying to defend itself against Ackman.  As I mentioned above, I have witnessed first hand Target's managerial missteps, and I'm all in favor of bringing in some fresh ideas.  Right now, I think Target desperately needs those, because as a brand, there is so much they could do better, and so much they could have done better in the past.

When management continues to reward itself for doing a less than stellar job with salaries and stock options which rob both employees, who contribute hard work, and stock holders who provide some liquidity to the company, its time for a change, and I sincerely hope that Ackman is the change that Target needs right now.  If he isn't, it is time for Target to seek outside of itself for ideas which will further it's corporate mission statements, and maybe for a change, actually follow them, both internally to make "the best company ever" and externally to the world, because, as Target says in its internal corporate literature, "without the guest, we are nothing."  Right now, with the economy as it is, guests are hurting, good hourly employees are probably being rewarded with severe hourly cutbacks, and stockholders are hurting right behind them.

It is time for a serious change.  Vote for Ackman's nominated slate of directors.

Disclosure:  Long:  TGT    No position:  Pershing Square Capital Management