Target Faces a Different Type of Breach
CSG Retro Rewind
This month we are looking back at our most popular articles and reviewing where the companies are now.
Efforts to rescue the struggling Target locations in Canada proved unfruitful, as the company announced on April 1st, 2015 that all 133 locations would close on April 12th. Additionally, Target’s three Canadian distribution centers and headquarters in Mississauga closed. In January, Target Canada was granted court protection from creditors, with an anticipation of possibly staying open through May. However, with no profit being generated and liquidation sales successful, Target pulled the plug on all locations. Even though its 17,600 employees did not receive severance, the company paid average working hours until mid-May. The once ambitious expansion north of the border came to an abrupt end, and painted yet another cautionary tale for domestic retailers looking to expand internationally.
2015 has no doubt been a rough year for Target. The company reached a multi-million dollar settlement with a number of banks over its 2013 customer database breach this month (December). The banks lost millions in the wake of the cyber-attack after having to reimburse customers for fraudulent charges. This latest settlement comes after a $67 million deal with Visa over the breach, while a federal class action lawsuit in March brought by customers was settled for $10 million. In October, Target initiated a new credit card program where all of customers were reissued new cards with chip and pin technology.
The mass merchandisers’ 2015 holiday season also started out less than ideal, as Target.com essentially crashed due to high traffic on the busiest online shopping day of the year. Many customers were placed into a virtual shopping line on Cyber Monday, causing long wait times and frustrated shoppers. The results? Target ranked outside the top five retailers for e-commerce sales on Cyber Monday, while possibly even more harmful, damaging its brand as an online merchant. Meanwhile, Amazon dominated once again and undoubtedly picked up a few sales from frustrated Target.com shoppers.
It’s nowhere near all doom and gloom for Target, however. Third quarter results were impressive, with comparable sales growth of 1.9% and digital channel sales growth of 20%. Target returned an impressive $1.3 billion to shareholders in the third quarter alone through dividends and share repurchases. After ridding itself of Canadian operations, beefing up credit card security, and growing the online channel, Target is on the right track heading into 2016. Consistency will be key for the retailer to achieve its potential.
Original published date: June 9, 2014
For at least the past couple of decades and then some, Target has been the envy of many competing and non-competing retailers alike. Wall Street has often been an eager suitor during this time. Popular descriptive terms like ‘cheap chic’, Target exclusive designer collections and shopping visits by the rich and famous, including First Lady Michelle Obama, have only helped to grow the Target legend. Much of the glamor and momentum Target has driven in recent years was interrupted late last year by the now infamous and costly data breach which hit the retailer and many of its card carrying customers during the long holiday shopping season, between mid-November and late December. When the breach was first announced, it was justly handled with a great deal of humility.
The company quickly reached out to customers, as well as to affected credit and debit card issuers, with costly remedies which Target was clearly prepared to support and pay for dearly. Customer reaction was one of shock and horror. However, Target’s proactive announcements and self-imposed, costly solutions seemed to have avoided panic. Virtually everyone waited and wondered if heads would roll.
Soon enough, after an atmosphere of calm had been established, heads did indeed roll. During the first week of March of this year, Target announced the resignation of CIO Beth Jacob. In the media, the blame game was fired up. Many wondered if this resignation was the highest level the scandal would reach. Two months later they received their answer, as CEO Gregg Steinhafel ‘resigned’. Interestingly at the time of Steinhafel’s resignation, questions arose as to whether the data breach was the lone issue behind Steinhafel’s departure. Those questions were answered less than two weeks later as it was announced that Tony Fisher had been fired as president of Target Canada. Prior to the firing there had been considerable speculation as to how much Target Canada’s initial and early poor performance might have contributed to CEO Steinhafel’s resignation. It appears that disappointment in Target Canada’s initial financials and a surprising lack of shopper enthusiasm to the new concept played a significant part in Steinhafel’s exit. The lack of enthusiasm on the part of Canadian shoppers for Target Canada could better be called disillusion.
Prior to the launch of Target Canada, many Canadian shoppers were famous for visiting Target stores across the border and raving about the quality of the stores, the service, the cleanliness and perhaps most enthusiastically, the prices. Early feedback from Canadian shoppers, after the debut of Target Canada was one of well-communicated, at times viral disappointment, especially in terms of prices. Some Canadian customers thought it might be more cost-effective to return to their old shopping habits and cross the border to shop the Target stores they appreciated. However many shoppers who had previously been visiting Targets across the border as a pleasurable destination, resented the notion that Targets in the U.S. were offering considerably better shopping propositions than the ‘brand new’ Target Canada concept. Many hopeful Canadians, who had been expecting a fresher, Canadian version of the U.S. Target, strongly announced their disappointment in Target Canada. They felt that Target had breached their trust. Some thought that higher prices in Target Canada were supporting the company’s lower priced efforts in the U.S. Another shopper negative tied to Target’s entry into Canada, which the company should have anticipated, was a result of the nature of Target’s massive Canadian store acquisition. Target decided to acquire the lease agreements to the then-struggling Zellers chain. Target did determine which of the over 200 Zellers locations it would convert to its ‘new’ format. However observers noted that acquiring numerous locations of a struggling chain was essentially a shortcut to establish itself for the first time in a foreign terrain. Selecting real estate locations is a costly, challenging proposition, especially in a new market. This is far more difficult in foreign country, even one which generally, but not universally, shares a language.
Many observers, at the announcement of Target’s initial Canadian acquisition questioned the move. Several wondered why the company didn’t take the task of starting-up Canadian operations from scratch. Apparently, Mr. Steinhafel paid the price for going the easier road with his resignation. Much of Target’s data breach is currently generally blamed on the recently departed. Many think that while it was the result of deliberate, willful criminal acts, at least some of it could have been prevented. It now appears that many shoppers see Target as a co-victim and are not necessarily leaving the Target fold. In terms of the breach of confidence many once hopeful Canadian customers now blame on Target Canada’s muddled introduction, this may not be so easy for Target to overcome. It is likely more difficult to undo a horrible first impression than a major gaffe which was brought on by international criminal behavior. Target is now looking to hire native Canadian executives and board members to guide Target Canada to approach a culture which proud Canadians can embrace. Recently, it has come out that key U.S. based Target executives have indicated that the corporate culture has turned less than enthusiastic, much due to these very distinct breaches. The next Target CEO along with new Target Canada President Mark Schindele and new Exec VP, CIO Bob DeRodes have considerable work ahead to create an atmosphere in which once applauded Target team members can again embrace a proud corporate culture, along with their customers, in two countries.