CEO Gregg Steinhafel is out at Target, five months after a massive data breach that punctuated a long list of simmering problems for the discount retailer.
In a statement Monday, the company’s board said that “after extensive discussions,” its members and Steinhafel “have decided that now is the right time for new leadership.” In addition to the breach fallout, the Minneapolis-based retailer has been racing to turn around a weak rollout in Canada, trying to catch up with rivals digitally and working to rebuild excitement among U.S. shoppers.
Target has hired a search firm to help find the next CEO, who will become only the fourth person in the job since 1984 and potentially the first outsider. Whoever it is will face a formidable fix-it list, even without the enormous bills coming due for the data breach.
“How do you reinvent Target in a highly competitive U.S. market in which you have retail competitors that provide maybe the same goods at lower prices, and you have online competitors who have a wider assortment and the convenience of online shopping?” said Mark Miller, equity research analyst at William Blair & Co.
Miller and other industry analysts said they suspect Target’s board finally decided to part with Steinhafel after being updated on the company’s first-quarter results. The retailer’s first quarter ended Saturday, and results are due out May 21.
A Target spokeswoman confirmed that the board, which has been meeting monthly since the data breach, “met in the last few days.”
Neither Steinhafel nor the company’s directors would comment for this story.
Target CFO John Mulligan will serve as interim president and chief executive officer, while board member Roxanne Austin will act as interim nonexecutive chair of the board until replacements are found, the board said. Steinhafel will stay on to advise the company during the transition, it said.
The board also said it has hired Korn/Ferry International, a leading executive search firm based in Los Angeles, to advise the board on the hunt for a new CEO. That process is expected to take several months. Korn/Ferry declined to comment.
Spokeswoman Dustee Tucker Jenkins said the company will look both internally and externally. “We’re not even limiting it specifically to just the retail industry,” she said.
As late as April 12, Target was publicly supporting Steinhafel, Miller said, when the company set up a meeting for stock analysts in New York with Steinhafel, Mulligan and Casey Carl, Target’s head of multichannel.
In response to questions from the Star Tribune, the company said in a statement March 30 that Steinhafel had its full confidence and that he “is the right leader for Target to navigate through the current challenges we are facing.”
Steinhafel, 59, of Orono, is a 35-year Target veteran steeped in merchandising. He started at Target as an assistant buyer back when it had just 80 stores and was part of the former Dayton’s department store company. Eventually, he quarterbacked the company’s dive into signature labels in apparel.
He succeeded Robert Ulrich as CEO in 2008 and became chairman in 2009.
“Gregg is an excellent merchant who understood the concept of exclusivity, which was instrumental in building the Target brand,” said Twin Cities business consultant Stan Pohmer. “He helped build Target from mass-market retailer into something really unique.”
But Steinhafel could also be a polarizing figure. Some former Target employees described him as too cautious and unwilling to take risks.
In a letter posted on the company’s website, Steinhafel wrote that it was an “honor and privilege to lead this great brand.”
He added: “Target has also faced its share of difficulties, from the worst recession in our lifetime, to a high profile proxy contest and, most recently, a slow start in Canada and the 2013 data breach. Despite these challenges, our team has committed to doing right by our guests and driving our business forward.”
Investors pushed Target shares down about 3.5 percent Monday to close at $59.87. That’s well off the 52-week high of $73.50.
In interviews, analysts said that the resignation was not a total surprise but that it came faster than anticipated.
“I think the fact that they will be doing an outside search creates some uncertainty,” said Glenn Johnson, a portfolio manager with Mairs & Power in St. Paul, which owns Target stock. “That bit of uncertainty has investors a little bit nervous.”
“We were hopeful that current management would be able to get things moving in the right direction,” Johnson said.
Joshua Hill, a senior portfolio manager for Minneapolis-based Windsor Financial Group, a longtime Target stockholder, called the data breach the “last straw in a string of missteps by the company.”
“Over the course of the next few years, we expect the company will continue to make steps in earning back its customers’ trust and financial results should improve,” Hill said.
While much has been written about Target’s losses in Canada, Matt Nemer, senior analyst at Wells Fargo Security, said he thinks the lack of momentum in the United States is a bigger issue. The company needs to maintain a laser focus on its digital operations and re-energize its fading collaborations with designers, he said.
Nemer noted that Target recently started a service to order online and pick it up in the store, which other retailers have been using for years. The service drives half of Wal-Mart’s online sales, he said.
At the same time, he said, Target needs to get back to some of the merchandising basics that drove its success. Target doesn’t need a revolution, he said, but some re-engineering: “I don’t think this is a J.C. Penney or Sears situation where the brand is just broken.”
“Where are all the great design collaborations?” Nemer said. “It feels like it’s a frequency problem to me. Why aren’t we seeing one every two months and bigger names?”
Burt Flickinger, managing director at Strategic Resource Group, agreed that Target’s challenges go well beyond the data breach and execution problems in Canada. He dinged the company for being too insular. The board has no retailers, he said, and the company’s management pipeline has been inbred, as well.
“They’ve been operating with the loose air of superiority for far too long,” Flickinger said, adding that between the breach and Canada: “Target’s been giving Wal-Mart the biggest gift it can give.”
Star Tribune staff writers Evan Ramstad and Paul Walsh contributed to this report.