Target’s incoming CEO has a heavy lift, as a promised turnaround is not yet close

Target’s new CEO will have a heavy lift ahead of him.

The Minneapolis-based retailer announced Wednesday that Brian Cornell, its CEO for 11 years, is stepping down in February.

Company veteran Michael Fiddelke, Cornell’s second in command as chief operating officer, will take the top job as Target works to regain momentum after several quarters of inconsistent performance. The company has emphasized its focus on value offerings and improving supply chain efficiency to better compete with Walmart, Amazon and other rivals.

Fiddelke, 49, already is leading Target’s efforts to turn around a streak of disappointing financial results, but analysts and industry experts say he has a lot more work to do to persuade customers to return.

“Regaining the market’s credibility will be critical,” wrote Michael Lasser, analyst at UBS, in a research note. “But it’s achievable. Target has the foundation and scale to stage a recovery, making the stock a longer-term opportunity.”

The CEO news came as the retailer reported another quarterly sales decline and a big drop in profits, as shoppers pulled back on discretionary spending amid persistent inflation.

Fiddelke acknowledged on a media call that Target needs to do more to rebuild its reputation for style and design — especially in home goods —while improving the in-store shopping experience and advancing the company’s technology.

A self-proclaimed Iowa farm boy, Fiddelke has spent nearly his entire career at Target, moving through roles in finance, merchandising, operations and human resources before being named chief financial officer in 2019 and moving into his current role last year. In May, he took on more responsibility leading the retailer’s Enterprise Acceleration Office.

He became the front-runner to replace Cornell at that time.

“Michael’s tenure gives him unmatched enterprise insight and a base of strong team trust. But what sets him apart is how he combines those strengths with a ‘fresh eyes’ mindset, challenging the status quo to evolve how the business operates, differentiates and delivers long-term value,” Christine Leahy, lead independent director of Target’s board, said in a statement.

The analyst community has been debating whether an inside candidate was the best choice to pull Target out of its funk. His long tenure gives him deep institutional knowledge, analysts said, but there will be questions about whether he can bring fresh ideas.

Investors have pressed Target to demonstrate greater urgency in addressing operational inefficiencies and adapting to changing customer behaviors. In a June survey of medium and large investors by Mizuho Securities, 96% of respondents said they wanted an outsider to shake up Target’s culture, according to the Wall Street Journal.

Both Saunders and Lasser said they believe Target can find the answers by studying its best years.

“We reside squarely in the camp that Target does not need some radical transformation. Rather, it simply needs to be the best version of itself,” Lasser wrote in a research note ahead of earnings.

In many ways, Cornell set the bar for future leadership, despite missteps in recent years. When he came to Target in 2014, he was tasked with setting a new direction for the company to compete with Amazon and other online retailers.

He is lauded for industry-leading changes that kept the physical stores alive by making them hubs for digital operations.

The changes put Target in a sweet spot when the pandemic hastened shifts in the way people shopped. Since then, however, some inventory glitches and missteps in merchandise choices have contributed to the retailer’s struggles.

At the same time, Walmart and others have caught up to Target’s innovations, putting a premium on Fiddelke’s efforts to right the ship and leverage technology to move the company forward.

Kurt Zellers, CEO of the Minnesota Business Partnership, said Target’s success remains critical to the state’s economy.

“Brian Cornell provided steady leadership through significant challenges,” Zellers said. “As one of Minnesota’s flagship companies, Target’s success under Michael’s leadership remains important to our entire state’s economic future.”

As Fiddelke tries to make Target more appealing to shoppers, he also will need to work on internal messaging.

About 40% of 260,000 Target staffers surveyed in June said they did not have confidence in the company’s future, according to a report in the Wall Street Journal. Half of employees said they did not think the company was making the right changes to compete for shoppers’ dollars.

Some workers have criticized the rollout of the return-to-office initiative. Yet business and civic leaders are eager to see Fiddelke tackle the future of Target’s Minneapolis headquarters. They hope the thousands of corporate employees returning to downtown in the fall will help the post-pandemic recovery.

“Target has been an ally and advocate for downtown,” said Adam Duininck, CEO of the Downtown Council. “My hope is that Target has a strong strategy for how to bounce back from some of their last few quarters, which I know have been tough.”

Mayor Jacob Frey said his office is scheduling a meeting with Fiddelke, who will become the fourth CEO since the company emerged as the dominant brand in what was the Dayton Hudson retail empire.

“I’m excited that Target recognizes the importance of having people work in person — not just for our city and downtown’s success, but also for theirs,” he said.

For those boycotting Target after its diversity decisions, they hope for a meeting and some moves to help restore the relationship.

In the end, Fiddelke’s tenure will likely be defined by whether he can restore Target’s momentum in the face of rising competition, shifting consumer expectations and internal divisions.

“History offers numerous examples of turnarounds under a new leader,” Lasser of UBS wrote.