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Marcus Johnson (00:05):

Hey gang, it's Wednesday, September 3rd, Blake, Arielle, and listeners, welcome to Reimagining Retail, an EMARKETER podcast that explores how retail collides with every single part of our lives. I'm Marcus, your guest host for today. And joining me, we have two folks living in New York, both senior analysts, practically twins at this point. Arielle Feger, welcome.

Arielle Feger (00:25):

Hi. Thank you for having me.

Marcus Johnson (00:27):

Of course. And Blake Droesch.

Blake Droesch (00:29):

Hello, Marcus. Good to be here.

Marcus Johnson (00:30):

Hello, sir. Today's topic, Target. All right, so on Wednesday, August 20th, Target named its COO, Michael Fiddelke, as its new chief executive starting early next year after two and a half years of unimpressive sales figures, notes Sarah Nassauer of the journal in its Q2 earnings, the big box retailer reported that comparable sales, those from stores and digital channels in operation for at least 12 months were down nearly 2%.

(01:05):

And it's better than the 3% decline expected by analysts, but it was the 11th consecutive quarter of flat or falling sales. Blake, I'll start with you. Are you surprised that Target didn't bring in an outsider to write the ship? Because Mr. Fiddelke has been in target since 2003 when he started as a summer intern whilst he was at business school in Northwestern. He's worked in merchandising, HR, ops, finance, et cetera, et cetera.

(01:31):

CFO for a couple of years, COO last year. Now the CEO, so almost every position, are you surprised they didn't bring someone from outside to fix things?

Blake Droesch (01:39):

Yeah, only really from an optics perspective though, right?

Marcus Johnson (01:43):

Mm.

Blake Droesch (01:43):

I think we all saw how the stock, basically, how the shareholders reacted to that news.

Marcus Johnson (01:49):

Yeah, 10% down, right?

Blake Droesch (01:50):

Right. You'd think that in order to create something of a counter-narrative to the fact that sales have been so bad, bringing in a fresh new face might be sort of a temporary insurgence into re-energizing the company a little bit. But the fact that they decided to keep someone from the inside doesn't really necessarily tell me anything about whether or not this is going to be a good tenure for the CEO. Right?

Marcus Johnson (02:20):

Hm.

Blake Droesch (02:20):

I mean, I think there are people that come in from the outside and do great things. There are people who come in from the outside into new companies and do a terrible job. Right? And the same thing goes for internal candidates as well.

Marcus Johnson (02:34):

Yeah, it depends on what they're trying to achieve, I guess. I'm surprised, Arielle, that maybe folks were looking from someone from the outside, based on what it looks like they wanted to get done. Because in terms of the investors, there was a survey from Mizuho Securities they did of medium and large investors.

(02:51):

Basically everyone, 96% of the over-50 people who responded, said they would prefer an external candidate as Target's next CEO, because the research firm did the survey said feels as though investors essentially saying Target's going off the rails. I didn't think that was entirely fair. If you zoom out and look at their share price this year, Target share price has been struggling for way before this new appointment.

(03:15):

It's down nearly 40% in the past 12 months is down over 65% since its 2021 peak. And it seems Arielle, Target needs to stabilize, it needs to get back to what it was doing well, it doesn't need some kind of radical new development. So what do you make of the internal appointment?

Arielle Feger (03:35):

You know, I think it's interesting that you said that because I think people when things are going bad have a knee-jerk reaction to immediately completely change course and do something like you said, radically new, and sometimes that works. I certainly am not saying it wouldn't, but I also, thinking about, you touched on his resume there.

(03:57):

Fiddelke has kind of done everything in that company, and I do think that that provides a really interesting perspective for someone who's now in charge of turning things around. I think when you have a more wholistic knowledge of a company, I think you have a little bit of a head start when you're coming into a CEO role versus an outsider who would maybe have to take a little bit of time to get to know the business, get to know how things work.

Marcus Johnson (04:24):

I think that's a huge pro. But Neil Saunders, to what you're saying, Neil Saunders, Managing Director at GlobalData retail, believes Mr. Fiddelke, he is talented, slightly fresher perspective than the current CEO, Brian Cornell, but is concerned that the internal appointment doesn't remedy the problems of entrenched groupthink and the inward-looking mindset that have plagued Target for years.

(04:45):

But to what I was saying, when the plan is to get back to basics and it seems like that is the plan, we'll talk more about what's top of Mr. Fiddelke's to-do list later on, but I don't know, that to me is, the question was, is that really a con, is it really bad that he knows how the business works? He remembers a time when things were working, because he's been at the company for 20 years.

(05:04):

We're talking about them going back to basics and turning the ship around. It's because of their recent struggles. And so we want to look in a bit more detail at those struggles and figure out what's most to blame for Target's recent struggles. So we're going to play slice of pie. The gang has each created a pie chart of reasons why they think Target's been struggling as of late.

(05:26):

Blake, what does your pie chart look like?

Blake Droesch (05:28):

So, I have three items in my pie, and the first that takes up about 50% of it are just the macroeconomic headwinds that Target has been dealing with over the last several years. So if you look at their product mix, home furnishings takes up a big chunk of their business and they're also very dependent on beauty sales and for the former for furniture and other discretionary items like consumer electronics, sales have been very slow across the board over the last couple of years, and that's hurt Target.

(06:10):

And then if you look at the beauty sector, a lot of those sales, both beauty and personal care items, have moved online to the benefit of Amazon and Walmart. Right? So I think just those sort of larger shifts in the retail market have really hurt Target in terms of how they are competing with other larger retail players,, mainly Amazon and Walmart.

Marcus Johnson (06:36):

If I could jump in quick. Yeah, I think you're spot on there, and TD Cowen analyst described this to retail dive as bread over blazes, as shoppers pursue needs over wants given discretionary remains under pressure. So food going well, Target doesn't do as much food. Other things, apparel, home furnishings to call not doing as well.

Blake Droesch (06:55):

Right, exactly. And that sort of leads me into the other 40% of it, which I think is really what Walmart has been excelling at over the last couple of years has been a direct detriment to Target's business, right? Because they're really moving in on that territory of attracting that middle class, upper middle class shopper who is looking to save on the cost of everyday essentials, Walmart is an attractive place for grocery shopping.

(07:32):

They've brought in a lot of higher end consumers and once they are in the Walmart store, they then have access to all of the other product categories that maybe that type of shopper would historically go to a Target for, right? So I think the fact that Walmart's business is centered around grocery and then has really been building upon new product offerings that appeal to middle class, upper middle class consumers, has given the nation's largest retailer, has put them in a new light for a different class of shoppers that is really, really impactful to where Target used to thrive.

Marcus Johnson (08:14):

So 50% economy, 40% competition, 10 going to?

Blake Droesch (08:19):

And then 10% I think is just the blowback they've had in terms of the 2023 Pride stuff, the DEI stuff. I think that's the type of thing that has a long-term, very difficult to measure, but real impact on a brand, right? And consumer's affinity for brands.

(08:43):

And I think that the floundering back and forth and getting caught in the crossfire a little bit in terms of the culture wars, it's sometimes unavoidable, sometimes they've stumbled, and I think that that has had definitely an impact on the way that the brand is being perceived by the American public.

(09:09):

Maybe not quite as solid as the other stuff that I have in the pie, but I think we'd be remiss if we didn't include it here as potentially being a factor on just the brand losing a little bit of its clout.

Marcus Johnson (09:24):

Yeah, I'm surprised it's such a small share because it has been in the headlines so much and has dominated a lot of this year, particularly with the DEI stuff. So, just to recap exactly what Blake said, in 2023, there was controversy over Pride Month product reduction. The next year it was forced to remove Black History educational items that misidentified key individuals, and then this year, 2025, it pulled back on its DEI policies.

(09:51):

The Charlotte Post was noting that the boycott wiped $12 billion of market value off the company in the following month. And I thought it was interesting because the DEI retreat hit Target especially hard. There's been a lot of folks who have pulled back from their DEI policies, but Anne D'Innocenzio of the AP was pointing out that although Walmart retreated from its diversity initiatives first, target has been the focus of more concentrated consumer boycotts.

(10:18):

As organizers have said, they viewed Target's actions as a greater betrayal because the company previously had held itself out as a champion of inclusion. CNN's Nathaniel Meyersohn also noting that Target has a more progressive base of customers than any of those competitors.

(10:33):

Ariel, it's interesting because Blake's gone 50% with the economy. You could argue it's hard to control that. 40% with competition, hard to control what the competition's doing even though you can try to match them. And then 10% what's happened with regards to these DEI policy rollbacks, a lot of these missteps it seems, I would argue a self-inflicted wounds, DEI, Pride, et cetera.

(10:58):

What does your pie chart look like? Because this pie chart, Blake, correct me if I'm wrong, doesn't look like it's that much of Target's fault directly.

Blake Droesch (11:06):

I think that's an interesting way to look at it, right? I mean you could say that basically the fact that they haven't been necessarily successful in building out their grocery business for example, has not insulated them and has actually made them increase their exposure to shifts in macroeconomic conditions, right?

Marcus Johnson (11:27):

Mm-hmm.

Blake Droesch (11:27):

I think that is not entirely outside of its own doing, right?

Marcus Johnson (11:33):

Fair.

Blake Droesch (11:33):

So, I think that there are ways that the business is set up in terms of its product assortment, the revenue streams that it relies on that has not helped it in this sort of current environment. Right?

Marcus Johnson (11:44):

Yeah, it's, really quickly, all right, before you go, it's interesting. I think there's things that Target could have done, but when you really, really zoom out, it looks like Target was doing okay for a long time, and it massively benefited from the pandemic.

(11:58):

If you look at their share price and sales growth, their spikes coincide almost precisely with the pandemic. And so they're doing okay. The share price from 2007 to 2017 for Target was basically flat, pandemic hits, they spike and then the summer of inflation in 2022, they come right back down to normal.

(12:18):

Mr. Meyersohn of CNN pointing out that in 2022 the chain bought too much merchandise, so it had to deal with a glut of unsold inventory just as decades-high inflation pressured the wallets of many shoppers. Post-pandemic, shoppers stopped buying treadmills, TVs, home goods, especially as inflation started to bite.

(12:35):

And so, I wonder how much of this, Arielle, is Target doing the wrong things and how much of it is maybe standing still a bit and letting the market impact them to their detriment? What does your pie chart look like?

Arielle Feger (12:49):

Yeah, so I mean some of it's very similar to Blake's. I gave a 40% to product assortment. It's a very broad thing and that kind of encompasses a lot of what Blake was talking about in terms of just the weird consumer electronics is super sluggish, furniture is really sluggish, so relying on those categories isn't necessarily going to be a home run.

(13:14):

In markets, so I think it's really interesting that you brought up that inventory glut, because I think that they've just never really been able to catch up since then. I think that really set them back and I think that they've been playing catch up ever since. So I think that they just haven't figured out the right mix of products that are going to attract people to the stores or to shop with them, whether that be grocery, whether that be, I saw they're doing really well with trading cards, which I think is particularly interesting.

(13:44):

I'm not exactly sure what the right mix is, but I do think that they kind of have some work to do there. So-

Marcus Johnson (13:49):

Pulling people into the stores is certainly a problem. I was looking at place [inaudible 00:13:53] data, Target store traffic has fallen, or basically every week this year. So it's absolutely a problem.

Arielle Feger (13:58):

Yeah, it's a good lead into my next struggle, which I also, I'm giving 40% is their physical locations. I think that the reputation that Target has is it's just you go into Target for one thing and you come out and you have spent $300, right? It's, in its heyday was a place where you go to feel happy and to shop and to just grab whatever. And I don't think that their stores are providing that experience anymore.

(14:27):

You're seeing people report there's no staff. You're seeing a lot of product locked up, long lines. And again, none of this is specifically unique to Target, but for a retailer that had for so long relied on its joy of shopping experience to really carry it, I think losing that is a really big deal, and I think that that's going to really hurt them if they're not also doing great product merchandising and all of that stuff.

Marcus Johnson (14:58):

Yeah. Yeah, 20% left?

Arielle Feger (15:00):

20%. I'm giving a little bit more than Blake did to just struggling reputationally after the Pride rollbacks, the DEI rollbacks. I do think that that's a pretty significant hit, and certainly something people will remember and I do think there's going to be some ripple effects to come.

Marcus Johnson (15:17):

Yeah. Real quick before we move on to our last question here, Zach Stamble pointing out ad revenues, there's one bright spot for the company, ad revenues way up year over year reaching over $217 million. Ads represent about one-and-a-half percent of Amazon's advertising business. So, too small to offset the broad struggles, but I thought worth mentioning because it was a bright spot.

(15:40):

On the list of shoppers' grievances, we have quite a lot it seems. Arielle, as to what you were saying, number one, products aren't as exciting as they were. Two, prices are too high. Three, its stores are often disorganized and understocked. The AP reports that the new CEO, Mr. Fiddelke, said he would step into the role with three urgent priorities.

(16:02):

First, reclaiming the company's position as a leader in selecting and displaying merchandise. Second, improving the customer experience by making sure shelves are consistently stocked and stores are clean. And third, investing in tech. Arielle, what should be top of the new CEO's to-do list?

Arielle Feger (16:20):

I think that that second thing you mentioned, getting stores to be in stock, making sure they're clean, making sure they're organized, making sure you have plenty of staff. It's so basic, but it is also so important to have as a retailer, you can't have a bad experience in the store and expect people to continue coming back. So, I would say that should be pretty much top priority.

(16:46):

And then also I say secondary is that merchandising part is bringing in more exciting brands, being more trendy, figuring out what are those niche categories like trading cards that are going to get people in. And I think those are two pretty big orders, but I think that would be my advice.

Marcus Johnson (17:07):

Yeah. Yeah, getting your house in order I think it should be number one priority. And that's making sure that the staff in stores are taking care of those stores, making them look presentable. And then I'm sure they feel more pride in their work, working in a store that is well stocked and clean and organized.

(17:24):

But also, staff appear across the board, whether they're in store or corporate appearing frustrated with the retailer as well as customers, as a June company-wide survey found around half of respondents don't think Target is making necessary changes to compete effectively, and 40% of workers didn't have confidence in Target's future.

(17:43):

However, most, I think 80%, said that they did want to stay at the company. So they do want them to figure it out, but aren't impressed quite yet. Blake, what's top of the CEOs to-do list in your opinion?

Blake Droesch (17:53):

I mean, I totally agree. It's just getting the fundamentals right, getting back to basics. And I think that just to bring this conversation full circle, the benefit of Fiddelke, of having an insider step in and take the reins here is this is a guy who knows retail, right? And retail is, it's an infinitely complex business to get very simple things to run correctly, right?

(18:19):

And there aren't that many people out there who have that high-level experience at a major retailer. So when you think about the potential of bringing someone in from the outside, I mean, someone who ran a great brand, right? There might be many of those people and that might help target certainly build back a little bit more of their clout and a lot of the places that they've stumbled for in DEI and things like that.

(18:49):

But I think the real core benefit of having an insider take the reins is the chance of really getting those retail fundamentals back into working order. And I do think that is going to sort of make or break Target's success in the next five years.

Marcus Johnson (19:08):

Yeah, an excellent point to end on. That's all we've got time for today's episode. Thank you so much to my guests. Thank you to Blake.

Blake Droesch (19:13):

Always a pleasure.

Marcus Johnson (19:14):

And to Arielle?

Arielle Feger (19:15):

Great, thank you.

Marcus Johnson (19:16):

And to the whole editing crew, to everyone for listening in to Reimagine Retail Lean Market podcast. Hope to see you on Friday for the Behind the Numbers show where I'll be speaking all about how the new ESPN app will change TV.