The news: Target named COO Michael Fiddelke as its next CEO. He will succeed Brian Cornell on February 1.

The announcement came alongside Q2 results that beat top- and bottom-line expectations and reaffirmed full-year guidance. While sales and traffic improved from Q1, both remain in the red.

The numbers:

• Earnings per share fell 20.2% YoY to $2.05, but slightly ahead of the $2.03 expected.
• Revenues dipped 0.9% to $25.21 billion, but ahead of the $24.93 billion expected.
• Compatible sales fell 1.9%, well ahead of the 3.02% dip expected.

The challenges: Fiddelke inherits a weakened brand with eroding momentum. Target has endured 11 straight quarters of flat or falling sales as discretionary spending slumps and rivals like Walmart capture share with sharper pricing and broader grocery and apparel assortments.

The company’s multiple stumbles over the past few years have only compounded its challenges.

• After more than a decade of selling Pride-related merchandise during Pride Month, Target in 2023 pulled back Pride items, citing threats to employee safety. The following quarter, Target pointed to the “strong reaction” to its Pride-related assortment as one of the headwinds that hurt its financial results.
• The next year, it was forced to remove a Black history educational item that misidentified key figures.
• More recently, Target rolled back its DEI commitments, drawing criticism and losing ground with younger and more diverse consumers.

The net result has been a retailer with an employee morale problem. Roughly half of respondents to a companywide survey don’t think Target is making necessary changes to compete effectively, and 40% said they lack confidence in the retailer’s future, per The Wall Street Journal.

The advertising opportunity: One bright spot for Target is its burgeoning retail media business.

Advertising revenues jumped 34% YoY in Q2 to $217 million and nearly 30% in the first half of the year. But with ads representing only about 1.4% of Amazon’s advertising haul, the business remains too small to materially offset Target’s broader struggles.

Our take: Promoting an insider like Fiddelke offers stability after Cornell’s long tenure, but Target’s entrenched challenges may demand a more radical reset. To regain relevance, Fiddelke must get back to basics: sharpen merchandising, fix store execution, and reassert Target’s value proposition. That won’t be easy in a discretionary-averse environment where every misstep opens the door wider for competitors to pounce.