Target (TGT) CEO Brian Cornell recently signed a new deal that will keep him at the helm of the leading retailer for three more years. That new contract allows him to make the long-range moves the chain needs even if that means making some decisions that were painful in the short term.
Recently, that included a decision to sell off excess inventory at a discount in order to make room for the items the chain needs for the holiday season. That decision was made back in June and the need to clear out warehouses came after demand patterns, "radically changed," according to Cornell.
"While this decision had a meaningful, short-term impact on our financial results, we strongly believe it was the best path forward," he said during the chain's second-quarter earnings call. "...We could have held on to excess inventory and attempted to deal with it slowly, over multiple quarters or even years. Well, that might have reduced the near-term financial impact, it would have held back our business over time."
To put it bluntly, while Target could have smoothed out the expense and maximized revenue over a longer period, Cornell thought that was the wrong move.
"It would have degraded the guest experience," he said.
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Target's CEO Is Not Worried About a Recession
Recessions are relative. A tough economy does not mean an end to all spending and a value-conscious retailer like Target seems well-positioned to capitalize on tougher times. Realistically, holiday sales generally climb no matter what the country's economic conditions are. That wasn't true in 2008 -- during the height of the housing crash -- but even that was only a 4.7% dip, according to data from the National Retail Federation (NRF).
And, while there are some economic challenges in the U.S. right now, there's nothing that actually suggests people will spend less this holiday season. That's something Cornell addressed in recent comments made to Yahoo's Brian Sozzi.
“Everyone’s talking about recession. And sitting here today, there’s different points of view. You talk to bank CEOs. Some gloom and doom. Others are saying really healthy consumer [spending]. What we’ve seen all year long is really healthy traffic and a guest that’s shopping in our stores and shopping online so that strength in traffic has been driving our business. We’ve delivered solid comps throughout this year. We expect that to continue over the balance of the holiday season,” Cornell said.
Target May Ignore a Customer Pain Point
Just because Target put customers first when it comes to inventory does not mean the chain will always make that choice. If you regularly visit Target you have likely realized that the chain has generally cut down on cashiers in favor or pushing people to self-checkout.
Cornell did not directly address the self-checkout issue, but he did note that the retailer expected to add 100,000 seasonal workers. That's down from 130,000 last year.
The CEO did say he expected to meet the chain's hiring goals. He also made it clear how Target sees itself in the marketplace.
"Core to our proposition is making sure we deliver great value and affordability every time you shop. So we measure pricing really carefully versus our competition. And we want to make sure we're priced right daily, we deliver great value and affordability," he told Sozzi.
Cornell did, however, ignore a direct question about closed cashier lanes and the reliance on self-checkout.
