One sure sign of a poorly managed company is that its leadership keeps making the same mistakes over and over again. That seems to be what is happening at Target Corp (NYSE: TGT), America’s fourth largest retailer.
Four years ago Target undertook one of the boldest and riskiest experiments in recent retail history with a massive expansion into the Canadian market. The discounter moved aggressively, opening 133 stores north of the border in two years, and it failed miserably.
The result was a comedy of errors that led to an epic retail disaster. Customers found empty shelves, high prices and a poor shopping experience and stayed away in droves. The last of Target’s stores in Canada shut down on April 12.
Target’s main mistake in Canada was that it was too ambitious and too aggressive. It tried to open a nationwide retail chain overnight in a different country with a very different economy and culture. Target had no real understanding of Canadian shoppers or the Canadian market, and it did not bother to learn.
Nor did Target do a very good job of risk management. It bet everything it had on the success of the Canadian venture. Instead of opening a few stores in one area, testing its concept in the country and learning Canadian retail in the process, Target went all in.
Target Does It Again
The interesting thing is that Target is doing something very similar even as the Canadian adventure winds down. The retailer has decided to sell its 1,600 in-store pharmacies and 80 health clinics to CVS Health (NYSE: CVS) for $1.9 billion.
Once again, Target is embarking upon a massive project without doing any testing or research. Nobody knows if CVS and Target are a good fit or if Target’s customers will accept CVS pharmacies in their stores. After all, we are talking about two corporate cultures and two very different infrastructures here.
The challenge of transferring all those prescriptions from Target to CVS will be immense. There is also the question of whether Target’s pharmacy employees will be willing to work for CVS and if CVS is capable of managing Target pharmacies in areas outside of its operating areas. There are also potential billing issues galore with millions of customers with different health insurance plans. The number of things that could go wrong is incredible.
Much of that could be avoided if Target would have tested the concept of letting somebody else operate its pharmacies on a small scale first before rolling it out nationwide. A better strategy would have been to have CVS take over a few Target pharmacies in one city and see what happened to see how customers react and what problems develop.
Instead, Target is committed to this strategy, whether it works or not. Much as in Canada, Target has embarked upon a companywide strategy and a radical one without knowing what the consequences are.
Kroger is currently testing its organic ecommerce site Live Naturally in just one region—Denver—to see if it actually works for example. Amazon Prime is testing its one-hour delivery service in just London and New York. The service in London is only available in just a few neighborhoods, ZdNet reported.
The idea behind this is to contain the potential risks posed by such an experiment to as small an area as possible. This is basic risk management, and nobody at Target seems to understand the concept.
Target is a really good company with a strong brand and tremendous customer loyalty. Unfortunately, its current management does not seem to value those attributes. If they did, they would not be risking the company’s reputation on such a questionable experiment.
Is Target the New Sears?
One has to wonder if Target is headed down the road of Sears Holdings (NASDAQ: SHLD), in which management tries to raise cash by selling off assets. What’s truly disturbing is that there’s a real arrogant attitude here, in which Target management seems to view the pharmacy customers as an asset it can sell. I have to wonder how customers will react to that.
Target already lost a lot of customer loyalty with the data breach. If the pharmacy sale gets botched, the results could be worse, particularly if CVS provides a lower level of customer service or major snafus such as CVS not being able to process Target prescriptions result.
Hopefully, history will not repeat itself at Target and create another debacle for the company. One has to wonder how Target can survive if its management cannot learn from its mistakes and avoid repeating them over and over again.