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Key Takeaways
- Michael Fiddelke is slated to become Target’s CEO in February, disappointing investors who were looking for an external candidate to refresh the retailer’s approach.
- Fiddelke described his 20 years of experience at the company as a benefit.
- Investors will look to him to catch up to competitors in the e-commerce space, address tariffs, and stock merchandise that appeals to more of its core customers.
Target veteran Michael Fiddelke won’t become CEO for months, but the stock market is already disappointed with his appointment.
Investors hoped Target (TGT) would replace CEO Brian Cornell with an external hire, with most of 50 investors polled by Mizhuho this summer stating that as their preference, analysts said. “The market was looking for fresh eyes and a change agent,” JPMorgan said after Target announced the leadership change Wednesday morning.
Besides facing questions about whether he will offer a novel approach, Fiddelke will be expected to address several issues. Target has a less robust digital operation than competitors, more significant tariff risks, and a customer base that thinks merchandise lacks the company’s distinct “Tar-zhay” flair, the company and analysts said.
Target shares fell 6% on Wednesday, making the stock one of the biggest decliners in the benchmark S&P 500 index. The stock has lost more than a quarter of its value since the start of the year.
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E-Commerce Turnaround Needed
Fiddelke, who is slated to start as CEO in February, will need to turn around sluggish sales, especially in e-commerce. Target has reported comparable sales growth during three of the past 10 quarters, according to data from Visible Alpha.
Walmart’s (WMT) digital sales appear to be growing at least three times as fast as Target’s, Bank of America wrote in a research note Friday. The number of consumers actively using Target’s app fell 4.1% year-over-year in July, while the volume of domestic Walmart app users shot up 17.2%, the research said.
“Digital traffic growth is key to scaling digital advertising and [third-party] marketplace fees, which are increasingly needed to mitigate gross margin pressures,” Bank of America said.
Tariffs Pressure Profit Margins
Target’s profit margins may be particularly squeezed since it imports a greater share of merchandise than Walmart, Bank of America said. Target will likely need to raise prices more than some of its peers to offset tariffs, the analysts said. That may be tricky in an environment where even high-earners are focused on finding savings.
Recent inventory has disappointed customers looking for the trendy, inexpensive finds that inspired the “Tar-zhay” nickname, company executives have said. Re-establishing Target’s “merchandising authority” is a priority for Fiddelke, along with improving the in-store experience and using technology to become more efficient, he said.
Fiddelke argued on a conference call Wednesday that his experience—leading merchandising, finance, human resources, and operations teams—will be beneficial.
“There’s real power in drawing on 20 years of knowing what makes Target, Target,” Fiddelke said, according to a transcript made available by AlphaSense, adding that this gives him clarity on “what our unique path is that’s going to lead to growth.”
Target also handed in second-quarter results Wednesday that beat or met analyst expectations, while affirming its full-year outlook.
