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How Brian Cornell Turned Around Target

When Target (NYSE: TGT) CEO Brian Cornell took over the retailer in 2014, the company was in disarray. It was dealing with the fallout from a data breach that exposed debit and credit card information from about 40 million shoppers, and its Canadian expansion was flailing.

Cornell made the controversial move of pulling out of Canada, and invested in e-commerce and store-based fulfillment as well as owned brands. As a result, the stock has soared over the last five years. In this segment of Motley Fool Live recorded on Oct. 7, Fool contributor Jeremy Bowman explains how Target pulled off its turnaround and why it's on top of the retail industry.

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Jeremy Bowman: Target's really been a turnaround story over the last five or 10 years. Brian Cornell, who's the current CEO came in August 2014. This is the chart that shows the five-year performance up till then, so Target's underperforming the S&P 500 by a pretty wide margin there. The company made a number of strategic mistakes. Until 2011, it actually had Amazon running its website, which is amazing to think about that now. Real fox in the henhouse kind of thing. It did rearrange that back starting in 2011. It entered the Canadian market in, I believe, 2013. It bought leases from a discount store. That was just a complete disaster. This was all under CEO Gregg Steinhafel. Then there was also a large data breach. Some of you might remember that about 40 million credit card and debit card, or at least, information accounts were disclosed and revealed, broken. Whatever the proper terminology is. He stepped down out of that.

Cornell takes over. First big move is he pulls out of Canada. This is just a massive writedown here, $5.4 billion. That's an accounting loss there on that. It's a controversial decision at the time. Canada has been a great market for American retailers like Walmart and Costco among others, but Target's entry really didn't go well, their site selection was terrible. After buying those discount leases, they just weren't good locations. The company had a lot of supply chain problems as far as out-of-stocks and stuff like that. The prices were higher. The Canadian shoppers would even cross the border to go to American Targets. So they did that ripping off the Band-Aid there. Stock was ho-hum for a bit in its first couple of years. Then I think the big move was they started this investment cycle with $7 billion to remodel stores and invest in e-commerce technology and digital interfaces. They announced that news and the stock plunged, I believe, 12%. It was its biggest one-day dollar loss at the time. This is the move I look for as an investor, which I think is a classic example of Wall Street short-termism. We should think it's a good move when a company is investing in self and sees an opportunity for growth. This is what companies are supposed to do, invest for the long term. Wall Street often doesn't like that because they see the dollar figure, so the stock fell sharply. It's done great since then. Another smart strategic move there. That year they acquired Shipt, the same-day delivery service, that's known as a competitor with Instacart. That helped boost their capabilities in same-day delivery. The company announced, launched Drive Up, which is their curbside pickup program nationwide in 2019. That's been a huge winner.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon and Target. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.


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