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Target CEO says breach spurred revamp of stores, bureaucracy

By Matt Townsend
Bloomberg News

NEW YORK Target Corp. Interim Chief Executive Officer John Mulligan said Friday that the retailer had lost its way even before December’s massive data breach by becoming too cautious and bureaucratic.

The theft of credit-card data for 40 million customers has forced the company to refocus on pleasing shoppers and reconsider everything from how it presents apparel to how it makes decisions, Mulligan said in an interview.

“That came out of it, but I would have preferred to have gotten there a different way,” he said. “We got a little bit risk-averse in making sure things were perfect and we understood the economics. Now, it’s really unshackling ourselves.”

Earlier this month, Mulligan, an 18-year veteran of the second-largest U.S. discount retailer, was promoted from chief financial officer to replace Gregg Steinhafel as CEO on an interim basis while the company searches for a permanent replacement. Target had already been trying to improve lackluster results in the United States and a botched expansion to Canada before hackers infiltrated its computer systems.

At a test store in Minneapolis, Target is reworking the baby, electronics, toys and clothing sections because presentations had become stale, Mulligan said.

“We are accelerating how we make decisions,” by giving design and store teams more autonomy and requiring fewer initiatives to be approved by top management, Mulligan said. “It’s just getting more comfortable putting things out there.”

The moves are all part of an attempt to get Target back to its roots of upscale discounting, Mulligan said. While its design collaborations get a lot of attention, the chain’s ability to apply its cheap chic mantra to basic products is what set it apart, he said.

“People equate that with the big designer things,” Mulligan said. “Those are important, but that’s frosting. It’s the everyday innovation. That’s the secret sauce. That was our success.”

Shares of Minneapolis-based Target had fallen 12 percent this year through Thursday. That compares with a 3.4 percent drop for larger rival Wal-Mart Stores and a 3.9 percent increase for the Standard & Poor’s 500 Index.

Target last week cut its annual earnings forecast to $3.60 to $3.90 a share, down from a previous range of as much as $4.15. It projected adjusted earnings of 85 cents to $1 a share for the second quarter, compared with an average estimate of about $1.03.

The company is holding off on stock buybacks as it works on its comeback. The retailer said it probably won’t repurchase more stock before the second half of the year.

U.S. comparable-store sales will grow as much as 2 percent this year, and product promotions will push its gross margin below 30 percent, the company said. The sales will “be flat to slightly positive” in the current quarter, Target said. Sales by that measure declined 0.4 percent in its most recent fiscal year, the first annual drop since the year ended in January 2010.

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