Target Corp. (TGT) stumbled on the first step of its long trek to earn back customers’ trust following a vast breach of shoppers’ account data, resorting to legalistic statements rather than broad assurances that it would shoulder the responsibility.
The relaxed response on Wall Street - where Target’s stock is almost exactly where it traded before the data-security failure emerged nearly two weeks ago - is a sign of just how dim expectations had become for the company this holiday season. It also suggests that Target management missed an opportunity to deliver a pleasant surprise and win back some lost esteem from both customers and investors with more forceful assurances.
Since the company acknowledged that some customer payment-card data had been taken Dec. 19, the Minneapolis big-box retailer has parceled out information in four formal statements that offered tips on how customers could monitor their accounts, detailed a Target executive’s conference call with state attorneys general, distributed photos of Target staffers meeting in a conference room to deal with the issue and conceded that PIN data had been compromised.
The company offered to give customers 10% off the entire store the weekend after the breach, but Breakout's Jeff Macke still says Target’s overall response “screams that customers are secondary to our legal team. Shouldn’t Target be sparing absolutely no expense to make this right with customers?"
Target likely had as many safeguards as other big retailers and the legal issues are tricky given that responsibility might be shared with payment processing companies and other vendors. Yet the occurrence of such a data-firewall rupture within Target’s stores gave the company a chance to make grander gestures of protectiveness toward its customers.
Amazon.com (AMZN), for instance, has vowed to return shipping fees to customers after United Parcel Service Inc. (UPS) failed to deliver holiday items by Christmas. And, most famously, Johnson & Johnson Inc. (JNJ) pulled Tylenol off the shelves in a bold and costly move in the early 1980s after some were contaminated with Cycanide - an enduring expression of customer protection over short-term financial and legal concerns.
More broadly, Target has struggled to dazzle customers over the past year or so. Its store traffic has suffered as deep discounters draw the most price-conscious shoppers, Macy’s Inc. (M) attracts more mid-market clothing-rack browsers and online mega-retailers continue to win market share. And management has been focusing on financial management, emphasizing dividends, share buybacks and a costly long-term expansion effort in Canada over attention-stealing merchandise gambits.
Should management choose to take a direct financial hit on customers’ behalf for the data breach, the gesture would probably be forgiven by Wall Street. The fact that Target shares have been steady amid the unflattering publicity might be a hint that its long period of underperformance has cleared out fickle sellers and left the stock a decent value.
Target shares were up just 7.5% in 2013, about half the gain in Walmart Stores Inc. (WMT) shares, which itself badly trailed the 40% surge in the retail-chain sector as a whole. Its sales are on track to be flat with a year earlier despite a stronger U.S. economy and earnings are projected to be off by 17% for the fiscal year ending this month. Fewer than half the analysts who cover the stock now recommend buying it.
Value-oriented investors might be attracted to these signs that a great American brand is unloved and perhaps due for a rebound. But until the company can renew its bond with customers seeking value, fairness and – to use one of the company’s buzzwords – “fun,” it’s hard to envision the stock as a likely leader for the long term.