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Target data breach is the least of the problems facing new CEO

Target (TGT) CEO Gregg Steinhafel is out effective immediately. The nation’s second largest discounter has been reeling since last December, when a massive data breach resulted in hackers gaining access to the credit and debit card information of 40 million customers. Target says current CFO John Mulligan will serve as interim president and CEO.

Mulligan and whoever Target picks as the permanent CEO will take over at a critical moment for the mass merchant. As a result of the hack attack, Target has already announced a $100 million tech overhaul. Part of the program will include the implementation of a new chip-based system for securing company branded cards early next year. The program is an acceleration of the existing improvements that had been scheduled for later in the year.

Despite repeated apologies and and boosted security, customers have been slow to forgive Target. In recent surveys Target's brand value has eroded, and for the fourth quarter earnings declined nearly 50% on weak sales. After a slow start, Target seems to be putting the pieces in place to do what it can to shore up its reputation, but it seems to have been too little too late for Steinhafel as far as the board was concerned.

While the credit card hack will dominate the headlines, it wasn't the only reason Target is making this change. The company's efforts to expand in Canada have been an unmitigated disaster. Last year the company generated sales of $1.3 billion in Canada and somehow managed to lose $941 million. Target opened 124 stores in Canada last year and expects to keep growing up north in 2014, despite expectations that it could lose as much as $170 million more doing it.

Running a good discount operation is about keeping expenses in line without letting operations slip into disarray. By all accounts Target’s stores in Canada reflect a lack of inventory control and slack execution on a store level. Parking lots are empty in Canada even as stores just across the border thrive. It's evidence that Canadian customers see local stores as an inferior, different offering. That's a slight that's going to be tough to overcome

U.S. sales are flat, Canada's bleeding cash and online initiatives are almost an afterthought. It's saying quite a lot, but the fact is cleaning up a data breach impacting more than 100 million customers' personal data may be the least of the challenges facing Targets next CEO.

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