Target customers are still upset at the retailer’s decision to axe its popular toy sale earlier in the year, and experts are skeptical about chief executive Guy Russo’s assertion that Target will stick with its turnaround plan as promised, despite a 22% drop in sales for the quarter.
A first quarter sales update on Wednesday revealed Target’s decision to end the annual toy sale saw $75 million in sales evaporate. In the post-mortem, analysts pressed Russo on whether the move was a wise decision and whether it’s here to stay.
“The toy sale is an unprofitable event,” he told analysts, according to news.com.au.
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“We costed it end-to-end. It involves six months of holding and managing stock and extended Christmas lay-by. In the long term it was the right thing to do.”
The decision to axe the major toy lay-by event was met with outrage from some shoppers at the time, and several customers continued to express their displeasure after the numbers were released.
“Seriously stupid decision not to have a Christmas sale!” said one shopper.
Russo told analysts earlier this week Target will not know the full fallout of the sale’s cancellation until the end of the year.
Michael Stapleton, a founding member of the Association of Virtual CFOs, told SmartCompany when advising his clients on a big turnaround, he’d question whether a sales event like the Target toy sale even needed to be cancelled completely.
“I’d probably say, ‘we know the sale isn’t working, let’s try to do it differently,’” Stapleton says. This could involve running the event but without the depth of discounts, he believes.
To remove a key part of operations like this, “it has to be pretty disastrous”, Stapleton says.
But Russo told analysts the sale has always delivered a blow to Target’s bottom line, and customers will likely pick up similar products as Christmas shopping gears up in November and December.
Russo also heads up sister retailer Kmart and analysts questions him about the merits of both discount department store chains operating on an everyday low price model. He said he remains confident in the strategy, despite admitting he “probably went too fast” in the first six months.
“I don’t have a plan B,” he said.
“I’ve got 300 stores that knew how to win in this space about a decade ago. The only difference is a lot of new competitors are there now. We do need to set Target as a volume fashion retailer.”
Stapleton says he would always advise clients to have more than one possible turnaround plan, because a strategic overview was about constantly monitoring results.
“It’s about continuous improvement,” he says.
“You’re constantly measuring whether things work and if they don’t, you go to the next plan.”
In the past quarter Target booked sales of $643 million, a decrease of comparable store sales of 21.9% compared with the previous quarter.
The company has had to interact with several customers online who were initially disappointed by the inability to place toys on lay-by for the Christmas period, and continue to be unhappy with the lack of available online lay-by payment options in store.
The online lay-by debate has run across several discount department stores, with customers also demanding better payment methods at Big W and Kmart.
Target Australia told SmartCompany this morning the decision to end six-month lay-bys for toys this year came from the changing buying habits of customers.
“Parents told us that buying toys six months in advance was becoming difficult as kids were changing their minds on what toys they wanted due to promotional new releases,” a spokesperson said.
“We can confirm we still hold a Target Toy Event that takes place in July with over 550 new toys available,” saying this will involve the “everyday low price” that customers have come to expect from the retailer.
“We have worked hard to offer our customers the best possible prices all year round – so customers don’t have to wait for a sale to know they are getting great value,” the spokesperson said.