Target CEO Steinhafel out in wake of data breach

The data breach was the last straw for Target Corp. chief executive officer Gregg Steinhafel.

After last year’s hacker attack compromised the personal data of millions of shoppers and added to the retail chain’s woes, the board replaced Mr. Steinhafel as chairman and CEO on Monday, saying the time was right for new leadership.

John Mulligan, Target’s chief financial officer, will serve as interim CEO while the company seeks a permanent chief, according to a statement. Board member Roxanne Austin, a former DirecTV executive, will be interim chairwoman.

Mr. Steinhafel, a 35-year Target employee, was already under scrutiny for lagging rivals in e-commerce and overseeing a Canadian expansion that lost almost $1 billion last year. The pressure mounted over the holiday season, when hackers overcame Target’s defenses and stole shoppers’ personal information.

“Failure isn’t one big mistake — failure is lots of small mistakes that added up to a big mistake,” said Les Berglass, founder and CEO of Berglass & Associates, a New York-based executive-search firm.

Bloomberg Businessweek reported in March that Target had ignored warnings from its hacker-detection tools, missing an opportunity to stop the attack sooner. The breach compromised 40 million credit card numbers — along with 70 million addresses, phone numbers and other pieces of information.

After the attack became public in December, Target’s reputation and foot traffic took a hit. The Minneapolis-based company’s U.S. comparable-store sales decreased 2.5 percent in the fourth quarter. Target replaced its top technology executive in the wake of the breach.

“They need some fresh blood at the top that can facilitate some change,” Joe Feldman, a New York-based analyst at Telsey Advisory Group, said in an interview on Bloomberg Television. “They wanted to clear the slate.”

The breach was one of several headaches for the once-thriving retail chain. Target is facing more competition from e-commerce rivals such as Inc., and it’s been slow to move into small-format stores, an area where Wal-Mart Stores Inc. is accelerating its efforts. With more than 1,900 stores in North America, Target ranks as the second-largest U.S. discount retailer, behind Wal-Mart.

Target is slated to report its latest quarterly results this month. The company’s annual shareholder meeting also is coming up, and Target may have wanted to ward off investor complaints, Mr. Feldman said.

Still, Mr. Steinhafel’s abrupt exit sent Target shares down 3.45 percent to $59.87. The stock has declined 15 percent in the past year.

In March, Target told a Senate panel that it had clues about the attack weeks before responding and was exploring why it took so long to react. Sometime after intruders entered Target’s systems Nov. 12, their activities were detected and evaluated by security professionals, according to remarks submitted to the panel. The company was later alerted to suspicious activity by the U.S. Justice Department, leading to an internal investigation that confirmed a breach Dec. 15.

Several senators criticized Target’s management for not reacting sooner to the early warnings. The Senate Committee on Commerce, Science and Transportation, which prepared a report ahead of the hearing, found that Target appeared to have missed opportunities “to stop the attackers and prevent the massive data breach.”

The board said Monday that Mr. Steinhafel held himself personally accountable for the breach and “pledged that Target would emerge a better company.” Mr. Steinhafel, who had been CEO since 2008, will remain an adviser to the retailer during the transition.

When he was rising up through Target’s merchandising ranks, he played a key role in helping the chain differentiate itself from Wal-Mart. In the early 1990s, he revamped its selection, forged partnerships with well-known designers and focused on higher-income shoppers.

In recent years, the company has suffered missteps, including the push into Canada.

Canadians, who for years had shopped at Target just over the border in the U.S., have been disappointed that prices at the new stores are higher. Local competitors also cut their prices to make Target’s entry more difficult. The operation lost $941 million before interest and taxes in 2013, reducing the year’s profit by $1.13 a share.

“They need some new leadership in there,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis. “The U.S. has been struggling, the Canadian expansion has been a disaster, and then you throw in the data breach.”

As part of his departure, Mr. Steinhafel is entitled to severance payments, Target said in a separate filing Monday. According to the company’s proxy statement last year, the executive was eligible for about $9.26 million if he left voluntarily and about $26.6 million if it was involuntary but not for cause.

Target hired a new technology chief last month: Bob DeRodes, a former adviser for the Department of Homeland Security, the Justice Department and the secretary of defense. He replaced Beth Jacob as chief information officer, following her departure in March.

A new CEO will have to build on what Target is doing right, while bringing “a fresh perspective,” Mr. Yarbrough said.

“You don’t want someone new who comes in and makes a bunch of wholesale changes,” he said.


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