Target Reorganizes Workforce, Attitude to Cope with Recession

Target is learning to live with the recession, as cheap take precedence over chic in its business equation.

Yesterday, Target announced it would lay off about nine percent of its headquarters workforce, but it certainly wasn’t cheap in the severance packages it offered. Still, 1,000 jobs are gone at the Minneapolis home base including 600 slashed and 400 left unfilled. Additionally, the company is closing a Little Rock, Ark., distribution center, which will result in 500 more jobs eliminated. The distribution center serves 41 stores, a Target spokesperson said, and the company will begin shipping products to them from other warehouses in the surrounding region when the DC closes on April 1.

The lay offs come after Target initiated a range of other cost cutting measures including:

• Suspending salary increases for senior management
• Ending share repurchasing
• Implementing store productivity improvements
• Reducing planned new store openings and cutting capital spending by $1 billion
• Curtailing outside contractor support, travel, entertainment and related headquarters operating expenses
• Tightening up on credit cards

Beyond the challenge of sluggish sales at the stores, Target’s credit card program has proven a drag on its business in the recession and some shareholders have suggested that the retailer reconsider the operation, one it already has partially offloaded to an outside partner. Last week, Citigroup analyst Deborah Weinswig wrote in a research note focused on the credit card operation that, with consumer credit conditions remaining  “difficult,” rising delinquencies and related problems are hurting Target. And little reason exists reason to think that the situation will improve for some time.

In Target’s statement on the lay offs, CEO and newly named chairman Gregg Steinhafel said the retailer is dealing with an “economic environment that requires us to make some extremely difficult decisions to ensure Target remains competitive over the long-term.”

The statement indicates that Target isn’t looking for any recovery in its business for some time, and probably not in 2009. If the annum looked promising at all, Target wouldn’t be cutting the staffers who would be planning the charge for the year-end holidays. It also suggests that Target may have more bad news to relate in upcoming financial reports.

Target has taken other steps to deal with the implications of the recession, and that’s where the emphasis on cheap comes into play. It has begun to run television advertising specifically detailing cost savings customers can enjoy shopping the store. In those ads, the private label Target features is not the gourmet-brand equivalent Archer Farms, the label the company usually likes to highlight, but it’s more middle of the road, less expensive cousin Market Pantry.

Target also favored value over style in characterizing its new exclusive product line. When it recently announced the launch of a home décor collection from designer Orla Kiely, Target used a reference to “great” or “unbeatable” prices in the headline and each paragraph save one of the accompanying statement. Even when it didn’t trumpet price directly, it employed references to “practicality” and Kiely’s “optimistic spirit,” suggesting that how it positioned the brand to consumers was related to its overall concern about the recession’s impact.