Another Piece of Red

The news that 475 people were ashcanned at Target today isn't surprising at all, actually. In a perceptive column for the Star Tribune, Lee Schafer explains what's really happening. It's not about data breaches, either:

There has likely been a plan to skinny down the cost structure since well before Target discovered a data breach in December, and the layoffs happened this week because the Minneapolis-based company’s fiscal year always ends on the Saturday closest to Jan. 31.

That means the company wanted to get the costs associated with eliminating 475 jobs booked in a fourth quarter that was already going to be a total washout.

I speak from experience on this one, because I left Target at about this time 11 years ago, which coincidentally turned out to be the best day of my career, even though it didn't seem like it when it happened.

Expenses are the issue at 1000 Nicollet Mall these days -- the costs associated with expansion into Canada, the costs associated with keeping the Target website up to snuff, and the eternal issue that Target faces in trying to catch up with WalMart's secret profitability weapon, which is the one of the best supply chains in the world. Back to Schafer, recounting an investor conference call last fall:

It was the analyst from the investment firm Jefferies who asked the basic follow-up question. With U.S. comparable-store sales barely growing and customer traffic down, how exactly is the company going to do that?

“Leveraging operating expenses at a 1 percent comp will be very, very difficult, make no mistake about that,” responded Chief Financial Officer John Mulligan.

He went on to say that Target certainly planned to do better than grow U.S. comparable-store sales at a 1 percent pace as the economic fortunes of its traditional customers improved.

“Everyone today talked about performing and transforming,” he continued, referring to his colleagues’ presentations that preceded his. “A big part of transforming is hiring and building new capabilities within Target. All of that is very expense-heavy. Technology investments are expense-heavy; supply chain investments are much more expense-heavy than are investments in stores. So pulling expense out from other parts of the business is critically important.”

Mulligan is being polite, but it's no secret -- if you want to pull expense out of your operation, headcount is a great place to start, especially headcount in the back office. You can usually get by with fewer business analysts, fewer operations specialists, fewer merchandising coordinators and fewer IT guys. It's pretty easy math, actually. You likely won't see many cuts at the distribution centers or the stores as part of this layoff, because Target tends to run pretty lean in those areas.

And paradoxically, a layoff of Target employees is usually good news for other businesses around town, because Target does train its people well. There are now going to be a lot of talented mid-career people around looking for work and companies that have staffing needs are going to have some better options for hiring than they did just a few days ago. From personal experience, I can tell you that what I learned at Target has been highly beneficial in my post-Target career.

If you are on the business end of a downsizing, it's no damned fun. I've been through it myself. But I would say this to the folks who walked out of their offices with a cardboard box today; although the uncertainty you face is daunting, it's likely that what happened will turn out to be a blessing.