Target Axing Employees At Headquarters To Reduce Expenses

In an effort to lower expenses, Target (NYSE:TGT) is proactively downsizing its corporate workforce. The company began employee layoffs in February and cut 140 jobs at its headquarters in the latest round. ^[1] In a financial community meeting held in March, Target mentioned that it expects to save up to $2 billion over the next couple of years, which will be reinvested in online technologies and small store expansion. ^[2] It has identified several opportunities to save money on cost of goods as well as operating activities, and reducing  redundancies is one of them.

It must be noted that Target has been paying higher salaries to a number of its employees since April due to its minimum wage hike to $9/hour. ^[3] However, this is a small increase compared to the money Target will save on salaries of employees laid off from the headquarters. Therefore, despite the minimum wage hike, the retailer should see its earnings go up in the coming years.

Our price estimate for Target stands at $78, which is just below the current market price.

See our complete analysis for Target

Target started cutting jobs in February this year, when 550 employees were let go from the headquarters after the company closed its Canadian unit. In Canada, about 17,000 employees were severed with the closure of 133 stores. In the subsequent month, Target announced that it will be cutting several thousand jobs, mostly from the corporate headquarters. Soon thereafter, 1,700 employees were laid off and 1,400 positions were closed permanently. ^[4] This was followed by 100 administrative assistants severed in May.

Earlier this month, 180 employees from Target’s tech division in India were let go after a careful assessment of redundancies. In the most recent round, 140 employees have been laid off from the Minneapolis headquarters and 50 openings have been closed. Target has cut almost 2,500 jobs in its headquarters so far, and its overall headquarters’ workforce is down by 20%. ^[2]

Such an aggressive staff layoffs will surely help the company reduce its salary related expenses notably, but it also raises certain questions about its hiring strategies. The most important of the lot is how did Target allow so many redundancies in its higher level workforce. Though a number of job cuts can be attributed to its Canadian business, 2,000 is still a big number. Target’s new CEO, Brian Cornell, says that the company is changing its operating structure at the headquarters, which has allowed it to substantially reduce the workforce requirement. Cornell has streamlined the organization’s structure into seven “centers for excellence” and has decided to lay off employees that do not fit to any of them. ^[2]

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1. Target cuts 140 more jobs at Minneapolis headquarters, Star Tribune, Jun 17 2015 [↩]
2. Target’s CEO Brian Cornell Hosts Financial Community Meeting, Mar 5 2015 [↩] [↩] [↩]
3. Target hiking minimum wage to $9/hour in April: April, CNBC, Mar 18 2015 [↩]
4. Target could be next to hike minimum wage, CNN Money, Mar 19 2015 [↩]