As Target (TGT) Struggles, Starbucks (SBUX) Could Be a Source of Inspiration
To say that Target (TGT) regularly sets off media firestorms with their progressive store policies would be an understatement. The second largest retail chain in the United States has weathered the storm on more than one occasion, but these past few hurricanes have been largely self-inflicted. Following Target’s recent stock performance, it’s clear that these moves have cost shareholders dearly; to the tune of $5.51 per share, or 7% of shareholder value.
Target (TGT) Makes an Unforced Error in Embracing Controversial Policies, Hurting Shareholder Value
The latest media firestorm touched off in April of this year when Target (TGT) clarified their bathroom policy. This policy update was made in response to North Carolina’s passing of statewide legislation that limited bathroom access to the god given gender of the individual using the facility, which set off a political firestorm; multiple organizations either cancelled or reduced their operations within the state in protest.
Riding this political and social fervor, Target (TGT) announced on April 19 that they were “Continuing to Stand for Inclusivity”.Part of this stand included inviting guests to use the bathroom of the sex that they identify with.
This writer does not take a stand on social issues, but I do take a stand on shareholder value. Unforced errors that cost shareholders serious money is something I, as an investor, stand-up and take notice of.
Starbucks (SBUX) Provides a Better Model for Surfing the Free Media Wave
For some brands, it can make a lot of sense to embrace social issues and become part of the conversation. Starbucks (SBUX) has a long history of taking a stand on issues that are important to its CEO, Howard Schultz. He’s famous for quotes like:
“The size and the scale of the company and the platform that we have allows us, I think, to project a voice into the debate, and hopefully that’s for good.”
“We are leading (Starbucks) to try to redefine the role and responsibility of a public company.”
“The divide between profitability and doing the right thing is collapsing … I also think there’s a seismic shift in what an employee wants from a company today.”
While there have certainly been turbulent times, Starbucks’ (SBUX) stock was trading at $50.34 a share a year ago. It recently closed at $56.40 a share. A 12% increase in stock price, year-over-year, is an endorsement in Schultz’s approach to speaking up and taking a stand.
But, Shultz isn’t speaking out to advertise store policies allowing any gender into any bathroom. He’s more savvy than that. What’s more, Schultz provides an actual face and voice to accompany any controversial statements.
My theory is that image has a big role in the fall-out of this latest social justice issue. To many consumers, Target’s (TGT) use of “We” dehumanizes the message. If there were an individual with the star power of Howard Schulz at the helm of Target, sharing his/her personal views on the issues of the day, the message might be better perceived. But, instead, there’s a portion of the US consumer market that perceives this policy decision as a mandate from a big, faceless corporation; theoretically putting children at risk of inappropriate contact with a member of the opposite sex in a private location.
A Tale of Two Socially Outspoken Companies
Where Starbucks (SBUX) has used social issues to gain free press and create positive sentiments, Target (TGT) has lost more than 5% of its share price in the past year. While Starbucks (SBUX) communicates statements through a celebrity voice and face, Target (TGT) releases blog posts and tweets that inspire national boycotts by socially conservative groups across the country.
For shareholders, it would be wise to pay attention to how the marketing of major policy decisions is handled, prior to making an investment. I’m not saying that Target and Starbucks make good or bad policy choices. But, the way they communicate them is vastly different; resulting in some big differences in stock trajectory.
Some savvy investors might notice that Target’s core performance is generally good, topping earning expectations. A depressed stock price, due to non-core issues, could be an excellent opportunity to invest in the country’s second-largest retailer.