Coupon bug fixed, but Target faces flak

Target Corp. has fixed the coupon problem that shortchanged some shoppers. Now the retailer must brace for potential fallout from regulators and frustrated consumers.

The Minneapolis-based company has been dogged since August by complaints that certain manufacturers coupons weren't giving customers full discounts. The problem wasn't resolved in all stores until Tuesday, the company said. A day earlier, the retailer said a permanent solution could take a week to install.

The three-month lag, as well as Target's lack of explanation, leaves some industry experts wondering: "What took so long?"

Target spokeswoman Amy Reilly strongly denied any suggestion the company was purposely dragging its feet and noted the vast majority of coupons ring up accurately.

"As soon as we found out about it, we took immediate action to prompt cashiers to take a closer look when they look at these coupons," Reilly said. "It's complicated."

Hal Stinchfield, head of Promotional Marketing Insights in Orono, said Target should have corrected the issue sooner, especially since regulators could be involved. "Any retailer that doesn't provide the full discount for a legitimate unexpired coupon would be in violation of Section 5 of the Federal Trade Commission's regulations regarding unfair, deceptive or fraudulent business practices," he said.

The Minnesota Attorney General's office and Federal Trade Commission said they can't comment on the status of any investigation or confirm whether one was launched.

Target declined on several occasions to explain whether it collected any unredeemed coupon money and how it was accounting for any surplus.

"It is absolutely not about the money," Reilly said, adding that in some cases, customers were given more than a coupon's discount.

With families still feeling ravaged by the economy, coupon use has grown, perhaps compounding the backlash on blogs and social networking sites.

Comments on websites, including StarTribune.com, spoke of a sense of betrayal. Among the refrains: "I am now going to rethink my shopping at Target!" and "Easier to cheat a million people out of a dollar than one person out of a million dollars."

Prorated coupons

Most problems seemed to involve coupons that required the purchase of multiple items. Instead of ringing up the full discount, the cash register discounted a portion. The issue stems from Target's and most other retailers' policies that won't allow coupons to reduce an item's price beyond free.

Target became aware of the glitch in August and in recent weeks more media have covered it. As recently as Monday, Target said cashiers were entering coupons by hand until a fix could be found within the week. By midday Tuesday, it said the fix was in stores.

Paper coupons are essentially like money. They're collected at the end of the day and store bookkeepers reconcile them with the cash registers. Coupons then are bundled and sent to a clearinghouse, which tells manufacturers how much the retailer is due, according to Brian Kilcourse, a managing partner at RSR Research, a Miami independent research company that focuses on how retailers use technology.

"The real question," he said, "is when did they know about it, why didn't their bookkeepers alert them, what did they do to rectify the situation, and were they getting discounts from manufacturers that they did not deserve?"

Target directed further inquiries to the manufacturers. A spokeswoman for General Mills, which reportedly had problems with its Yoplait yogurt coupon, said, "We are aware of this issue, and we know that Target is working to resolve it. We would refer further questions to Target." H.J. Heinz Co., maker of another problem coupon for SmartOnes frozen dinners, did not return calls.

Evan Schuman, who is editor of the trade publication Storefrontbacktalk.com, wonders how much effort Target made to fix it quickly. "I will be cynical and say that if what they had found was a sharp loss of money, they would have moved a lot more quickly," he said.

Schuman said there is "very good potential here for class action" lawsuit.

Second flap in recent months

And that may be why Target has been reticent to explain the glitch or why it took so long to fix.

"I'm sure it's a lot more complex than I realize," said Jon Austin, crisis management consultant and senior partner of J. Austin & Associates. "At the same time, this is Target. This is not somebody who just computerized in 2007 and has found a bug in their software. This is Target with lots of resources and has been in the retailing business since the 1960s."

This is the second flap for the retailer, whose brand and image are everything. A $150,000 donation from corporate coffers to a group backing Republican Tom Emmer for governor drew such outcry from Target's employees and shoppers that CEO Gregg Steinhafel apologized for not thinking through the consequences of the donation.

Target has said its sales haven't been hurt by fallout from the donation. It's too soon to know how forgiving consumers will be over getting shortchanged on coupons.

Companies that don't engage with discontented consumers ignore them at their own peril, Austin said.

"Target's silence makes this more of an issue and eventually could be an issue itself," he said. "This could metastasize from relatively isolated mechanical error in how it processes coupons to a larger question of, 'Does Target understand today's shopper?' That's a more damaging thing long term for them."

jcrosby@startribune.com • 612-673-7335 kmcguire@startribune.com • 612-673-7293