During the transition, Steinhafel will serve as an advisor.
The decision comes in the wake of a massive data breach that impacted millions of Target customers late last year. The discount retailer has also faced challenges related to its expansion into Canada.
Brian Sozzi, Belus Capital Advisors' CEO & Chief Equities Strategist, said he expected Steinhafel's departure to have occurred a few months ago ahead of the spring selling season.
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"The fact that they're doing this now indicates that the first quarter may not have improved from the holiday quarter," he said, adding that he views Steinhafel's exit as a "long-term positive for the stock" and that the company should look for an outsider.
Janney Montgomery analysts echoed this need.
"There is a lot that has gone wrong at TGT over the past few years, and it is critical that the company looks for an outsider to come in, and revisit several strategic mistakes. This is a company that continues to have a great, if tarnished brand, tremendous supply chain, albeit an e-commerce business that is far behind where it needs to be at this point in its online growth strategy," they wrote in a note to clients.
This is the second C-suite departure at Target in as many months. In early March, Target CIO also resigned.
"Clearly, there is no longer the same level of bench strength that historically characterized the organization," Credit Suisse analyst Michael Exstein wrote in a research note. "In time we expect other members of the management team will retire as the management transition unfolds."
To hear Steinhafel's account of the Target breach, click here.