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									The Target Corporation:
     Strategic Analysis

  A Comprehensive Report By:

        Nick Gysberg

          Kelsey Lee

        Richard Cline
Table of Contents:

Target Analysis             3

Wal-Mart Analysis          18

Sears Holdings Analysis    27

Moderate Growth Strategy   39

International Strategy     42

Financial Data             43

Appendix                   46

References                 50

                               Strategic Profile
The Target Corporation, founded by George Dayton, is now one of the top
general merchandise retailers in the United States. The company’s mix of stylish
products and everyday essentials at low prices give it a unique strategy; it is one
of the only companies to simultaneously incorporate price leadership and
differentiation as its strategic business model. Strong private label brands have
allowed Target to capture high profit margins. The company also utilizes its large
size to achieve economies of scale so as to better compete with merchandising
giants such as Wal-Mart, one of Target’s main competitors.

                               PESTL Analysis
        The ever changing international political situation affects both domestic
and international firms. International trade policies, political movements and
global events all affect the manner in which firms operate within the market.
        The general retail industry has greatly benefited from the liberalization of
international trade. Europe and the United States comprise approximately 75% of
the market of the general merchandise store sector. With the lowering of US
tariffs and the ending of Europe’s Multi Fiber Agreement, these markets now
benefit from the availability of low cost labor. Reducing labor costs lowers the
product price allowing companies to offer lower priced goods while still
maintaining a profit margin (Datamonitor, 2007).

        The global general merchandise store sector relies heavily on the United
States for revenue. In 2006, the United States accounted for 40.5% of the value
within the global industry (Datamonitor, 2007). Due to the lowering of trade
barriers, the US market has experienced an increase in low cost goods from
Asia. Lower prices encourage sales growth which increases revenue.
        The current economic situation within the United States could pose
problems for retailers operating within the country. The threat of recession looms
over consumers who have increasingly become more frugal with their spending
habits (Datamonitor, 2007). This shift to economic frugality benefits the firms
implementing a price leadership strategy.
As the economy worsens the price of crude oil continues to rises. The changing
cost increases a firm’s costs associated with energy, transportation, and raw
materials. Logistical modifications must be made to accommodate the rise in oil
prices (Datamonitor, 2007).
        The price increase also directly affects consumers. Energy and
transportation costs for consumers also rise. A greater proportion of disposable
income must be allotted to cover these expenses (Datamonitor, 2007). Because
of the deteriorating economic situation, firms must find ways to motivate sales.

        Understanding the consumer’s needs and desires is necessary for
success in the general merchandise store sector. Failing to identify current social
trends could potentially leave a company’s market share vulnerable to another
firm addressing the demands of the customer.
        Currently, the United States has an aging population. The baby boomer
generation is nearing retirement age. Products and service catering to this
group… In addition, a disproportionate number of shoppers within this industry
are women. Approximately 80% of Target shoppers are female (need source).
Since women do the majority of the shopping in these stores, it would behoove
the firms to indentify the aspects of the firms which appeal most to the target

        Lately, consumers have developed a one-stop-shop mentality; consumers
want to find all the products they need at one location. To capitalize on this firms
lure potential customers in with some low priced goods and increase revenue
through the purchasing of other goods (Datamonitor, 2007).
        As mentioned earlier, the economic downturn in the United States and the
rising fuel prices change consumer spending habits. Decreased disposable
income translates into less spending for many consumers (Datamonitor, 2007).

       Technology has become a major driving force in the retail industry.
Research has shown consumers in developed nations prefer a relaxed,
uncomplicated shopping experience. With the proliferation of company websites,
consumers can now peruse available products anywhere internet access is
available (Datamonitor, 2007).

        Retailers operating within the United States are subject to the rules and
regulations set by the legislature. Failure to comply with such legislation can
result in a variety of fines and penalties. In 2006, Equal Employment Opportunity
accused Target of racial biased hiring practices. The allegations centered on the
denial of four black applicants seeking management level jobs. This failure to
adhere to the proper hiring practices can produce negative publicity for
companies (Datamonitor, 2007).

                            Porter’s Five Forces

Threat of New Entrants
       Target operates solely within the United States market. Its competitors
include nation-wide and local department stores, discount stores, specialty
stores, grocers, drug stores, and internet businesses. All these competitors offer
similar products to Target (Datamonitor, 2007). Due to the immense competition,
consolidation among firms has given firms a competitive advantage.
       Barriers to entry in this market have continually been decreased.
Liberalization of international trade has allowed for increased competition within
the market. Another necessary requirement, large economies of scale, has also
been realized by firms not operating in the United States. International firms with
the necessary requirements are likely to expand into the United States market
(Datamonitor, 2007). One firm, Tesco, already has made preliminary plans to
launch a store in the United States. The company believes Americans’
appreciation of brand name and the ability to provide lower prices will ultimately
prove profitable for the firm (Datamonitor, 2007)

Bargaining Power of Suppliers
        The bargaining power of suppliers is very weak. Due to the lowering of
import barriers, global competition among suppliers increased benefitting
retailers (Datamonitor, 2007). Low cost labor allows international suppliers to
compete with and often create low priced goods than the domestic producers.
The competition fosters lower prices for the sought goods. This allows the
companies to maintain low prices and margins (Datamonitor, 2007).

Bargaining Power of Buyers
       The bargaining power of buyers is strong. Buyers have access to many
options within the industry. Enormous amounts of rivalry among firms in the
industry have lead to price competitions within the industry. Such behavior
increases the power of the buyer. The buyer’s decision on which firm to frequent
and which products will be purchased (Datamonitor, 2007).

Threat of Substitute Products
       The threat of substitute products is low. Department stores have higher
prices than the discount retailers and are therefore unattractive to consumers
seeking lower prices. Conversely, thrift stores and second hand stores offer
lower prices but may also be unappealing to the consumers.

Rivalry among Competitors
      In this sector, the competition among competitors is a major force. Wal-
Mart and Target are the two giants in the general merchandise retailing. Wal-
Mart operates on an international scale; Target remains solely a domestic firm.
Wal-Mart is nearly 6 times the size of Target. This give Wal-Mart an advantage of
greater economies of scale, increased bargaining power with suppliers, and
access to a large amount of capital (Datamonitor, 2007). Despite this great

advantage, the rivalry between the two is fairly evenly matched. Although Target
has differentiated itself from Wal-Mart, the two continue to compete for
consumers’ disposable income, especially in the commodities sector.
        A key to gaining market share is understanding customer psychology
(Datamonitor, 2007). Firms strive to understand the changing customer
preferences and spending patterns. A greater understanding of these aspects
can lead to more effective displays, more accurate inventory, and an overall
more satisfying experience for the customer. The recent addition of pharmacies
reflects this recognition of changing demands of consumers.
Wal-Mart has begun to understand the needs and desires of the customers and
is now catering to the changing fashion tastes. In a major rebranding of the
junior clothing line Metro 7, the company has found the consumer desires a more
fashionable look with key pieces rather than a collection (Edelson, 2008). The
new line will be trendier without taking too much risk (Edelson, 2008).

                               Internal Analysis

Tangible Resources
       Financial Resources. Target has access to large amount of capital. This is
due to a very high cash flow in recent years. The company has experienced
such a high influx of capital that it has been able to pay down long term debt
(Datamonitor, 2007).

       Organizational Resources. Target walks a fine line of a culture breeding
creativity which is strictly regulated. It is a very top-down company. The CEO is
very involved in many aspects of the business. He participates in the hiring of
the top 600 employees.
The current CEO has created an organizational structure which will not only
survive his retirement but also that of his successor (Reingold, 2008).

      Physical Resources. All 1,488 Target locations are located within the
United States. The large number of stores gives the company valuable reality
(Datamonitor, 2007).

Intangible Resources
       Human Resources. Target boasts a wealth of human resources. There is
a high level of retention rate among the upper level employees. The
management of the company also boasts great talent. Robert Ulrich, the CEO,
provides the company with vision and expertise within the retail industry. A highly
competitive individual, Ulrich recognized the need for Target to differentiate itself
from competitors such as Wal-Mart (Reingold, 2008).

      Innovation Resources. Target prides itself on innovation. Managers must
compete for budget amounts based on creative ideas. Innovative product
designs are crucial for the company. Top designers are recruited to create
products in a wide range of categories. To find such creative individuals, the
company sponsors design competitions (Reingold, 2008).

       Reputation Resources. Target created a positive reputation with
customers. Unlike Wal-Mart who often experiences great backlash when opening
new stores, communities welcome Target stores with open arms. Furthermore,
the social network has user created groups dedicated to declaring
members’ love of the company (Reingold, 2008). Such a positive image is a
result of many factors. One of these is the philanthropic efforts of the company.
The company donates 5% of all pretax profits to the community, schools, or the
arts (Schlosser, 2008). This translates into over $3 million given per week. This
giving totaled 6.5 million meals, 1,700 free days at museums and theatres, and
thousands of dollars every week to schools. (Schlosser, 2008). Compared to
the negative image of Wal-Mart, Target’s positive reputation is a very valuable

       Consumers perceive Target’s products to be of higher quality than that of
many competitors, primarily Wal-Mart. This perception generally benefits the
company except when customers believe that the prices are significantly higher
than that of the competition. In most cases, Target’s prices are within 1-3% of
Wal-Mart prices and 10-15% lower than most grocers (Datamonitor, 2007).

       Human Resources. Target relies on creativity from its managers to
continually “surprise” its customers. To encourage this creativity, budget
allotments are partially based on the creative input of managers. This incentive
encourages employees to share new, innovative ideas for the betterment of the

      Marketing. Target’s marketing team has been very successful in the
campaigns to position Target as a stylish, affordable distributor. The company
understands the consumers’ desire to both fit in and stand out. The “expect
more, pay less” slogan captures the essence of Target’s marketing message
(Reingold, 2008). The company successful implemented both a differentiated
and cost leadership strategy.

       Innovative Merchandising. Target has embraced the consumer demand
for natural care products. With the introduction of nine new product lines, the
company seeks to capture this growing market segment (Nagel & Brown, 2008).
A growing concern among consumers, especially females, is the proliferation of
harmful chemicals in everyday products. In an online study, 41% of respondents
reported that they were willing to pay more for organic products. Furthermore,
45% of women feared the harmful, unnatural chemicals in beauty products
(Nagel & Brown, 2008).

        Management. Target’s management team has been able to identify
market trends and adapt the company accordingly. Through understanding the
desire of the customers to simultaneously fit in and stand out, the company has
created an innovative line of products which cater to this desire (Reingold, 2008).
        Additionally, the top level managers prefer the focus to be on the company
rather than themselves. The heads of the competition, such as Sam Walton,
have garnered much attention for their role within the company. Target’s upper
level managers prefer the focus not fall upon themselves but rather the company

      Product design. To adapt to the ever changing market, Target constantly
searches for new innovative designs. In the apparel section, a new designer
creates a collection every 90 days. This gives merchandising strategy follows
Target’s “expect more, pay less” mantra; consumers can find designer styles at
reasonable prices (Reingold, 2008).

       Research and Development. In a unique stray from traditional marketing
research, Target has created a secret cabinet of individuals to weigh in on
strategic moves of the company. Ages, nationalities and interests vary among
the cabinet members providing Target with many perspectives of current trends
(Reingold, 2008).

       Organizational Culture. According to the senior VP of marketing, Karen
Gershman, “The energy that flows through here is amazing, and it’s fun.” Target
continually pushes to maintain the element of surprise. The corporate culture
champions creativity rewarding innovation through budget increases. By
rewarding creativity, the company can continue to surprise customers and
encourage creativity among employees. In addition, members of the company
are expected to be on the look out for the latest thing or newest designer
(Reingold, 2008).

                                VRIN Testing
       Target understands consumer needs and desires allow the company to
modify the product mix to cater to the changing demands of consumers. The
secret cabinet provides insight to help the company adapt to the changing
market. This ability to gain such varied insight is a rarity among competitors.

       The organizational culture encourages and rewards the creativity of

Costly to Imitate
       Ninety-seven percent of Americans recognize Target’s bulls-eye. The
Target brand is uniquely valuable and would require extensive marketing and
philanthropic activities to imitate.

       Target’s ability to maintain both a cost leadership and differentiation
strategy is a nonsubstitutable core competency. Other companies attempting to
implement the same strategy have failed.

                            Value Chain Analysis
         Outbound logistic. Target strives to provide its customers with an overall
positive experience. The store layout is formulated to be aesthetically pleasing.
This contrasts to the experience in Wal-Mart, the “king of logistics”. During
periods of growth, Wal-Mart neglected the design quality of the store. Inventory
filled the middle of the aisles and lower quality products were introduced.

        Marketing and Sales. Targets marketing research department consists of
a secret cabinet of individuals across the nation. The members never gather
together but rather contribute on an individual basis concerning trends in the
market place and the activities of the company.
        The “expect more, pay less” slogan exemplifies Target’s marketing
message. Consumers, according to Target’s marketers, should find joy in the
purchase of everyday items. These items should not look cheap even if
purchased for discounted prices (Reingold, 2008).
        The marketing activities of the company are strictly controlled by the
marketing department. Every item bearing the logo must be approved by the
department. This micromanagement has allowed for greater control of the brand.
Since Target’s brand is so valuable, this management ensures that the brand
equity remains intact (Reingold, 2008).
        During the feared economic downturn, Target may choose to emphasis its
price leadership, especially in the case of food and commodities to accommodate
the changing economic landscape (Reingold, 2008).

Support Activities
       Procurement. Target’s vast amount of capital resources allow it to expand
into new locations. In addition, economies of scale and the large amount of
suppliers, both domestic and international, allow Target to obtain products for
lower prices (Datamonitor, 2007)..

      Human Resource Management. The CEO personally interviews the
prospective employees for all the top 600 positions. Target boasts a very low
turnover rate among top level employees. This is a reflection of the success of
the Human Resource Department within the company (Reingold, 2008)

       Technological Development. To continually improve the processes of the
company, Target created a user experience research center, referred to as the
Ulab. The lab tests the creative ideas of the company with actual consumers.
This ensures the ideas are viable options that can be implemented into the
business. Currently the lab is testing a new cart prototype (Reingold, 2008).

                                SWOT Analysis
      Strong Market presence. Target has been able to decrease its volatility in
revenue by diversifying its operations. Also, because of the company’s size and
resources, it has been able to achieve economies of scale. This allows the
company to reduce costs of goods and in turn offer lower prices to the consumer
(Datamonitor, 2007).

        Brand Mix. The company has also created a strong brand image. Because
of this image, the company can charge higher prices for it’s private brand labels.
This markup provides a high-margin profit on the private brands (Datamonitor,
2007). The company created a mix of both external and private labels.
        Private brands include: Archer Farms, Choxie, Circo, Embark, Gilligan &
O’Malley, Kool Toyz, Market Pantry, Merona, ProSpirit, Room Essentials, Target
Limited Edition, Trutech, Xhilaration, and other prominent brands. The licensed
brands include: C9, ChefMate, Cherokee, Eddie Bauer, Fieldcrest, Isaac Mizrahi,
Kitchen Essentials, Liz Lange, Michael Graves Design, Mossimo, Nick and Nora,
Genuine Kids, Sean Conway, Smith & Hawken, Simply Shabby Chic, Sonia
Kashuk, Thomas O’Brian, Waverly and Woolrich (Datamonitor, 2007)
        The mix of private and licensed brands gives the consumer a greater
selection and brings in better margins for the company.

       Operating Cash Flow Increase. Target’s strong levels of cash flow allows
the company to invest, improve its balance sheet, and provide returns to
investors. In 2005, Target’s capital expenditures totaled about $3,068 million.
This number grew to over $3,928 million in 2007. Target has greatly benefitted
from the increase in operating cash flow. The increase allows the company to
invest capital in growth. This growth can be in the form of new stores, as well as
the remodeling and/or expansion of old stores. Due to this large amount of
capital, Target has been able to retire long term debts. The company has also
been able to pay regular dividends over the last three years (Datamonitor, 2007).

       Poor quality control. Many vendors provide the array of products to Target.
This large amount of vendors creates difficulty in controlling the quality of all the
products on the shelves. Because of this the company has recalled several
products. These recalls were attributed to choking hazards, lead paint, and other
dangers in children’s toys. These recalls harm the customer’s positive brand
image and customer confidence. This can result in a loss of customer loyalty and
harm the company’s ability to attract new customers (Datamonitor, 2007).

      Customer Perceptions. Target’s vast marketing campaign does not always
produce the desired results. Consumers sometimes experience disconnect
between the perceived value or quality of a product and their prior expectations
(Zimmerman, 2008). Marketing campaigns create an image of the brand and
products which is not always consistent with the actual products.

       Conversely, perceptions of superior quality can hinder sales. When
polled, many people believe Target prices grocery items higher than grocery
stores. In reality, Target generally prices grocery products 10-15% below
average grocery store prices (Datamonitor, 2007).

       Litigations. Target has also encountered some legal difficulties in recent
years. In 2006, the Equal Employment Opportunity Commission accused the
company of racially biased hiring in the case of four black applicants. Target
settled in 2007 for $775,000. Although competitors have also experienced the
bad publicity associated with litigation, such accusations reflect poorly on the
company and reduce its creditability as an employer (Datamonitor, 2007).

        Geographic Concentration. Unlike its competitors, Target is only active in
the United States market. Wal-Mart has locations in numerous countries around
the world. This not only allows for vast economies of scale but also decreases
Wal-Mart’s dependence on the American market. Target’s is more vulnerable to
changes market changes because of its limited geographical concentration. This
is only further complicated by the looming threat of a recession (Datamonitor,

       Generic Drugs. With the ending of patent protection on many prescription
drugs, the generic market for such drugs will be growing. The profit margin for
such drugs is very high making them an attractive opportunity. Target has
already found success with the $4 generic prescription. Wal-Mart has yet to offer
such rates on generic drugs. Target has already established itself in the
pharmacy market. This creates an excellent opportunity for the company to
capitalize on the high profit margins of the generic drugs industry (Datamonitor,

       Photofinishing Market Thriving. In recent years digital photography has
increasing gained popularity. It is estimated that in 2008, half of all the photos in
taken in the United States will be digital. Many people still depend on retailers to
provide finishing for prints. Target’s partnership with Yahoo in 2005 has allowed
for customers to share, store, print photos and create customized gifts
(Datamonitor, 2007).

       Private Label Products Growth. The growth in sales of private labels has
increased in recent years. About 20% of items sold in retail stores, drug chains
and mass merchandisers are private labels. 41% of consumers buy private
labels, an increase of 5% over the last five years. Profit margins for established
private brands are much higher than that of branded products (Datamonitor,
       Target’s private brands include: Archer Farms, Choxie, Circo, Embark,
Gilligan & O’Malley, Kool Toyz, Market Pantry, Merona, ProSpirit, Room
Essentials, Target Limited Edition, Trutech, and Xhilaration (Datamonitor, 2007).

       Increasing Competition. Because of Target’s wide range of product
offerings, its competition also has a wide range many of which are international
players. Competitors include: National and local department stores, specialty and
discount stores, supermarkets, drug stores, independent retailers, and online
businesses (Datamonitor, 2007)..

       Price competition among Wal-Mart, Costco, and Family Dollar Stores,
lower Target’s profit margins (Datamonitor, 2007). Price competition has lead to
a period of consolidation within the retail industry. In 2005, the industry produced
two major consolidation efforts: Sears and Kmart, Federated Department Stores
and The May Department Stores Company. In 2006, Supervalu acquired some of
Albertson’s assets. The flourishing market has also attracted foreign companies.
Tesco seeks to enter the market opening locations on the West Coast
(Datamonitor, 2007).

       American Market Slowdown. Target’s home furnishing and décor sales
accounted for 19% of the total revenue in 2007. As the housing market slows and
the mortgage crisis worsens, the demand for furnishings and décor is likely to
continue to decrease. Since Target only operates on a domestic level, such
fluctuations will cause difficulties for the company (Datamonitor, 2007).

    A major issue facing the corporation is the changing of the Chief Executive
Officer. Robert Ulrich stepped down for the position on May 1, 2008 due to
company bylaws (Reingold, 2008 ). Hired in 1967 as a merchandising trainee,
Ulrich rose to the rank of President of the Target Stores division. In 1984 when
he was promoted to president, the division consisted of only 215 stores in 1984
(Reingold, 2008). Recently, he was named CEO of 2007 by Chief Executive
Magazine. The award recognizes his valuable traits and qualities he brings to
the company. Ulrich is known for his strong work ethic and dedication to the
members of his teams, Target’s guests, and the communities (Chief Executive
Magazine, 2007).
    Ulrich’s commitment to the community is also very apparent in the company’s
philanthropic efforts. Since 1946 the company has donated 5% of all its pre-tax
income. Currently, this averages about $3 million every week (Chief Executive
Magazine, 2007). In addition to monetary donations, Target team members both
current and retired are active in the community. In 2006, they donated over
315,000 hours of service to community based projects. These projects aim to
improve education, safe families, and communities (Chief Executive Magazine,
2007). Take Charge of Education, one of these programs, has raised more than
$200 million over the past ten years for over 100,000 schools nationwide. In
addition, sponsorship has allowed for children and families to attend over 1,500
free days at major art and cultural institutions annually (Chief Executive
Magazine, 2007).
    He only accepts the best from those around him; he “doesn’t suffer fools”
(Reingold, 2008 ). Ulrich understands the importance of having the right people

within the business. For the upper levels of management to the people working
with the customers, the team members of Target have been a crucial element of
the company’s success. Those team members dealing directly with Target
guests are responsible for the atmosphere of the establishment (Chief Executive
Magazine, 2007). Ulrich has created a corporate culture that values constant
innovation and great design in its products (Chief Executive Magazine, 2007).
Under his leadership, the company has partnered with notable designers
providing items of quality at an affordable price (Chief Executive Magazine,
        He is also a very competitive individual (Reingold, 2008). When Wal-Mart
model seemed attractive, Ulrich tested the model in several Target stores. The
venture proved less successful than hoped. Ulrich then decided to focus the
strategy of the company on differentiation and low cost. Target has been the
only company to successfully implement such a strategy. Thus Ulrich is credited
with reinventing the discount retail industry (Chief Executive Magazine, 2007).
        Overall, Ulrich is an inspirational leader (Chief Executive Magazine, 2007).
Losing such an asset is detrimental to the company. As with any CEO transition,
there are many opportunities for problems to arise. The corporate culture could
change. Investors could become insecure about the company. The new CEO
may even take the company in an entirely different direction than his
predecessor. Fortunately, Ulrich has been grooming his replacement, Gregg
Steinhafel, since 1999 (Chief Executive Magazine, 2007).
    After graduating from Kellogg’s MBA program, Gregg Steinhafel worked in the
merchandising sector of Target for nearly 20 years. In 1999, Ulrich promoted him
to President and it has been well-known that he was to be the next in line for the
Chief Executive Officer. Like Ulrich, Steinhafel is well liked both inside and
outside of the company (Reingold, 2008).
    Steinhafel’s experience in the industry is extensive. He grew up in the retail
working in the family store (Reingold, 2008). This combined with the years at
Target allowed Steinhafel to develop a deep understanding of store layouts and
vendor relations. He also recognizes the importance of the presentation of the
product. In the “status room” Steinhafel and other executives examine possible
displays before implementing them into the stores. Not only does he examine the
displays, but also the advertisement campaigns. Target executives
micromanage many aspects of the business. Although time consuming, this
ensures the entire organization is on the same page (Reingold, 2008).
        As the new CEO, Steinhafel faces an economy in recession. Luckily,
Steinhafel is a self-proclaimed “wonk”; he loves the numbers. At a time when
financial information will be crucial, this change may prove beneficial for the
company. Steinhafel talks about the key drivers necessary to improve
performance and metrics.
        Since Steinhafel has been groomed for nearly a decade for the position,
the transition should run smoothly. Also, Ulrich will remain chairman until Jan 30,
2009 (Black, 2008). This can further hedge against any major problems arising
within the company. Perhaps one of the most important beliefs of both Ulrich
and Steinhafel share is the importance of the brand. Both strongly feel the focus

should not be on the people managing the company but rather the brand itself.
Ulrich has created a structure which is designed to outlast his time as CEO as
well as his successor’s time as well (Reingold, 2008).

                              Strategic Profile:
The Wal-Mart Corporation is the leading retail chain in the entire world. Through
discount prices and constant expansion Wal-Mart went from being a local
Alabama retailer to the leader of the market. Although there is significant
competition in the retail realm, Wal-Mart has been the leader by staying on the
edge of prices and the ability to be lean when it comes to cost cutting and
operating costs. The most important thing for Wal-Mart to focus on in the future
will be its ability to remain as dominantly competitive in a market that values not
only low prices, but also a certain quality of goods purchased. With the
continuing price increases on the supplier end, and the widening gap between
minimum wage and cost of living increases it may be difficult to be as competitive
and stay nearly as profitable even in the next five years. Another increasingly
large concern for Wal-Mart is its struggle to be competitive in international
marketplaces. The cut prices at all costs technique aren’t as well accepted in
many overseas countries. All of these will be important aspects for Wal-Mart’s

                             Porter’s Five Forces:
Threat of New Entrants:

In the retail world there is always a threat of new entrants. When the business
involves being a middleman to the consumer it is always an attractive industry.
Especially in the case of a discount retail merchandiser as there is a great
amount of need for inexpensive products considering the pending economic
downturn. For a business as large as Wal-Mart the threat of new entrants is less
as to compete with a corporation as big as them you would have substantial
barriers to entry. If you were not a new company then Wal-Mart has the privilege
of being the leader and watching you as you continue to grow in the competitive
The barriers to entry for any retailer are relatively low; all you need is a simple
business license, a location to sell products out of, and a supplier of what it is
you’d like to sell to your target market. On the level of a discount retailer such as
Wal-Mart the barriers to entry would be substantially higher. From large amounts
of capital, which would likely be unattainable, to an impossible amount of retail
space and enough supplier power to stock everything. Therefore the threat of
new entrants that will actually compete with Wal-Mart is virtually non-existent.

Bargaining Power of Suppliers:

Suppliers in the realm of retail have relatively minimal power when it comes to
the sales of their merchandise. Although the supplier has the ability to choose
which retail locations that they put their products into, they also must put their
product somewhere because in order to be competitive within their own market
they must have their products available to consumers. For an upper end product
it is less likely that they will have items for sale at a discount retail location,
although to reach a greater market it is sometimes necessary to get the market
share. In the case of Levi-Strauss, they created what is known as the orange tab
especially for Wal-Mart so that they could reach out to the lower income shopper.
Although the quality of the product is further diminished in order for it to fit the
prices of the discount retailer and still turn a profit, it reaches out to the lower
income bracket and makes it more recognizable of a brand to all types of
individual. Other businesses have done the same time, especially as Wal-Mart is
the leading retailer in the discount world, and is recognized as the place to shop
for the lower income bracket, especially within the United States.

Bargaining Power of the Buyers:

The buyer holds most of the power in the retail industry. It is up to them where
they are going to shop and Wal-Mart will not turn a profit if the buyer does not
come to their store. In Wal-Mart’s case the buyer is often times coming to them
because they offer the lowest prices and the most convenient locations, both of
which they have positioned themselves to do because of consumer behavior.

Although suppliers will dictate prices to a certain extent, and Wal-Mart and the
suppliers dictate what will be sold in the stores, the consumer dictates what will
be bought at Wal-Mart.
It is obvious that Wal-Mart would like a share of each market for the buyer as
they are making a one-stop shop for the entire traditional consumer needs.
Things such as photo places, eating establishments through joint ventures,
automotive, grocery, pharmaceutical and doctoral needs, plus traditional retail
needs are all available at Wal-Mart for the convenience of the consumer.

Threat of Substitute Products:

In the retail industry the threat of substitute products is relatively low. Aside from
the pressure from competition, the substitute product is the upper end location
retailer. Since the discount retailer deals with a traditionally lower income bracket
individual, it is less likely that they will ever go somewhere more expensive to
meet their needs at any point unless they reach a higher income bracket.

Rivalry Among Competitors:

Competitors are many in the discount retail marketplace, but often the will
differentiate themselves differently from Wal-Mart as they have the majority share
of the cost-based marketplace. Differentiation is key because direct substitutes in
the discount retail industry will only lead to failure. In the last decade one of the
strongest direct substitute of Wal-Mart, (Kmart), has been on a steady decline as
they cannot compete with the prices that Wal-Mart offers. Their inability to
differentiate themselves has lead to a popularity and consumer decrease, leading
to a slide that has forced them to close numerous stores nationwide and created
an inevitable end to the corporation in the next decade. Therefore the greatest
challenge in the discount retail market is differentiation and this will create no
direct substitute or competitor.

                               Internal Analysis:

Tangible Resources:

Wal-Mart has numerous resources within the corporation at their disposal when it
comes to retail marketing and maintaining a leading competitive edge. Wal-
Mart’s tangible resources consist of mainly stores and the ability to house
millions of items in each location. Although Wal-Mart is a retailer and houses a lot
of product at a cost to the manufacturer and doesn’t actually maintain the assets,
the stores themselves are the greatest resource, those and the warehouses.
Each store is a viable asset to the company and losing any of them would not be
good for the company. Aside from that Wal-Mart has relatively minimal tangible
resources, which of course they make up for with their intangible resources.

Intangible Resources:

Wal-Mart is not only a retail discounter, but also a cash-and-carry retailer to
exclusive club members. With the formation of Sam’s Club Wal-Mart entered into
the specialized retail industry during the 1980’s. In order to reach more people
and offer even greater discounts on wholesale items, Sam’s Club brings further
revenue to the largest discount retailer.
Online resources are now also an important key to Wal-Mart’s current success.
With the looming threat of the online marketplace growing larger and larger Wal-
Mart’s online enterprise will continue to grow in importance. Hand in hand with
Wal-Mart’s online presence is the storage space to put items that sell in the
online marketplace. Although it is viable to send out items individually from any
Wal-Mart store that is close to the sale location, it is much easier to centralize the
process with a series of warehouses and hopefully some ability for just-in-time

Organizational Culture:

Wal-Mart provides many jobs for those who cannot get jobs elsewhere or would
have trouble getting jobs based on certain personal conditions. Wal-Mart is one
of the number one employers of elderly and low-income individuals in the United
States. Although there is a high percentage of employees it is to be expected in a
service based retail that it will be hard to maintain employees, as many positions
are menial and available to anyone with zero experience. Often, employees are
either older or younger and are only at Wal-Mart until a better job opportunity

                                   VRIN Testing:

Wal-Mart maintains value by continuing to be the low-cost leader through smart
distribution of products and taking less margin on retail items within their stores.
They have learned to differentiate themselves by taking the smallest margin on
current products and selling a greater number of them to create the largest
amount of profit in the market. Often times although cheaper, and item at Wal-
Mart will only be a small amount less than elsewhere.


Wal-Mart is not rare, but it is differentiated by cost which does give them a form
of rare advantage over the competition. Other firms have to use other methods to
bring in customers and it can be difficult in a nation facing economic downturn to
show that price is not the number one thing that individuals should be
considering when choosing where to do their retail shopping. Although there will
always be larger discounters, they will never have the ability as Wal-Mart does to
expand to a greater amount of locations. And other traditional discounters deal
specifically in one are of retail and not all as Wal-Mart does.


Wal-Mart is difficult to imitate at this point because of the brand value. In order to
create the same cost differentiation that Wal-Mart has a competitor would have to
give up another differentiation point in order to remain profitable. Since
customers already go to the other stores because of their differentiation it is
reasonable to assume that if they changed then it would not draw enough new
customer base to make up for the customers lost in the transition. Therefore, it is
difficult to imitate Wal-Mart, even though it is relatively easy to enter into the retail


Wal-Mart as a corporation cannot be directly substituted for. Although the retail
products you purchase at Wal-Mart can be found elsewhere, the ability for them
to do everything from take family pictures, to sell gas, and sell retail items cannot
be equaled at anything aside from another discount retailer that differentiates on
something other than simply cost. Therefore, if Wal-Mart can continue to expand
and sustain sales, there should be no fear of direct substitution in the near future.

                                SWOT Analysis:


Wal-Mart is the leading retailer in the United States by a large margin. In a
market where the average consumer concentrates largely on price, and don’t
differentiate on anything aside from that. Because they have recognized that
many individuals are willing to put up with more crammed stores and congested
checkouts just to save a few dollars on items that need to be purchased.
Their large product offering and wide variety of products also helps to
differentiate them from other stores. With the store size and ability to offer all
products ranging from automotive to grocery, personal care to electronics, and a
wide variety of other services such as photography and banking, Wal-Mart really
is the only place you need to go for anything that you need. The combination of
low prices and the ability to get everything you need for your daily life really give
Wal-Mart the competitive advantage.
Wal-Mart has strong marketing and amazing supply chain ability. With shipments
every night and an ability to send something to any store that needs it within a
short period of time. With such a short turnaround, the ability to get a shopper to
come back the next day, or the day after that instead of essentially forcing them
to go to another store is much easier. Often when customers cannot find what
they are looking for they will go elsewhere; however, if there is an overnight
turnaround they are more likely to wait.


Wal-Mart has been expanding lately, and almost to an over expansion sense.
Because of their push to make most Wal-Mart locations into the new Wal-Mart
Supercenter, they have increased a lot of store size, added hundreds of new
items, including an entirely different product mix with the addition of grocery, and
they have sustained losses. With the economic downturn there is a chance that

there will be a large slowdown in the amount of new Supercenters throughout the
United States and internationally, at least for the time being.
Wal-Mart also has issues regarding the international market. Their international
plan has been very similar to the domestic plan, which has been largely
unsuccessful, especially in the German market where they are planning on
shutting down Wal-Mart entirely and focusing the efforts in other areas of the
world. Germany was a huge failure and each quarter spent there has been a loss
since its inception.
Other issues for Wal-Mart include product recall. With such a large product
offering there is higher risk of more faulty items, especially when the majority of
the product offering is of lower quality to help with overhead costs and ultimately
to provide the lowest prices. Although there is not a lot that Wal-Mart can do
about this, because to change that would be to change the structure they stand
on, it is still an aspect that should be paid attention to.


There is still large opportunity for growth in the retail industry. Even with
economic downturn there are still certain aspects of life that are necessities for
individuals and families and Wal-Mart offers these products, so sales will
continue. Since Wal-Mart is the lowest price provider, it is also likely that their
growth will be larger that the growth of competitors and may even cut into the
competitions revenue if the slump continues for an extended period of time. This
may prove to be a very effective time for Wal-Mart to focus on what they do best
and slow down on some of the areas where they are currently losing money.
Wal-Mart is continuing their push into different international markets, most recent
with the push into India and the Indian marketplace. Although there have been
issues with other international attempts in the past, there is a bright outlook for
India, and hopefully with the failure of Germany Wal-Mart will be more cautious
when deciding how to market themselves in the new marketplace. Although this
could also prove to be a failure for them, it is still more of an opportunity than
anything else.


Wal-Mart’s biggest threat is the opposition from communities. Especially on a
smaller town level it is often against the communities wishes to put a Wal-Mart
up. Local business suffers and it often times draws less desirable individuals to a
community. Many times Wal-Mart wins because they offer a product that is
different than anyone else, and numerous people wish to have one more near
them, but there have been several instances where Wal-Mart has been shut out
of a community and had to go elsewhere.
The other large threat is competition. Wal-Mart stands at the top of the pyramid
and therefore is the biggest competition for any of the other discount retailers in
the market. Although they are all also competing with each other they will view
Wal-Mart as their main competition, and they are not incorrect to do so. Although

it is hard for other retailers to differentiate themselves in the same way that Wal-
Mart does, it is not hard for them to offer other services that Wal-Mart cannot
because they have more working capital since they have slightly higher prices
and profit margins. If Wal-Mart were to do the same they would take significant
losses in their profits.
Aside from each of these Wal-Mart should be concerned with potential for
counterfeit products that could be sold to their store. Since the products are
traditionally of the cheaper variety and many of them are shipped from China,
there is a higher probability that the products could be counterfeit. Although this
is likely not a large concern it is still a threat and should be recognized as one.

Although Wal-Mart is the big kid in the discount retail world, there is a substantial
amount of threat for the future that both the competition poses to them and they
have done to themselves. Wal-Mart has no need to fear for being successful but
it is important to watch how they are displaying their corporate image on the
international scale. With poor examples such as Germany there is doubt in my
mind that Wal-Mart has done all that is necessary to decide how they will
differentiate themselves in the international market, and it is of more than a slight
concern for their future, especially in a time of economic slump/recession.
Therefore, it is my determination that Wal-Mart has made many smart decisions
thus far and should re-evaluate before moving any further.

                              Strategic Profile
        Retail industry has been a very competitive market that has thinned out
through the years, which have left mainly a few main companies in the market.
Sears Holdings Corporation wasn’t always Sears Holdings Corporation with
thousands of stores and subsidiaries. They started out as a catalog company in
1886 selling its products from out of a catalog by mail order and were called
Sears Roebuck. Around 1953 Sears Roebuck went north to Canada and entered
the merchandising markets by joining up with Simpson to create Simpson’s-
Sears, now known as Sears Canada. Through out the years Sears Roebuck
become a leader in the full-line and specialty retailers in the United States.
Carrying products/services such as: kitchen, bedroom, and bathroom supplies,
along with appliances, electronics, painting, jewelry, yard equipment, tools,
clothes, footwear, home installation, product repairs, auto, and marine as well.
        That was how Sears Roebuck was known until 2005 when Kmart
proposed to buy Sears Roebuck for $11 billion. When the merge is complete
they were known as Sears Holdings Corporation and the new third-largest
retailer in the United States. Additionally in 2005 Sears Canada sold their credit
and financial services operations to JP Morgan Chase Bank, which is a
subsidiary of JP Morgan Chase & Co. Following that Sears Holdings was able to
purchase 25.3 million shares of Sears Canada to then own 77.3% of the total
outstanding shares and 50.8% or the minority shares outstanding. (Data Monitor)
After the merge with Sears Holdings restructured their online sales website with
more available products to purchase including: automobile tires and batteries,
and health/wellness products that added and expanded their market range.
        With all the changes and buying of capital the leader of the change Alan
Lacy the chairman of Sears Holdings and Director of Sears Canada resigned.
Around the same time Craig T Monaghan was chosen as the Chief Financial
Officer of the company but his term ended quickly in January 2007.
        On a brighter note Sears Holdings is developing a new e-commerce
development center in Chicago. Also they signed a multi year contract with
EnerSys the manufacture and distributor of industrial batteries that would supply
Sears Holdings with new after market DieHard Platinum automotive and marine
batteries and applications. In April of 2007 Kmart the subsidiary of Sears
Holdings now decided to contract with Draftfcb to be their new advertising
agency that would took affect in May 2007, and Sears Holdings selected MPG
(US based) a media company to be their new media planning and buying Agency
affective in May 2007.

                           INDUSTRY ANALYSIS
Situational Analysis

        Along with all this change and restructuring Sears Holdings seemed to be
holding strong but recently has showed some falling in the market due to
consumer spending being down. Surprisingly a few broad line retailers recently
seem to faring pretty well in trading, Sears Holdings started the week of April 7,
2008 up forty four cent to 106.05 along with Wal-Mart, Target, and Bid Lots who
also were up but not nearly as much. Sears Holdings stalks stand at about twice
as much as Target and Wal-Mart and four times that of Big Lots. (Broad line
retailers rise modestly)
        Chief Executive Myron Ullman for JC Penny said with the higher cost for
energy, the reduced hiring, and weak housing market the credit markets are
weighing down the customers to spend. Ullman also said, “Consumer
confidence is at a multi-year low," in a statement. While tax refunds might help
for a while, he said, "We expect the continuation of a difficult environment over
the course of 2008."(JC Penny)
JC Penny is in the same market and is showing the same problems that most
retailers are showing in the market. All are looking for the competitive edge
through these hard times waiting for the economy to make a turn for the better.
        On a Sociocultural note Sears Holdings is active with in communities
working with struggling families that are having a hard time holding their homes
and family up and running. That’s why Sears Holdings have partnered up with
the organization Rebuilding Together that work to preserve and revive low-
income homes and communities. Sears Holdings also highly support the men
and women in our Armed Forces; they were awarded the Secretary of Defense
Employer Support Freedom Award that is given to employers who voluntarily
support their employees who serve in the National Guard and Reserve. Within
the industry it is important to do be an active participant in the community or its
going to be hard for people to support you because with all the other retailers that
are doing the “extras” people won’t come to the store.
        With 3,800 full-line and specialty stores across the United States and
Canada, Sears Holdings is a major employer with over 350,000 associates that
encourages teamwork to give superior customer service relations while
remaining profitable. By combing forces with Kmart has expanded their
demographics to anyone that is looking for a solid product from low income to
higher-class families with their wide variety of products from low end products to
mid/high grade products.
        Politically Sears Holdings is constantly involved with the Political Action
Committee to make sure they are complying with federal laws and regulations.
Law makers aren’t always educated in how laws can impact a company so Sears
Holdings work with law makers to make sure they are aware and prevent laws
that could greatly impact the industry or the market.

                                 FIVE FORCES
Strength of Rivalry amongst Competitors

        Sears Holdings is in a highly competitive market with large players like
Wal-Mart and Target being the third largest retailer in the United States right
behind Wal-Mart who is notably the largest retailer in the world and then Target.
On a Global setting Sears Holdings is only in Canada and has a strong presence
there as well. Sears Holdings prices are a little higher then Wal-Mart which is
hurting them currently as the economy is hurting and looking like it is starting a
recession. Wal-Marts low prices and ability to give jobs to lower skilled workers
is like a crutch to the retail market and is starting to put smaller corporations and
businesses out of business, which is causing a monopoly like status in some
areas. This is killing Sears strength against is competitors as they offer higher
quality products and services that cost more. And while people are trying to
save money they’d rather shop somewhere else.
        All the major competitors offer similar products but different brands that
hold different quality connotations held by the consumer. Sears Holdings for
example carries Kenmore Appliances that are held as high end products as well
as Craftsman Tools that are made in America. These products can carry
consumer loyalty because of the quality and Craftsman where it is made. These
are just a few products that Sears Holdings carry that strengthen their rivalry
between competitors that carry the most of the same products.
Bargaining Power of Buyers
        The buyers in the industry are simply you and I, not other companies or
businesses but us as individual consumers. As a consumer we do have some
power but not a lot as certain brands that Sears Holdings carries hold a certain
value while other products could have some room for price negotiation. Most of
what Sears Holdings sells has a predetermined value and going to be a universal
price in the region due to cost of living, cost of transportation, and cost of actual
        Typically though retailers try to get as much as they can for their product
or as much as the consumer will pay this price with vary with competition in the
area with such stores as Target, Wal-Mart, and similar stores. Whiles buyers
tend to buy the best product that they can with the money they have available the
slump in the economy hasn’t exactly help Sears Holdings situation because it
has tighten up the pocket books of consumers to look for the cheap substitute
that then gives power to the buyers and pressure on the retail industry to lower
prices to either minimize profit or take a lose just to get turn over of their

Threats of Substitute Products

      There are hundreds of substitutes in the retail business, what the
corporation has to rely on is its customer loyalty and products reputation stay
good. They can do this by offering incentives to customers such as

memberships and rewards for spending money in Sears’ stores. They can also
offer warranties for certain items such as appliances, furniture, electronics, etc.
Another area that can reduce consumers from buying other substitutes is the
customer service they receive in the stores, if a customer has a good experience
buying a product at one Sears store they can assume that the service will be the
same at all Sears locations.
        In the case of certain substitutes that are hot selling items in the market
Sears can purchase and carry those products on their shelves creating a
competitive environment unless the item is by a product only carried by a
competitor. In turn Sears Holdings holds certain brands that can also make
substitutes that only they can sell. The retail industry is full of the exact same
product just produced by different manufactures, but the hope is that your
manufacture can produce that product for the cheapest price or highest quality
that is worth paying for by the consumer.

Threat of New Entrants

        Threats of new entrants into the retail business are low but to become a
player that would compete with Sears Holdings and larger companies like Wal-
Mart, Target, and Dollar Store is not an immediate threat at all. It would require
large amounts of capital and a unique business technique that is going to be able
to sell a product of value for a lower price or have a product differentiation then
Sears Holdings or even Target or Wal-mart. Just like Wal-Mart and Target who
have found there niche and have done both with discount and product
differentiation to give to customers so would a new entrant.
        All the large companies hold bargaining power with their suppliers
because they buy in bulk and buy large enough orders that suppliers depend on
the constant business to keep them in business like a security blanket.
        The top three retailers in general control so much of the market share that
you would not be a concern for them due to the size of a new entrant into the
market at this point in the industry. Even variations in the industry are common
but to become a big league play in the market is hard because the larger firms
will find a cheaper less expensive way to produce a substitute of that variation.

Bargaining Power of Suppliers

        Key characteristic of the retail market is the retail store wants to buy for as
cheap as they can and for large quantities. Unless suppliers work together to set
prices or make deals with buyers they can lose business unless the corporation
is dealing with select supplier like Craftsman or Kenmore but in Sears case they
have formed relationships with those companies which have transferred some of
the power to the suppliers since Sears Holdings is dependent brands like those
that they guarantee to carry in their stores. It’s a give and take relationship in the
retail world because every one is looking for the lowest price but still have a
product that will sell.

       With the over seas manufactures being cheaper to contract with, they
have run many of the United States manufactures go out of business. When
long-term supply contracts have formed with certain suppliers the power of the
suppliers increases because the company has committed to doing business with
one company and then typically looses any power they might have had for the
set period of time. In the case of retail this is a typical occurrence because
stores will typically carry the same product year after year for each season
unless there are new products on the market.

Attractive Industry?

        Even though the barriers to entry fairly low, the bargaining power of
suppliers and buyers is intense with pressures on both sides due to the supply
and demand. The competition is rough to see who is going to receive the
consumer’s dollar. The major companies have squatted their territory in the
industry and are fiercely battling out who is going to win the price wars, Wal-Mart,
Target, and Sears Holdings have the power right now and not something I would
want to compete with even on a smaller basis because they are known for
running smaller businesses out. All in all the retail industry does not look
attractive to new comers unless they can find a niche in special locations
because people will rather go to a well established store that they can rely on.

Key Success Factors

        Sears Holdings have established their brand name and what brands they
are going to carry which have allowed them to be a reliable source for those
certain products over the years. They haven’t varied over the years and if
anything they have added new product lines that have been successful in
assuring customers the same quality and price time after time.
        Their known and respected services tag along with their established
product line that is reliable and well respected in the market. Sears Holdings
have also established a level of quality in their customer’s services and in the
store and in homes and commercially that have become industry standards.
Unlike Wal-Mart or Target, Sears Holdings offers in home services for some of
their products, which have been great successes.
        The product variation that Sears Holdings is able to carry keeps
expanding allowing them to grow in new areas of retail and strengthen the ones
they are already in. They have been able to balance their brand mix and
product offerings allowing customers to do more of a one stop shop or know they
can come to their store for specialty items.
        Sears Holdings have made key purchases of subsidiaries that have
definitely strengthened their stand in the market and become more appealing to
their customers. It has also eliminated some of their competition such as Kmart,
Land’s End, Sears Canada, Orchard Supply Hardware, and EnerSys.

                             Competitive Analysis
        In the United States retail industry there multiple competitors but Sears
Holdings main competitors are Wal-Mart and Target. Wal-Mart uses the low cost
technique to acquire their customers and steal part of the market share. While
Target tries to carry better quality items then Wal-Mart for a slightly hirer price to
attract their customers, but unlike Wal-Mart, Target tries to practice better more
moral business practices, which is Sears Holdings business technique as well.
Wal-Mart seems to have no respect of their workers or customers in reality all
they are looking for is a profit by selling low quality items for the lowest price they
can look to sell quantity instead of quality


       Strategy: Giving people low prices and the best deals so they can live
better while staying in front of the market.

       Vision: Sustain their market dominance through low prices and product

       Mission: Like their strategy their mission is to save people money so they
can live better.

        Capabilities: Strong market presence and if the economy dumped then
Wal-Mart will most likely be left standing with the market due to the low prices will
run all other retailers out of business then after they have control of the market
will be able to raise prices because there will be no one to compete with them.


      Strategy: Giving more people more for their money through their motto:
“Expect More. Pay Less.” They strive to do this by connecting business and
community through affordable products and innovative product design.

      Vision: Be Responsible. Accountable. And Committed to continuous
improvement in their products, relationships with customers and the earth.

       Mission: Fast, fun and friendly: They're the words that guide us in
creating your shopping experience, in person or online. At, you'll find
thousands of selections, with many exclusive to our online store. Fans turn to the
Red Hot Shop every week for a quick, sizzlin' style-fix. (

      Capabilities: There are hundreds of capabilities Target has the
opportunity to; such as they have expanded to India working. Target has focused

on its global market while also making a very strong move towards being
sustainable in the community, which other retailers haven’t really concentrated
on. They have the ability to capture a lot of market share locally and globally

Industry Key Success Factors

        Within the industry the factors that are successful are those that a
company can sell low cost items with a high quality while also providing a product
that is different from other vendors that set them aside. Retailers need to be able
to sell products at a lower price then other retailers otherwise the customers are
going to go to another retailer to get what they need. Also supplying a product
differentiation gives customers more of a selection and allows them to know they
are purchasing a product that is unique to that store and holds some value in
their eyes and the company.

                            INTERNAL ANALYSIS
Value Chain Analysis – Primary Activities

       Sears shows strong primary activities within their value chain their service
is superb while offering in-home service for certain products. When there are
problems their customer’s service departments are there to address any problem
the customer is faced with. They solve any problems that arise.
Refereeing to what was said about Sears Holdings signing Draftfcb to be their
new advertising agency that would took affect in May 2007, and Sears Holdings
selected MPG (US based) a media company to be their new media planning and
buying Agency affective in May 2007. This was a smart strategic move that
definably strengthens their marketing sector to have those agencies under
       Their operations have been kind of like followers in the industry except for
the creation of services that other retailers haven’t installed in their stores, which
have been smart moves. When it comes to be sustainability and other market
trends Sears seems to be close behind but not a leaders, which is hurting them.
Their operations are very strong though in the acquiring of subsidiaries and
brand names.
       Sears Holdings outbound logistics have been strong in their placement of
stores within communities that have a need for their product. Sears Holdings is
able to push their products out with out to much problem strengthening their
value chain in the outbound product distribution.
On an inbound logistic point of view Sears Holdings has created strategic
relationships with certain vendors and suppliers that add value to their business.
Brands Such as Craftsman, Kenmore, DieHard, and Land’s End’s are just a few
that have strengthen inbound logistics over the years.
       Overall the primary activities of Sears Holdings appear to be strong, they
have a great grasp on what the basic functions of their industry require them to
do and how to do it while staying up and competing with their competition while
providing great customer service.

Value Chain Analysis – Support Activities

        The procurement of Sears Holdings is a sound area of activity because
Sears has made its presence known over the years and established relationships
with its suppliers, which have also translated into lower prices, and better deals
that also transfer to Sears Holdings customers.
        Technologically Sears buys from its suppliers the newest technology on
the market to sell to their customers. They also use the newest marketing
strategies along with old ones to keep up with the changes in the market and
        From the human resource aspect sears tries to promote career hiring and
internal promotions to attract well-qualified employees and to be an attractive

company to work for. With good job security and chance of promotion is crucial
to workers today. They also work with community relations to build that strong
relationship that shows Sears Holdings doesn’t only care about profit but our
world that we live in at they function in.
With a small executive board the company tries to keep things decentralized that
allows information to flow better. This allows problems to be fixed sooner while
making the firm more efficient and effect. There are new faces though running
the show from the corporate office that have been only been changed in the last
five years but there should not be any concern because they seem to be doing
just fine in the path they have decided to lead the corporation down.

                               Core Competencies

A. Flexible to the market as it changes and the trends that the industry go
        When the market made the switch from catalogs to internet Sears
holdings was there to offer online ordering but still kept their well known catalog
that still serves as a source of income and a purpose for those who don’t have
computer access. This has allowed loyal customers to continue their business
with Sears the same way they have always done.
        The focus and the concern of many people today are how can we be
sustainable within organizations and where can we reduce our use of resources.
Sears is also making changes to help address this issue with their products trying
to use appliances that are more eco friendly and clothes that are more

B. Product differentiation
       Sears Holdings knows that to be a top competitor in the retail market you
cant just sell everything that that another store sells but that they need something
that there competition doesn’t have be give them that competitive advantage.
They carry appliances that Wal-Mart doesn’t carry while Target carries a limited
supply. Sears Holdings Also carries an auto department which Target does not
carry either. Sears Holdings has also been able to identify when they need to set
up specialty stores versus a full-line store, which has allowed them to open more
stores around the United States.

                              SWOT ANALYSIS

        Sears Holdings first strength is their strong market presence that
enhances their bargaining power and brand image that was touched on earlier.
They are all ready a presence that is known in the industry that gives them the
advantage over other new entrants or players that aren’t as knowledgeable in the
market. Being the third largest retailer in the United States also helps with the
amount of time people see the stores, because they are diversified with stores
connected to major malls and then they also have smaller store in smaller
communities that can’t support a large full-line store.
        A balanced brand mix has also been crucial in the survival of Sears
Holdings through out the year. They have the ability to balance their product line
so that they carry a variety that their customer market base will always be
satisfied with and bring them back to continue shopping at their stores. With the
selection of private brands such as Kenmore, Craftsman, and Diehard, in
addition to other mainstream brands Sears has been able to acquire a customer
base that comes to rely on these brands. Recently they have launched in their
women’s department three new brands Liz Claiborne, C.L.O.T.H.E.S, and Latina
Life from Jones along with two jean brands for both sexes American Exchange
brand denim and Buffalo Jeans. The addition with new brands and old brands
the balance has allowed Sears Holdings to reach a balance between revenue
growth and margins that would other wise are fairly difficult.
        In relation to balanced product mix Sears is also able to offer broad range
of products give a selection in price and quality for each item catering to more
then just one demographic while showing their ability to be close to a one stop
shop for multiple items. Sears Holdings Domestic offers several types of stores
as well ranging from full-line stores, specialty stores, direct-to-customer business,
and home services. All of which offer a wide ranch of products across several
merchandising groups. Groups starting with health and beauty products, toys,
home appliances, consumer electronics, tools, fitness, and lawn and garden
equipment, certain automotive services and products.


       First weakness would be in the decline in comparable sales between
stores and items. Even Kmart, one of Sears Holdings major subsidiaries is
showing a loss between 0.6% and 1.2% in the last year
While Sears Holdings showed a decline of 6% and 1.1% mainly in the lawn and
garden and home fashions sectors, which kind of makes sense due to the
economies down turn, people don’t have the extra resources for the little extras
just as fixing up houses and their lawns. Decline in sales also shows problems
with advertising strategy and product range and since the time of year these
products sell best is in the fall that would directly affect revenue growth.

         A weakness in any business would be product recall but Sears Holdings
have been affected lately be several recalls which not only don’t produce any
revenue but also send the image out to their customers that the quality of the
product is falling and Sears can’t be dependable anymore. When a product is
recall there is a direct cause and affect with the loss of product and lose of
corporation quality standard controls image.
        The last major weakness Sears is showing low returns on the last fiscal
year compared to their industry peers. This translates into the company not
being efficient in the way they are running the organization and its management
practices to keep the company positive. With weakness is going to directly affect
investor confidence and the way they are going to run the business in the future.


       Sears does have a positive outlook in the future if they pursue their
potential growth in private labeled products. The United States economy is
showing that private labels on food, drink and personal care is expected to rise
from $108 billion since 2005 to $137 billion by the end of 2011. (Data Monitor)
       With private brands accounting for one in every five items sold in the
United States retail stores, drug chains and mass merchandisers this is going to
grow and be a large opportunity for Sears to take advantage of in the near future.
Since consumers or going to favor private labels, utilizing private labels will also
boost company margins.
       While the United States is labeled as the pill popping country in the world
personal health care products are on the rise and could benefit Sears Holdings if
they take advantage this increase in personal healthcare spending. In some
cases combining food and drug store with in the company would also boost profit
       You can forget that our world is constantly on the internet and utilizing the
online market would be a very smart decision and path to pursue for Sears
Holdings as they already have a website increasing it and offering more options
would only benefit the company.


       First threat is scary because it’s not only a threat to sears but also all
companies and businesses across the country that would be the economic slow
down in the United States. As the economy shrinks, so do the profit margins,
market shares, and overall industries. What hurts the most is the key market that
is going to be affected is going to be Sears Holdings and subsidiaries.
       Along with the economic slow down there is intense competition that is not
going to go away but only get stronger as players in the industry become smaller
and the large players only become larger, reducing profit margin across the
board. The intense competition is only going good for the player that still growing
and is able to produce the lowest price for the product that consumers want.

        There is also the threat of business being consolidating which narrows the
market share making the competition even more fierce and competitive.
        Anyone say rentals? There has been an increase in the amount of renting
in the renting market specially in the housing district which can affect retailers
because houses are going to come with appliances and tenants aren’t going to
go out and buy new products, that will be up to the landlords who will get them fix
instead of replacing them which in return will lower sales for retailers like Sears.
(SWOT Data Monitor)

Moderate Growth Strategy:

Target Corporation is a domestic force when it comes to discount retail, and
needs to consider what is most important to the business, especially in time of
recession, as is currently the economic status within the United States. There are
major factors that need to be studied within Target to make sure their company is
running efficiently.

Although this strategy may sound like nothing will be happening within the
corporation and we hope the future will simply remain profitable for Target, this is
wrong, there is a lot of strategy involved in trying to maintain forward progression
in time of economic downturn. Although there is traditionally a boost in discount
retail during a time of recession, a lot of this extra growth often hits the ultimate
price drives Wal-Mart and Dollar Store. With these two in the picture it can be
figured that although there will be higher than stagnant growth, it will require work
to maintain positive growth in the profit margins. Although Target is currently
projecting a growth of two or three percent it is my modest opinion that more than
1.5% growth should not be anticipated.

With the plan we have set out the profits should reflect the collaboration of the
strategy and the current economic position. Although it is possible that the
recession will end and other strategies could be undertaken, it is most
economically effective right now for the following strategy to be implemented over
at least the next three years.

Currently Target projects that the revenue and profit margin rise about five
percent annually, this of course was in time of no recession and that should
certainly be taken into consideration. Target must concentrate on the following
things for their growth to continue in the next three years.

Brand Image:

Although during a recession it is a common thing to assume in order to boost
sales someone should concentrate on lower prices, especially in the discount
retail industry, but this isn’t necessarily the case for Target. Being a company that
prides itself on a blend of lower cost and higher quality product differentiation, it
could hurt their brand image to lower things too drastically. This doesn’t mean
that it is a bad idea overall, it’s just that too much of it could constitute a problem
in the future. Since the brand image is one of the most important factors in
Target’s differentiation strategy, it is one of the most important things to
concentrate on for the next three years. With the implementation of different
corporate teams to go around and look for problems with each store, the image
that is being displayed by every store is important to look at.

Product Offering (Private Labels):

Over the last few years Target has become stronger in their differentiation of
private labels within the store. From brands such as Archer Farms or Market
Pantry, to clothing lines such as Mossimo, or the Michael Graves home wares
collection, each label represents Target and that is another important part of their
brand image and also their variety of selection within the stores. As each store
can only fit so much, it is important to remember that a store filled with private
labels is not always the most effective business model. Therefore cuts should be
made on the corporate level, or if not cuts then the new development of more
private labels should be put on hold. It is important to keep Target’s product
differentiation present in order to keep the same demographic coming to the

Domestic Store Locations (Super Target Expansion):

Currently Target is in the process of transforming many of its domestic retail
locations into the new and improved Super Targets, which are the answer to the
Wal-Mart Supercenter on the competitive scale. Super Target is the second
coming of the attempts to answer to the Wal-Mart Supercenter. Starting in the
late nineties with the Target Greatland, which was the first sort of grocery/retail
location Target had attempted, the Super Target is the direct response including
automotive and full lawn and garden department. These stores will create a
better competitive unit with Wal-Mart; however, it may not be the time to pour
millions of dollars into a project that is designed to answer the call of the
competition. Although Wal-Mart is the direct competition of Target it doesn’t
mean that their way of doing business is best. With poor treatment of employees
and uncomfortable shopping conditions, Target stands ahead of Wal-Mart in the
experience department of shopping. It is my belief that these differentiation points
should be the ones concentrated on, as there is a different specific target market
that Target shoots for. Where Wal-Mart shoots for the lowest income bracket and
will not cater to any customer, Target shoots for a consumer looking for more
than the lowest price, although not shooting for the upper class by any means,
Target stands out as the store where you pay just slightly more for a little better
experience. This is Target’s number one differentiation point and should be
protected indefinitely. It is therefore this marketers decision that the current
projects should be continued through completion, but to halt all current future
plans of Super Target expansion until the project can become more economically
feasible within Target’s brand and image plans.

Inner Corporate Strategy:

Currently Target stands with a new CEO as of May 1st, 2008. This is a time of
certain uncertainty and should be taken as delicately as any other power change
would anywhere. Although it is clear that the new CEO has been breed by the
company and Robert Ulrich personally, it is always a little unbalanced when

someone leaves who has been a success story for the last two decades. It has
already been stated that Target’s Brand is the most important thing for the future,
which is a good starting point in deciding how the new leadership will be, and it
does seem as if it will be a seamless transition; however, it should be taken into
consideration to go through the corporate offices and find any sort of issues that
could arise. Although this is potentially the least important issue in the Moderate
Growth Strategy, it also has potential to be the most important issue if the new
leadership does not meld well with the style that has been present for a long time

International Expansion Potential:
        Target could implement a global expansion plan in addition to the
moderate growth strategy. The most likely candidate for international expansion
would be Canada. Each day trade between the United States and Canada
measures approximately $1.5 billion worth of goods. In 2006, trade totaled over
$500 billion. Large volumes of trade are possible because of the implementation
of NAFTA in 1994 (US Department of State, 2008).
        A viable option for northern expansion would be to open trial stores in
British Columbia. Possible locations could include Victoria and Vancouver.
Although marketing research would be necessary to identify possible markets,
these locations would geographically be ideal. Expansion into the Canadian
market would allow for Target to use existing distribution networks with only
some modifications. As cities near the border, both options would allow for
Target to use its current distribution network. Currently, Bellingham, WA is the
closest store in relation to these possible options ( With 25 regional
distribution centers and four import warehouses, the distribution infrastructure
could support the expansion (Datamonitor, 2007).

        Entering the European market could prove challenging. Wal-Mart’s
attempt to enter the German market was met with limited success. The company
failed to adapt its product offering to the local preferences. The company offered
low priced, low quality goods. Such products failed to sell well in a country, which
valued quality products. Aldi, Wal-Marts competitor within Germany, offers low
priced, high quality goods. Although Wal-Mart provides a wider variety of
products, Aldi still outsells them. (Ewing, 2005). Wal-Mart also failed to establish
relationships with local suppliers. Without connections with local suppliers, Wal-
Mart cannot provide products to meet local demand. This issue is especially
apparent with the food products. Wal-Mart is now creating relationships with
local suppliers (Ewing, 2005).
        If Target did choose to expand into the European market, extensive
research would be needed first find a suitable market and then to adapt to that
market. So as to not repeat the mistakes of Wal-Mart, the company could
research local preferences before entering the market. After the potential
product line is identified, the company can find local suppliers to meet the
demand requirements. Distribution within Europe would be eased by the existing
extensive infrastructure.
        The Asian market could be an attractive option for future expansion. Wal-
Mart has found success in Asia with its price leadership strategy. It may be
beneficial for the company to enter to gain market share early in the development
of the economies of the Asian countries. Like the other international expansion
options, extensive research would be necessary to identify potential markets,
local preferences and possible suppliers.

Financial Data:

Return on Assets

         During the last quarter filings Wal-Mart had slightly higher returns with an
8.80% return on their assets followed closely by Target with 8.05% and Sears
Holdings was only a fraction of both of those major competitors with 3.38% in
returns. With Wal-Mart being the industry leader, earning about $100 Million
more and operating on a global scale, Target had a similar return on assets,
which displays their ability to be efficient in use and designation of their funds in
operation of the company. Wal-Mart does dwarf Target in that aspect but this
should not take away from the 8% that Target does bring in.
         Looking at the last three years Target should hover around 8% for the next
three years to come, even with the current recession that is affecting the
economy. Also looking at the last time Target experienced the economy in
recession, they didn’t seem to be affected greatly, in fact, their stock price
improved by more than twenty dollars over the three year period. Target has the
ability to make profits from their investments, unlike many companies that cannot
turn over the quantity of product that Target does. Anyone can throw money into
operations without a plan but to receive a return is where a company can greatly
benefit giving them more options to expand or strengthen their position in the
Global Retail Industry.

Return on Equity

         Looking at the ratios for return on equity between Target, Wal-Mart, and
Sears Holdings there is a much larger variation in numbers. Wal-Mart leading
the way with a ratio of 20.42%, Target with a ratio of 18.42%, and Sears Holdings
bringing up the rear with a 7.07% return on equity. Keep in mind each company
is on their own tier when it comes to revenue and cash flow but the ratios still
show the efficiency in using the money shareholders have invested.
         Within the industry Target is showing a solid return at 18.42% and doesn’t
show any reason for that number to take a huge increase or decrease unless
Target starts to take some serious risks which they shouldn’t do during the
current recession, after the recession though Target should not have a problem
raising its ratio if it is able to keep growing similar to Wal-Mart and increase their
ability to gain profit from shareholders investments. Recession is natural, and
although it is a smart time to focus on what they have, Target should not react

Return on Investments

       One area that Target struggles with is investing; their returns are negative
which translates into losses. This is negative considering their lowest seeded
competitor Sears Holdings averages a return on investments of about 4.5 times.
Sears Holdings only recorded an investment of $30,000 in their last Cash Flow
report and a cash flow of about $163,000. Wal-Mart, a closer competitor didn’t

show any investments but showed a loss of $406,000 from cash flow investment
activities. Investments are a concern for the domestic retail industry recently,
most likely because of the current frugal economy. Usually a positive return from
investment means that management is making good monetary decisions for
company operations.
        If Target plans on continuing to take losses in their investments a good
recommendation would be for them to stop their investments or try to reduce
them at least and then research new options for their investments looking for
ways that benefit the corporation. Target does have cash to experiment and look
into new options but taking a constant loss does not make business sense for the

Price/earnings to Growth ratio

       Target shows a strong PEG ratio with 1.03 for the next 5 years being
predicted. PEG ratio is a valuation metric that is used to help determine the
company’s expected growth. The closer to 1 the better, but a ratio between 1 and
2 is considered normal. This ratio shows that the price and earnings are
matching that of the percentage of growth for the company. Wal-Mart shows a
PEG of 1.41, although still a strong number, it does not reach that of Target.
Sears Holdings PEG ratio is at a high of 3.18, which is not a good number
showing that Sears’ price is way higher in relation to their expected growth.
Target is looking the best for potential growth in the retail industry within the
bounds of their closest competitors.

Debt to Equity Ratio

         The Debt to Equity Ratio helps define how a company funds its
operations, whether it is stockholder money, revenue gained, or through debt. A
ratio of over one means that the corporation is fueled with debt. Unfortunately for
Target their ratio stands at over 1, a mere 1.116 means that Target is financing
its self with its debt, however little it must use, in comparison to Wal-Mart who
stands at 0.691 and Sears at a mere 0.32. Target isn’t in the wrong by utilizing
debt financing, but must be careful. If a solid growth period were to occur, than
that may help eliminate some of the debt it has acquired through it’s financing
and if they so choose can bring the ratio down below one. Although financing
with debt will not equal bankruptcy when a company is still profitable, there is
always the risk that the market will take a turn for the worse and there may be
issues repaying for Target to keep its head above water. Therefore it is an
important ratio to keep track of, although it is minor financing for Target in the
debt column.

Current Ratio

     Unlike Target’s debt to equity ratio they have a very strong current ratio
meaning they are able to pay back short-term liabilities and debt in an expedient

manner if not immediately. They can almost pay back twice as much short-term
debt than what they have now with a ratio of 1.695. Wal-Mart, who’s ratio is less
then one at 0.691 shows us an example of a company that doesn’t have the cash
on hand to address their short-term debt. Sears Holdings comes in the middle of
Target and Wal-Mart with a ratio of 1.339.
        With Target’s high ratio they are able to turn their product into cash fairly
easily, much easier than their competitors, who are not as able to turn their
inventory over efficiently. For Wal-Mart, this is potentially due to large quantities
of product that exceed Target’s reach. This is a very good sign for Target with the
current recession, they are able to pay back any short term debt they acquire
quickly, minimizing any problems that arise and allowing them to address other
opportunities in their market and industry.

Economic Value Added

       Target can plan an estimated modest growth rate of 1.5% due to the
current economic recession, which is less than the last three years where Target
has been at a stable 3%. There is no reason for Target to assume there will be a
growth stoppage within the Global Retail Industry, although currently they are
only located in the domestic market, it is important to look from an International
scale. In the future when the economic situation is looking better, Target will be
able to take advantage of overseas markets. Going international should only help
and increase the economic value added to their company if the timing is right and
the correct research and Global Economy are in place.
       Staying at their current status in the industry and strengthening it will only
help the economic value of their company as well and produce continued slow
mature growth. Not to forget that a 1.5% increase isn’t a small increase in
relationship to the amount of cash flow and revenue they handle on a daily and
yearly basis.
       When addressing ratios and comparing them to other industry players you
cannot forget about the amount of business each company does, although this
separates exact comparison it is still a valuable note on how each company
compares to the other players in the market. For instance, Wal-Mart on average
handles a lot more money and inventory than Target yet their ratios are the same
in some instances. This actually shows that Wal-Mart it more efficient in those
areas due to the increased amount of money they have to account for and
designate. The ratios are still important to Target because they still show how the
company is doing in relation to itself and how it manages its money.


Value Chain Analysis:

Target Value Chain:

Wal-Mart Value Chain:

Sears Value Chain:

Financial Ratio Spreadsheet:

                               2008 Ratios

              Target           Wal-Mart       Sears
ROA                     8.05            8.8            3.38
ROI                    -0.95             -2              4.5
ROE                    18.42         20.42             7.07
PEG                     1.03          1.41             3.18
Debt/Equity            1.116         0.691             0.32
Current                1.605         0.814            1.339

   2008        2009        2010        2011
$44,440,000 $45,106,600 $45,783,199 $46,469,942
      0.985       0.985       0.985       0.985

Growth Rate              1.5


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