Prepared for Dr. Pham
December 6, 2007
By Jackie Cornwell and Haley Babare
BUSA 499: Strategic Management
Pacific Lutheran University
Table of Contents
Company Profile…………………………………………………………….. 3
PEST Analysis………………………………………………………………. 4
Five Forces Model…………………………………………………………... 6
Value Chain Analysis……………………………………………………….. 7
VRIO Testing………………………………………………………………. 10
Competitor Analysis……………………………………………………….. 12
SWOT Analysis……………………………………………………………. 13
Financial Analysis…………………………………………………………. 16
Marketing Strategies………………………………………………………. 17
Potential Strategies & Implementation Strategies………………………… 20
History of the Target Corporation
Target's history involves a succession of mergers, name changes, and redesigning of previous
companies, (Lamiman, 2006). Here is a portion of the company’s historical timeline (At a
1946 - The Dayton Company’s bylaws establish the practice of giving 5% of pretax profits
back to the community.
1962 - The Dayton Company enters discount merchandising with the opening of its first
1968 - The bullseye logo is redesigned to its current appearance by dropping one of the
1974 - Target introduces uniform “plan-o-grams” to plan the layout and placement of store
interiors and products, creating consistency throughout the chain.
1985 - The weekly Target advertising circular is second only to the Sunday comics as
America’s most read newspaper insert.
1987 - Target introduces electronic scanning checkout to all its stores while software
processing expedites distribution center delivery process.
1995 - Target introduces their store credit card, now known as the RED card.
1995 - The first SuperTarget store opens in Omaha, NE.
1995 - Target launches Club Wedd bridal registry; a year later, Lullaby Club baby gift
registry is introduced.
1999 -Target launches Target.com, its online presence.
1999 -Target introduces its first designer line of products from world-renowned architect
2000 - The Dayton Hudson Corporation is renamed Target Corporation.
2005 - Target Corporation ranks among the top 20 corporate contributors in the nation,
giving back $2 million each week to the communities it serves. The company now has more
than 1,300 stores in 47 states, and employs more than 300,000 team members.
2007 -The tradition of giving 5% of our income to charitable organizations continues,
translating into more than $3 million in change each and every week.
Brief Company Profile
Target is the nation's second-largest general merchandise discount chain (Lamiman,
2006). Today, Target operates over 1,502 stores in 47 states nationwide, as well as more than
181 SuperTarget stores (Pressroom, 2007). Target markets merchandise in five categories:
consumable and commodities; toys, electronics, entertainment and sporting goods; apparel and
accessories; home furnishings and décor; and food and beverages (Lamiman, 2006). Many
Targets now include Target optical, Target Pharmacy, Target Photo, and two locations have
Well recognized for their bullseye logo, Target has become one of the most exciting
multi- national corporations based out of the United States. Target is one of the most respected
places to work. They are a company with a clear vision; “to be the best, in every area of their
business, in everything they do (Target, 2006).”
Robert J. Ulrich is the chief executive officer and chairman of Target Corporation. Ulrich
is considered to be a significant force in business and is credited with crafting Target's unique
brand, marketing image, and focus. He is widely known to be a key co ntributor to the company's
success in the challenging retailing industry.
Political factors include government policies relating to the industry such as: tax policies,
laws and regulations, trade restrictions and tariffs, etc. There are quite a few political factors that
significantly affect the discount/variety retail store industry. Recent changes overtime
regulations have had a significant effect on Target and many other discount/variety stores. As of
August 23, 2004 the following changes to overtime regulations took affect. Under the new
FairPay rules, workers earning less than $23,660 per year, or $455 per week, are guaranteed
overtime protection. This has strengthened overtime rights for 6.7 million American workers,
including 1.3 million low-wage workers who were denied overtime under the old rules (U.S.
Department). The old law required employees to work eight hours a day, five days a week,
where employers had to pay overtime for anytime over eight hours worked in a single day. The
new revisions allowed employees to work forty hours a week with overtime not based on daily
hours worked. This change in overtime regulations has affected how Target schedules and now
provides more flexibility to their employees.
Another political factor that could negatively affect the discount/variety store industry is
the recent Fair Share Healthcare Bill. The number of people without health insurance continues
to climb, from 41 million in 2000 to 46 million in 2004. At the same time, more companies are
cutting back employer-based health coverage. In 2000, 69 percent of firms offered health
coverage to workers, but in 2005 that percentage dropped to just 60 percent. As more firms drop
health insurance coverage, workers, taxpayers and other businesses are forced to pick up the tab.
The Fair Share Health Care Act has recently been implemented in Maryland and requires
organizations with more than 10,000 employees to spend at least 8 percent of their payroll on
health benefits, or put the money directly into the state's health program for the poor. Similar
Fair Share Health Care Bills are being increasingly discussed in various states. For example,
Washington State Representative Eileen Cody stated “The Fair Share Health Care Act is the best
approach to set a floor for health care. People who work for a living should have health care
(AFO-CIO).” Although the discount/variety store industry business model is built around
keeping prices and labor costs low, we very well could see government mandated health care
changes, shifting health care costs on employers such as Target.
Economic factors relate to changes in the wider economy such as eco nomic growth,
interest rates, exchange rates, inflation rate, etc. The condition of the country’s economy is a
determining factor in the success of companies in the discount/variety store industry. This is
because in times of economic growth, consumers have an increasing amount in their purchasing
power. On the other hand, in times of economic downturn consumers have less of an ability to
buy, and companies such as Target see the negative effects in sales.
Dramatically increasing oil prices, war, and natural disasters over recent years has
threatened inflation and unemployment, although the economy has continued to grow. According
to the 2007 Bureau of Labor Statistics, since August 2003, 8.31 million jobs have been created
helping the unemployment rate remain low at 4.7 percent. GDP grew at a strong 3.9 percent in
the third quarter of 2007. The economy has now experienced six years of uninterrupted growth,
averaging 2.8 percent a year since 2001. Real after-tax per capita personal income has also risen
by 12.7 percent, which is an average of over $3,800 per person (CIA).
The U.S. is a market-oriented economy, and businesses are experiencing more flexibility
than their counterparts in Europe and Japan in decisions to expand capital plants, to lay off
surplus workers, and to develop new products. At the same time, they face higher barriers to
enter their rivals' home markets, than foreign firms face entering US markets.
It is important to note possible long-term economic problems as well. Some possible
future economic problems include: inadequate investment in economic infrastructure, rapidly
rising medical and pension costs of an aging population, sizable trade and budget deficits, and
stagnation of family income in the lower economic groups. Also, the merchandise trade deficit
reached a record $750 billion in 2006 (CIA).
The U.S. certainly has a broad variety of people and changing demographics that can
make it difficult for marketers of brands to target individuals. The United States can be known to
be a rather rapid paced society with markets that are very diverse. Religions, race, nationality,
age, income, etc. vary greatly and are constantly changing. Dealing with this diverse nation
could be a challenge for Target. They are currently working to build a diverse workforce which
could be a great advantage for the company. Firms in the retail industry must identify target
markets and develop strategies and marketing campaigns to attract these consumers and develop
a form of brand loyalty. Due to changing demographics such as the aging baby boomers,
significant rise in the Hispanic population, and increase in single- mom parenting, companies
such as Target will need to continue to re-evaluate their product mix and target markets to keep
up to date on who their customers are, as well as, meeting their wants.
The U.S. has the largest and most technologically powerful economy in the world, with a
per capita GDP of $43,500 (CIA). That being said, the Internet has played a significant role in
the discount/variety store industry in numerous ways. Through the Internet, potential customers
can get information about the company, as well as, their competitors. Through the company
website, they can also perform searches, compare prices, stay updated on latest products, and
make purchases without leaving their home. This is a convenient benefit to consumers and
provides online retailers several benefits. Not only can retailers expand their product mix and
offer such things as “on- line only” products, but they can significantly cut costs by shipping
products straight from the warehouse.
In addition, the Internet provides companies with the ability to have another effective
promotional tool. Companies send e-mails to their customers to advertise their new events and
services by doing online advertisings, such as banner and pop-up ads. Companies can better
organize and manage their employees through a variety of software programs and creations on
Target has also recently created, Target Technology Services India (TTSI). This service
will provide technology solutions for its parent Target and its affiliated companies worldwide. It
will look at hiring 500 employees in the next three years and will work on application
development, and offer maintenance and support services. This offshore extension of Target
headquarters and is a reflection of their commitment to develop a global workforce in support of
their continued growth (India).
The credit card has also provided convenience and purchasing power to many shoppers,
including Target’s guests. In fact, Target has the largest retailer credit card, The Red Card, with
more cardholders than Macy’s and Nordstrom combined.
Five Forces Model
Threat of ne w entrants
The retail industry as a whole has low barriers to entry and low exit barriers. Because this
market has low entry barriers, there are a significant number of key players, which results in
lower profit margins. Profit margins do not fluctuate because the market is stable and self-
regulated. With lower barriers the industry is likely to have perfect competition in which no one
producer or consumer has market power to influence prices. However, in the department and
discount sector of the retail industry (the area in which we will focus), this idea is inconsistent.
The barriers to entry are high right now due to the fierce competition and size of the
companies leading the industry. For example, Wal-Mart’s profit margins are considerably
superior to every other company within the sector. Target’s profits are significantly higher than
its other competitors, but has nowhere near the strength of Wal-Mart’s numbers. These
distinctions in profits do not allow for perfect competition. The firms in this industry are so large
that they have the ability to increase their economies of scale. This helps to keep the threat of
new entrants low. In summary, the threat of new entrants is low. Economies of scale and capital
requirements are the largest barriers to entry in the discount variety store industry.
Bargaining powe r of supplie rs
First of all, there are numerous, satisfactory substitute products readily available to each
of the companies in the discount variety store industry. Due to the fact that there are countless
others out there waiting to jump at any opportunity to sell to these large companies, suppliers
have a limited amount of bargaining power. The switching costs within the department and
discount segment of the retail industry are very low, and the companies in this sector control the
suppliers because they are large and aggressive. Every supplier wants to be the one supplying to
these competitive companies but have no chance, if they are not willing to supply at low prices.
The industry is simply too cutthroat.
Bargaining powe r of buye rs
Buyers have all the power in the discount/variety stores industry. The purchasing power
for individuals throughout the U.S. could potentially decline in the future due to some of the
rising economic issues. Even if this were to happen, consumers will still have the upper hand
due to the competitiveness of this industry. In our opinion, this could further increase the buyers
purchasing power, in the sense that, companies will have to work harder to make American’s
spend their money. Also, consumers can easily go to another store to find a more competitive
price or a better selection. They hold all the power; it is ultimately their decision as to the
demand of products.
Threat of substitute products
As there are many discount department stores to choose from, the threat of substitute
products is high. One factor that lessens the intensity of this threat is the idea that the leader in
this industry, Wal-Mart, works for the lowest price. Target, on the other hand, has a different
strategy; they work toward higher quality products as reasonable prices.
Rivalry among competing firms
The competition within the discount and department sector of the retail industry is
intense. With a company like Wal-Mart leading the market, other companies in “the race” have
to work hard to further develop their core competencies and innovate new, differentiated ideas.
(See Competitors Analysis for greater detail)
We believe at this point in time, the retail industry is attractive for those who are already
established. We think that for those on the outside, it may appear to be attractive as there is a
global appeal; however, the competition right now is aggressive, and the front-runner is nearly
impossible to beat. Wal-Mart is leading the industry by great lengths and can afford to buyout
small, unsuccessful companies if they so choose.
Although, the discount variety store industry is very unattractive for any business
wanting to enter into it. However, those who have already established a sturdy foothold realize
that the U.S. is very consumption-oriented, which is excellent quality for this industry. Also,
companies with a strong foundation here in the U.S. could potentially go internationally as many
countries throughout the world are developing at a rapid pace.
Value Chain Analysis
The inbound logistics include an Expeditor, who is responsible for managing carrier,
vendor, operational management and merchandising relationship to accomplish inventory
logistics. Furthermore, it consists of a Regional Transportation Supervisor, who leads a team of
technicians that are responsible for the delivery of shipments and the use and maintenance of t he
shipping resources. Lastly, the inbound logistics involves a Region Transportation Manager that
leads and develops a team of executives to ensure a smooth and efficient flow of merchandise
between distribution centers and the Target stores (Careers, 2007).
Target’s operations include many team members, leaders, and managers, whom all work
together to make sure the necessary activities are completed. There are team leaders and group
leaders who work directly above the hourly warehouse workers. They are in charge of leading
their teams in a fast-paced environment and are required to run his/her distribution center
productively. The group leaders have a few more strategic aspects to their job. The senior group
leader manages all of these team members, but most importantly, focuses on budgets,
improvements to the systems, and forging good relationships internally and externally. As a
general manager of operations, he/she is responsible for the overall success of the Distribution
Center they are working for as well as make sure it is a great place to work. They work closely
with all areas in the business as well as strategize with the senior group leader to make their
division most productive (Careers, 2007).
The following is a very general description of Target’s outbound logistics system. Target
receives trucks on designated days. Depending on the size of the store, Target will receive
between three to fifteen trucks per week (with a greater quantity of trucks arriving d uring busy
times, like the holidays). The products that arrive on the trucks are based upon forecasts from
previous years, as well as, their usual products that are automatically being reordered through
their “pushing to the piece” system. Once the truck arrives, “backroom” employees unload the
products, stock the new merchandise on the backroom shelves, or pull what needs to be put out
on the floor. Later, sales floor stocks their shelves with the pallets that the backroom has pulled
for their department. Everything is scanned and put into the Target system.
Marketing & Sales
Target has also begun an unconventional marketing program that is referred to as
dimensional advertising. One example is Club Wedd. “In 1998 it launched a bridal registry
program, Club Wedd. The registry quickly became the largest in the world, surpassing Macy's
long-established program and confirming Target's upscale positioning relative to Wal-Mart and
Kmart (Barwise & Meehan, 2004).”
Business throughout the world has changed. The Internet is an extremely useful tool for
businesses today. In 1999, Target began its online existence. Customers can lookup and
purchase items or products from Target very easily now. They do not even need to leave their
homes. Convenience throughout the United States is a huge selling point, and Target joined the
rest in establishing a website where customers can do shopping, provide feedback, lookup
information, find the weekly ads, and much more online.
In general, Target has been very successful with most all of their advertising and
marketing strategies. As we have mentioned many times, Target has a very well known and
strong brand image. There are so many aspects that Target has nailed. They have weird, quirky
commercials that can’t be ignored by viewers, as well as the Target dog, the bullseye, and their
slogan, “Expect more, pay less”.
Target has three positions that we found very interesting. These employees help protect
guests, team members, shareholders and communities by implementing programs that maximize
safeness. They work to minimize theft and fraud as well as increase profits by reducing
preventable losses. These positions include: an assets protection group leader, an assets
protection investigator, and supply chain security.
On top of this, there are electronics systems specialists, facility operations group leaders,
and facility operations senior group leaders, who help keep productivity at its best by
guaranteeing the distribution centers’ equipment and systems are properly maintained. They
lead training and development for executives and technicians can properly run facilities (Careers,
Target aims to guarantee all of their procurement arrangement to meet the organizations
goals. They constantly work to improve delivery, increase efficiency, and increase profits. It
will be obvious after going through the infrastructure section of this paper that Target has a
simplified supply chain that links everything together.
Target Corporation uses the most cutting-edge technology to help keep their supply chain
effective, efficient, and connected. The company has a very in depth website that is very useful
in keeping them connected with the world. They have a new corporate team that works to create
competitive advantage for business intelligence, marketing, off-shore and online initiatives
through innovative use of technology. They are constantly designing and creating innovative
solutions for many applications and information technology systems (Careers, 2007). Not to
mention, they design these so that they link to the company’s overall objectives and goals.
“Target also has a Corporate Systems Development team that supports key headquarters
functions and application development needs using innovative technology and methods. They
also support other teams, including Finance, HR/Payroll, Property Development, Assets
Protection and Corporate Intranet (Careers, 2007).”
Target Corporation has setup a software development center in Bangalore called: Target
Technology Services India (TTSI). It was setup through a joint venture with ANSRSource, the
Texas-based BPO outsourcing company. Target has a significant majority in the joint venture.
Paul Singer, a former IT strategist, said that the partnership with ANSR was to utilize its
knowledge of India and technical expertise. ANSRSource was founded in 2004 specifically to
help US corporations establish and manage offshore technology operations (Bangalore, 2005).
Paul Singer also stated, “Retail has become more of a technology business. To differentiate
ourselves from time to time, huge investments in IT are critical and our needs are growing each
day” (After Tesco, 2005).” Target also has a Technology Services team that helps create a
competitive advantage by enhancing the guest experience in Target stores through state of the art
technology. The TTS team works to design solutions for the future and provide world-class
Human Resource Management
Target’s HRM contributes a considerable amount to its employees. The following are
only a few of the opportunities they provide:
For Your Health – heath & dental benefits and wellness programs
For Your Time – vacation days and personal & national holidays
For Your Growth – training & development and opportunities to advance
For Your Future – retirement: pension & 401k (financial security)
Big Rewards – team member discounts and partner discounts (Careers, 2007)
The Human Resources department recruits team members, develops tool that can help team
members maximize their contributions, develops a culture where everyone is valued and
rewarded for hard work and positive results. The department also works to build the Target
brand through strategies and work style. They work to influence and guide change to better
overall outcomes. There are three positions in there HR division: an HR Executive-in-Training,
an HR Representative, and an HR Manager. Each has different roles in the hierarchy but all are
striving toward positive culture and strategic goals within the organization. There are also a
couple of teams within the Target Human Resources division, a generalist team and a
recruitment team. The generalist team works with recruiting, compensation, and employee
relations to provide ongoing HR support. They are the generalists that work with every issue,
every change, and every department. The recruitment team is just that; they recruit hard and
ensure each candidate has a “Target-brand experience” (Careers, 2007).
Target has an interesting infrastructure in that the company has a large supply chain.
Each division plays an important role.
Transportation: connection between internal purchasing, import warehouses,
distribution centers, and stores
Customs/Imports: bring products from more than 80 countries, ensure customs
border protection laws are abided, process financing, payment, and accounting for
Vendor Operations: offer logistical support, make vendors meet Target’s
Distribution Planning and Engineering: up-to-date on new technologies, process
and network configurations, find ways to improve the supply chain, forecast and
Distribution Operations: consult and improve the distributions centers, driving
service, financial, safety and quality performance
Facility Operations: ensure that every distribution center has the technical
resources they need, maintain grounds, building, equipment and systems
Distribution Human Resources: recruit, develop tools, create a positive culture,
and help carry out the brand (Careers, 2007).
In addition to the supply chain, each internal department within Target plays a significant
role as well. Earlier on, I discussed the role of general managers and planning within Human
Resources, and finally finance, accounting and legal are vital to the success of the company, also.
Target has its own Infrastructure and Support team. This team engineers and implements
infrastructure solutions and provides production systems assistance for all Target properties.
These teams include: Enterprise Support Services, Client Services, Enterprise Tools, Distributed
Database, Operations, Engineering, Technology Acquisition and Vendor Management (Careers,
Target is an innovative and influential retail store. Their mission statement focuses on
four core roles: great guest service, clean stores, in-stock merchandise, and speedy checkout.
These guidelines make up the culture of the fast, fun, and friendly stores.
Target has a variety of capabilities that serve as a source of competitive advantage over
their rivals. Marketing is one of Target’s strongest core competencies. From their “expect more,
pay less” slogan to the company’s well-known bullseye logo, Target has become a very
identifiable company. In fact, 96 percent of people recognize the bullseye even nudging out the
apple and the swoosh (Target, 2007). Unlike their major competitor, Wal-Mart, with their
“smiley face” logo, the majority of our society accepts Target as an all- around good company;
whereas, Wal-Mart’s image has become somewhat tainted. Top designers have signed
agreements with Target to sell their items at affordable prices. For example, Victo ria Secret
produces the Gillian O’Malley lingerie line that is sold at Target (Target, 2007). Although
Target’s competition offers some designer brands, Target provides a higher quality selection.
Target also recognizes the value of human capital. The company realizes that they have a
better chance of retaining their employees, partners, and customers if they are appreciated. They
understand that low wages never equal a satisfied employee, which can reflect negatively on the
company. Target identifies that morality in the workplace can be raised in other ways other than
wages. In fact, they have a requisition account that has been created and is used for cost-saving
company sponsored things, such as recognition walls, birthday parties, cookouts, etc. (Target,
It is obvious that Target values its customers as they refer to them as their guests. They
work hard to live up to their fast, fun, and friendly motto as well as provide a clean, bright, and
comfortable shopping environment. To help satisfy their guests, Target also attempts to provide
a speedy checkout process. Not only does the company strive for excellent guest service, but
their customers have come to expect it.
Rarity of Capabilites
Unlike any of Target’s competition, many Target stores have been positioned in
accordance with trendy malls. Even though Target is often located within ten miles of one of its
competitors, they have the advantage of convenience being connected with numerous other
Target is committed to the pursuit of profitable and sustainable growth consistent with
their unwavering dedication to the social, environmental, and economic well-being of the global
community in which their guests, team members, and shareholders live and work. This
commitment reflects a conscious, company-wide dedication to constant innovation and
improvement in everything they do. They strive to ensure the ongoing health and strength of the
communities by giving more than three million each week and hundreds of thousands of
volunteer hours in support of education, arts, and social service organizations. They show
respect for their physical environment through the products they offer, the facilities they build,
the vendors they work with, and the resources and materials they use (Target, 2007).
Since 1946, they have contributed five percent of their annual income to serve the local
communities. Target strives to be a leader in recycling and salvage, minimizing their impact on
the environment and has done so for decades. They also strive to satisfy their guests’
preferences by offering natural, organic, and eco- friendly products, including items made from
recycled materials or all- natural ingredients. Target uses LEED rating system as a guide for their
newer stores. LEED stands for Leadership in Energy and Environmental Design and helps to
improve the quality of Target buildings and decrease their impact on the environment. One of
the programs Target has created is Take Charge of Education, which has raised more than two
hundred million for schools since 1997. Another program that they have implemented is
partnered with the Tiger Woods Foundation called, “Something”, which helps kids build
character as they identify and achieve their dreams (Target, 2007).
Costs to Imitate Capabilities
As previously mentioned, as one of Target’s valuable capabilities and core competencies,
the company’s brand recognition is hugely important to their success. In order for another
company to reproduce Target’s brand recognition, a huge amount of time, money, and
commitment would be required. There is no way any new entrant into this market would be able
to create this type of recognition for a significant period of time. It would also require a great
deal of financial resources specifically in their marketing department.
Although Target has many capabilities that are rare, costly, and valuable; we with believe
with time and resources their core competencies are substitutable.
Target Corporation competes directly against other discount retailers such as Wal-Mart,
K-Mart, and Costco. Since its founding in 1962, it has intended to differentiate its stores from its
competitors by offering what it believes is more upscale, trend- forward merchandise at low cost,
as opposed to the traditional concept of focusing on low-priced goods. Target stores tend to
attract younger and more educated and affluent customers than its competitors. The following
table was taken from Yahoo! Finance and reflects a financial comparison of Targets competitors
Wal-Mart, Costco, and K-Mart.
Direct Competitor Comparison
TGT COST Kmart WMT Industry
Market Cap: 45.63B 28.85B N/A 184.98B 2.02B
Employees: 352,000 70,000 1,330,001 1,900,000 12.70K
Growth : 9.50% 3.00% N/A 8.90% 7.90%
Revenue : 61.94B 64.40B 18.65B2 370.45B 4.18B
Gross Margin : 32.85% 12.35% N/A 24.21% 32.52%
EBITDA: 6.99B 2.20B N/A 27.65B 273.40M
Margins: 8.69% 2.53% N/A 5.82% 3.03%
Net Income: 2.96B 1.08B 1.11B1 12.73B 80.12M
EPS: 3.434 2.369 N/A 3.058 1.22
P/E: 15.7 28.05 N/A 14.87 18.01
PEG (5 yr
expected): 1.08 1.66 N/A 1.24 1.18
P/S (ttm): 0.74 0.45 N/A 0.51 0.45
COST = Costco Wholesale Corp.
Kmart=Kmart Corporation (privately held)
WMT = Wal-Mart Stores Inc.
Industry = Discount, Variety Stores
= As of 2005 = As of 2007
Wal-Mart Stores are by far the largest retail chain in the world, operating retail stores in
various formats, including supercenters, discount stores, and neighborhood markets. Their slogan
“Always low-price!” has become their mission statement. Bigger than Europe's Carrefour,
Tesco, and Metro AG combined, it is the world's #1 retailer, with about 6,775 stores, including
some 1,075 discount stores, 2,250 combination discount and grocery stores and 580 warehouse
stores. Also, about 60% of its stores are in the US, but Wal-Mart is expanding internationally and
is currently the number one retailer in Canada and Mexico. Wal-Mart has also expanded and
opened stores in Asia, Europe, and South America (Yahoo). Wal-Mart employs about 1,900,000
people. The company recorded revenues of $348,650 million during the fiscal year ended
January 2007, an increase of 11.7% over 2006. The operating profit of the company was $20,497
million during fiscal year 2007, an increase of 9.5% over 2006. Their net profit was $11,284
million in fiscal year 2007, an increase of 0.5% over 2006 (Datamonitor).
Wal-Mart isn't the biggest in "every" business. Costco Wholesale is the largest wholesale
club operator in the U.S. (ahead of Wal-Mart's Sam’s Club). The mission at Costco has guided
how the company operates, and states “to continually provide our members with quality goods
and services at the lowest possible prices.” The company operates nearly 490 membership
warehouse stores serving more than 47 million cardholders in 37 U.S. states and Puerto Rico,
Canada, Japan, Mexico, South Korea, Taiwan, and the UK, primarily under the Costco
Wholesale name. Stores offer discount prices on over 4,000 products in bulk packaging, ranging
from alcoholic beverages and appliances to fresh food, pharmaceuticals, and tires. Certain club
memberships also offer products and services such as car and home insurance, mortgage and real
estate services, and travel packages (Yahoo).
Kmart is the #3 discount retailer in the US, behind Wal-Mart and Target. The mission
statement at Kmart states: “Kmart will become the discount store of choice for middle- income
families with children by satisfying their routine and seasonal shopping needs as well as or better
than the competition.” They sell brand- name and private- label goods (including their Martha
Stewart label), mostly to low- and mid- income families. It runs nearly 1,400 off- mall stores
(including 55 Supercenters) in 49 US states, Puerto Rico, Guam, and the US Virgin Islands.
About 1,100 Kmart stores contain in-store pharmacies. The company also operates the
kmart.com Web site. Low sales and the decrease supplier confidence led Kmart to file for
bankruptcy in 2002 although were able to make a come back in 2003. (Yahoo).
Target has a very strong market presence. Target has over 1,488 stores in 47 US states,
including 1,311 Target general merchandise stores and 177 SuperTarget Stores. Target's large
size and vast resources allow it many benefits; cost reductions through economies of scale and a
strong brand image that allows it to introduce high- margin private label brands.
Another strength Target possesses is it’s balanced brand mix. Target has a brand mix,
comprising private labels and external brands. The company sells merchandise under its private
label brands such as Archer Farms, Choxie, Circo, Embark, Gilligan & O'Malley, Kool Toyz,
Market Pantry, Merona, ProSpirit, Room Essentials, Target Limited Edition, Trutech and
Xhilaration. Additionally, the company stocks prominent brands. They have slowly begun
introducing “inexpensive but designer brands”. Target’s objective with this particular startegy is
to appeal to and gain a wealthier customer base. Some of these designer 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'Brien, Waverly, and Woolrich. By
providing designer brands, they hope to attract a customer base that appreciates both the new
designer brands not to mention the low prices.
Target has also accumulated an increasing operating cash flow that they have used to their
advantage. “Strong operating cash flows have allowed the company to invest heavily in new
stores and expansion and remodeling of existing stores. The company's capital expenditure was
$3,068 million in fiscal 2005, $3,388 million in 2006 and $3,928 million in 2007. Increasing
operating cash flows have also enabled the company to retire long-term debt of $1,487 million in
fiscal 2005, $527 million in 2006 and $1,155 million in 2007. Target has also paid regular
dividends during the last three fiscal years (2005-2007) besides repurchasing shares worth $901
million in fiscal 2007. Strong operating cash flows have allowed the company to invest in growth
initiatives, strengthen its balance sheet and reward its investors (Datamonitor, 2007).”
Quality control is one issue or weakness Target is currently dealing with. Target gets its
merchandise from numerous vendors, because of this, they little control on the quality of their
products. Lately, the company has been involved in several product recalls. For instance, Target
recalled activity cart toys in April 2007, because it could choke young children. In November
2006, Target also recalled various toys containing lead paint. These products could cause adverse
health effects if ingested by children due its toxicity. This is a current issue many top
manufacturers are dealing with. In addition, some toys had sharp points that could result in
laceration hazards for children. Frequent product recalls are due to the lax quality controls Target
possesses. These recalls are harming the company’s brand image by reducing customer
confidence, which in turn could have a corresponding adverse effect on customer purchasing and
Another weakness Target is facing is due to recent litigations. In August of 2006, Target
was accused of racially biased hiring practices by the Equal Employment Opportunities
Commission. The US 7th Circuit Court of Appeals in Chicago reversed a 2004 Wisconsin trial
court decision regarding four black job seekers who were denied management level job in Target
because of their skin color. The company settled the racial bias case with a payment of $775,000
in January 2007. Such litigations reduce the credibility of the company as an equal opportunity
employer. Racial bias litigations such as these form negative company image, which could also
turn away customers.
Target is US based company that is dependent on the US market for most all of their
revenue. The company does not operate in any other geographical region, and in result may be at
a competitive disadvantage. Competitors such as Wal-Mart have global operations, which
provide them with a better revenue profile and economies of scale in purchasing. A geographic
concentration of revenues makes Target vulnerable to worsening market conditions in the US
and makes the company uncompetitive compared to global retailers such as Wal-Mart.
The market for generic drugs is growing rapidly as health costs are increasing. The
growing demand for generic drugs is going to be helpful to Target as generic drugs have higher
margins relative to branded drugs. Many patented brands are expected to expire within the next
several years, and since the generic brands work just as effectively as branded drugs and cost
twenty to eighty percent less, it is assumed that many customers will choose the generic drugs.
In order to stay competitive, Target introduced a four dollar generic prescription drug program in
all of its pharmacies. The company also plans to extend this program into nine states where Wal-
Mart is not yet competing. Target has a strong presence in several key markets; therefore, the
company is well-positioned to increase its share of the generic drugs market in the United States.
The photofinishing market has been growing at a rapid pace over the last few years in the
United States mainly due to the increasing popularity of the online digital photo service. The
percentage of digital prints ordered has increased immensely in the past few years. In 2005,
Target and Yahoo introduced a digital photo service called Target Yahoo Photos. It is located
within Target’s website and in its stores. This service enables customers to store, share, and
print their digital and camera-phone photos, and order customized gifts with photos printed on
them. The market for digital photos is growing at an exponential rate, and Target is sure to
Another opportunity that Target is taking advantage of is the growth in designer brands.
Private label products in the US are seeing a strong growth in sales. Private brands now account
for one of every five items sold in the US retail stores, drug chains and mass merchandisers.
Target already has an established portfolio of strong private label brands, which cater to various
market segments. In addition to providing savings to consumers, private label brands provide
higher margins than branded products to the retailers. Increased consumer acceptance of private
label products would have a favorable impact on the company's margins.
The retail industry is characterized by a large number of players, with many of them having
worldwide presence. Target competes with national and local departmental stores, specialty, off
price, discount, supermarket, drug stores, independent retail stores and Internet businesses, whic h
sell similar lines of products. Although Target has various stores across the U.S. they are
relatively small in comparison to their competition and have not yet moved operations outside of
the U.S. This could leave Target at a huge disadvantage, while ma ny of their competitors have
In addition to these players some of the foreign retail giants are also eyeing U.S. for further
expansion. Tesco recently announced its intention to enter U.S. market, by opening stores on the
West Coast of the U.S. by 2007. Increasing competition due to industry consolidation and new
larger entrants could affect Target’s margins and market share.
The slowdown in the U.S. housing market is also threatening to Target sales. The US
housing market has recorded a distinct slowdown in 2005. Housing prices have moderated in
several markets, but an expected market-wide meltdown did not happen. Home furnishings and
decor contributed 19% of the total revenue of Target in fiscal 2007. Decline of housing prices in
several markets is likely to reduce demand for home improvement products. As a result,
revenues of retailers such as Target are likely to come under pressure.
“According to OPEC economic outlook 2007, the US real GDP growth could fall from an
estimated 3.4% in 2006 to 2.4% in 2007. A slowdown in the US economy would depress the
purchasing power of the retail customers, which in turn will depress revenue growth and reduce
margins of Target (Datamonitor, 2007).” Rising interest rates are already beginning to decrease
consumer spending, where as the percentage of disposable income that US households pay out to
service mortgage and consumer debt is increasing. This reduction in consumer spending does not
look good for retail chains like Target. Slowdown in the US, the only market for Target, will put
pressure on the revenues of the company.
Target has a variety of marketing strategies. One strategy Target executes is selling
different products each year. One important aspect of Target’s strategy has been in the home
furnishing and apparel areas. They have slowly begun introducing inexpensive, but designer
brands. Target’s objective with this particular strategy is to appeal to and gain a wealthier
customer base. They want to bring in customers who are attracted to these new designer brands,
but also appreciate their low prices on the essentials (Lamiman, 2006).
Some other of Target’s marketing programs in which they give back to the community
Sponsorship of the restoration of the Washington monument
Take Care of Education program
Partnership with Coca-Cola in the Color My World red line campaign
Sponsorship of the CBS program Survivor (Barwise & Meehan, 2004).
On a completely different note, Target “…has launched a new format that provided 50
percent more space for food and beverages in its general merchandise stores. This has allowed
Target to double its food offerings,” (Lamiman, 2006).
Each customer expectation directly correlates with the Target brand strategy. The reason
customers or “guests” have certain expectations is due to the corporations promotion of the
meaning of their brand. As mentioned before was the idea that Target is supposed to be clean
and have helpful employees. Some of the strategies they use to ensure they receive those results
are “Fast, fun, & friendly” service. They hire friendly faces and the employees are required to
greet customers as well as ask, “Can I help you find something?” Cleanliness and organization
begins in the parking lot to the end of the store. The corporation wants a clutter-free
environment that is easy to navigate. The layout of each store is open with relatively large aisles.
They create fast service with the “1+1” policy at each register. The company goal is to
have only one person in line behind the customer being rung up. They have “Need Assistance?”
phones where the employees are required to answer the call within 60 seconds. They are able to
communicate this with one another using their headsets and walkies. Every time an employee
rings a guest up, they are scored on the time it takes them. They receive a red, yellow, or green.
Those that are Red overall will eventually be terminated. One last brand strategy that is often
heard and recognized is “Expect More, Pay Less.” Each of these ideas and policies have been
implemented into Target’s marketing to create a great target brand experience.
Target may not perform price adjustments or match ads when customers come in and say
their competitors have lower prices; however, they do execute a competitive price shopping with
Wal-Mart on the basic items, such as toothpastes, shampoos, etc.
Target also clearances many of their products. They will start between 15% and 30% and
some will clearance to 90%. The following discounts Target apply:
Sporting Goods: 30% - 90%, Goodwill
Food: 15% - 50%, Donation
Clothing: 30%-75%, Goodwill
Electronics: 30%- 75%, Goodwill
Toys: 30% - 90%, Goodwill
Seasonal: 30% - 90%, Goodwill
Pets: 15% - 75%, Goodwill
If products are not selling well, and it will be noticed in the weekly research, they will get rid of
the products by placing them on clearance. No matter what they reset every six weeks to provide
change and fresh prices.
Ads are setup approximately six months in advance, and go out weekly in the Sunday
paper. The ads also show up on the Target website. Target does constant signing. There are
large posters for every event, season, and holiday that are usually changed every four to six
weeks. They display “headers” that can be seen from a distance. They are, for example, the
prices that are displayed on the end caps. Then, as you walk closer, there is 7x11 signing at eye
level. Target does weekly sales signing that correspond with their ads, as well as additionally
temporary price cut signing that is typically done to capture additional sales on items that
discontinue. These promotional strategies help with sustaining Target’s market share and
Return on Assets
ROA is an indicator of how profitable a company is relative to its total assets. It gives an
idea as to how efficient management is at using its assets to generate earnings (Investopedia,
2007). Target has a 7.27% return on assets.
Return on Equity
ROE is a measure of a corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested (Investopedia, 2007). There are three
levers that management can control ROE: Profit Margin- the earning squeezed out of each dollar
of sales, Asset Turnover- the sales generated from each dollar of assets employed, and Financial
Leverage- the amount of equity used to finance the assets. The attainment of an unusually high
ROE by one company acts as a magnet to attract rivals anxious to emulate the superior
performance, so we did a little comparison of Target and two of its top competitors. We were
unable to include K-Mart because it is a privately held company, and the information was
unavailable. After glancing at these figures, it is very obvious who is leading and who is
following; however, these companies are still in close competition.
Return on Equity Target Wal-Mart Costco
2006 15.94% 20.71% 11.14%
2005 14.47% 20.79% 11.57%
2004 16.64% 20.31% 11.57%
Ope rating Profit Margin: 7.6%
Net Profit Margin: 4.7%
Curre nt Ratio
The current ratio is an indication of the company's ability to meet short-term debt
obligations; the higher the ratio, the more liquid the company. Current ratio is equal to current
assets divided by current liabilities. If the current assets of a company are more than twice the
current liabilities, then that company is generally considered to have good short-term financial
strength. If current liabilities exceed current assets, then the company may have problems
meeting its short-term obligations (Investopedia, 2007). As for Target it is the former, it has
lower current liabilities than current assets, meaning it should not have difficulty meeting its
short-term obligations. Target’s current ratio is 1.32 times as its current assets are $14,706 and
the current liabilities $11,117.
This test, also known as the acid test, is more conservative than the current ratio and
indicates whether a company has enough short-term assets to cover its immediate liabilities
without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio,
primarily because the working capital ratio allows for the inclusion of inventory assets.
Companies with ratios of less than one cannot pay their current liabilities and should be looked at
with extreme caution (Investopedia, 2007). As for Target, its quick ratio is 0.76, and the
company needs to be cautious.
Inventory to Net Working Capital: 1.74
Debt to Assets: 58.14%
Debt to Equity: 1.39%
Long-term debt to Equity: 55.49%
Time Interested Earned (Interest Coverage): 8.7
This is a simple ratio that shows how many times a company's inventory is sold and
replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A
high ratio implies either strong sales or ineffective buying (Investopedia, 2007). Although
Target has a rather low number, 2.63 times, for its asset turnover, this number indicates that up
until now Target has accomplished an inventory turnover every four to four and half months.
This figure is really competitive for the discount retail industry.
Total Asset Turnover
Total asset turnover is the amount of sales generated for every dollar's worth of assets. It
is calculated by dividing sales in dollars by assets in dollars. Asset turnover measures a firm's
efficiency at using its assets in generating sales or revenue, the higher the number the better. It
also indicates pricing strategy: companies with low profit margins tend to have high asset
turnover, while those with high profit margins have low asset turnover. Target’s total asset
turnover is 1.6 times.
Accounts Receivable Turnover: 9.9 times
Average Collection Period
The average collection period measures the average number of days customers take to
pay their bills, indicating the effectiveness of credit and collection policies of the business. This
ratio also determines if the credit terms are realistic (Investopedia, 2007). Target has a very
reasonable average collecting period of 41 days.
Economic Value Added (EVA) is often regarded as a simple and effective measure of the
quality of managerial decisions. EVA can also be a reliable indicator of a company’s value
growth in the future. It can serve to motivate managers to create shareholder value and become a
basis for the calculation of management compensation. EVA can be assist in making better
investment decisions, identifying improvement opportunities, as well as help in considering
long-term and short-term benefits for the company. In 2004 Target’s EVA was found to be
approximately $29,061.37. As of 2005 Targets EVA decreased, with an EVA of $10, 272.92. In
2006 Target’s EVA slightly increased to equal about $13,001.11. The following table shows
Target’s EVA from the past three years.
Economic Value Added
We also wanted to look at Targets past earnings growth rate and compare it the retail
industry, as well as, the S&P 500. Target appears to be have had a growth rate of 15%,
significantly higher than the industry average and the S&P 500. Financial analysts have
predicted continuous growth for the company over the next five years with an expected earnings
growth rate 14.10%. The following table compares the earnings growth rate for Target, the retail
industry, and the S&P 500 (MSN Money).
Fiscal Year Fiscal Year
Earnings Growth Rate Last 5 Years 2008 2009 Next 5 Years
Target 15.00% 8.40% 13.10% 14.10%
Retail Industry 4.70% 3.50% 18.30% 12.30%
S&P 500 12.90% 7.20% 7.40% NA
Target’s focus right now is to expand in the U.S. market and open stores in Hawaii and
Alaska. The company’s goal is to have opened 2,010 stores by the year 2010. They will surpass
this goal. We believe this is a good strategy, and they should enter every possible market.
However, that is also why we believe they should expand globally. The U.S. economy is
expected to face some problems and consumers’ purchasing power may decrease. If this
happens, and it is likely in the future, it will create problems for Target if the company stays only
in the U.S. Also, U.S. markets are becoming saturated, whereas, many international markets are
developing. Expanding globally will be essential to ensure the company’s competitiveness in
their industry as their top competitor, Wal-Mart, is already located in various countries. We feel
Target could open stores in Eastern Europe in countries similar to ourselves, such as Germany as
well as in the major developing countries of China and India.
Change of Supply Chain
One problem Target currently faces is having excess inventory. Often, by the time, the
products make it to the sales floor, they will immediately go on clearance. This is due to
Target’s timeline policy of allowing inventory to be in-store for six weeks before being required
to be discounted on most products. Target has what is called Pushing to the Piece which is a
system that tracks each sale at the register, sending information to the distribution center to for
the products that need to be loaded onto the next day’s truck. Wal-Mart currently allows their
inventory to completely run out before replenishing. They order from their distribution center by
cases often are out of products, but do not lose money from having excess inventory. Strictly
from a profitability stand point Wal-Mart’s process is a better way. The only downside to this
would be a decrease in customer satisfaction, as well as a ne gative change in their brand image.
Preservation of Brand Image
A third strategy we would recommend, which they have already recognized as a
company, is the importance of preserving their brand image. As previously mentioned, between
their logo and their slogan, Target is a well- recognized company. Their consistent clean and
positive atmosphere and their excellent guest service had created a positive image for the
company. One way they are working to further improve on this is by continuing to acquire
higher quality designers. Recently, Target has signed an agreement with Coach, allowing them to
sell their products in the New York stores. This is one of Target’s major strengths and we believe
it is essential for the company to capitalize on this.
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