1. Whats Leading Edge With Todays Leading Mass Volume Retailers? 8912 East Pinnacle Peak Road Scottsdale, AZ85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail:chrishoyt@hoytnet.com nancyswift@hoytnet.com www.hoytnet.com March 8, 2005 Dallas, TX American Logistics Association Exchange Roundtable

2. Based on most recent research, the top 3 retailers shoppers rank as literally indispensable to their daily lives are Wal-Mart, Target and Costco: Meyers Research:Retailers Consumers Could Not Live Without(Aug, 2004) Source:Meyers Research, Aug, 2004 Base: Among those who shop the store 2% Kmart 2% Rite Aid 3% Walgreens 3% Dollar General 3% 7-Eleven 5% CVS 7% Sam's Club 8% Safeway 9% Albertson's 9% Kroger 11% BJ's 13% Target 17% Costco 31% Wal-Mart 3. Not coincidentally, Wal-Mart, Target and Costco are also the same retailers that consumers find the most fun to shop: Specific Retailers Consumers Find Most Fun To Shop Source:Meyers Research, Aug, 2004 Base: Among those who shop the store 1% Rite Aid 1% Safeway 1% Family Dollar 2% Kroger 2% CVS 3% Walgreens 3% Kmart 4% Albertsons 6% Dollar General 11% BJs 20% SAMs Club 28% Wal-Mart 30% Costco 30% Target 4. Today:

• What is it about Wal-Mart and Target that makes them so successful, not only with shoppers, but from a business standpoint in general?

• What lessons can Exchanges take away from this, given their objectives and the constrictions under which they operate?

• Q&A

5. The Leaders Snapshot of Current Vital Statistics: Source:Company 10Ks & 10Qs; Hoyt & Company, LLC, 2003 - 2004 Hi/Lo EDLP Merchandising Strategy 12 21 Days Sales In Net Inventory 6.3 7.7 Inventory Turns 289 439 Sales/Sq. Foot 62% 86% HH Penetration Expect More/ Pay Less Always Low Prices Positioning 8.9% 9.9% Proj. CAGR, 04 - 07 22.4% 18.4% Operating Expenses 32.8% 23.9% Gross Margin 1,313 3,711 # Stores (U.S.) $47.1 $232.9 Sales (U.S. $B) Target Wal-Mart 6. While Wal-Mart and Target are very different retailers, both share the same objectives as all other retailers specifically:

Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logistics functions on one or more of the following objectives:

• Exchanges

• Increase customer count (new customers) X

• Increase trip frequencies (current customers) Yes

• Increase transaction size (current customers) Yes

• Increase productivity (Human and Financial) Yes

• Reduce costs (COGs and Operations) Yes

As you will see, the paths that Wal-Mart and Target have chosen to achieve these objectives represent todays industry Best Practices.

7. The 800 lb. GorillaIn Every Retailers Living Room!

• $284B Largest company in the world greater than the GDPs of Austria, Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden, Switzerland, Ukraine and Vietnam

• $20K in profitper minute !

• 13% WW CAGR projected to do $1 trillion by 2014

• $233B U..S. sales CAGR of 9.9% to 2007

• 3,711 U.S. stores:

• • 1,706 Super Centers

• • 1,370 Discount

• • 549 SAMs Clubs

• • 86 Neighborhood Markets

• 500+ new stores/remodels planned for 2005

• Objective is to become the largest retailer in every market in which it operates (now #1 in only two countries out of 10)

8. So what are the key growth drivers that enable Wal-Mart to sustain the momentum of this juggernaut?

Lets look at these from the standpoint of whats relevant to Exchanges in terms of:

• Marketing and Merchandising

• Buying

• Logistics

9. The key elements of the Wal-Mart marketing mix elegant and sophisticated way beyond just Always Low Prices:

• 1. EDLP made possible by EDLC Global buying and relentless pressure on COGs and operating costs

• 2. Use of consumables(food and non-edible CPG items) to drive traffic and transaction size

• 3. OPP/good/better/bestmerchandising ladder (private labels > national brands)

• Localization Demographic assortments

• 5. Ancillary businesses hearing aids, optics, stores within stores, etc.

• 6. Consumer-centric versus supplier-centric business model all allowances are driven into price and not used to subsidize operating profits

10. The key elements of the Wal-Mart marketing mix (contd)

• 7. Shop-ability wide aisles, mucho signage, well lit, easy to navigate

• 8. Speed to market new items and promotions 24/7 + 48 hour turnaround

• 9. Community involvementparking lot extravaganzas, fishing contests, high school marching bands, etc.

• 10. Retail-tainmentin-store TV sets, trendy promotions (Shrek 2 and Britney Spears)

• 11. EDLP reinforcement roll backs, action alley, special buys and multiple clearance items

• 12. Clicks and bricks synergy what you cant get in-store, you can get online

• 13. Store managers have broad discretion can tailor assortments, authorize local displays and recommend new distribution of local items

11. Wal-Mart strategy to drive trips/provide one-stop shopping convenience sell need (read food) items! Source:Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003 2001 $63B 2002 $82B 2003 $95B 2004 $112B 2007 $162B 2010 $195B 35% Bigger than Kroger, Albertsons, Safeway and Ahold combined Bigger than Kroger & Albertsons Combined Surpasses Kroger as the nations #1 food retailer +17.0%/Year Compounded Vs. 4.0% For Supermarkets! Wal-Marts March To The Top of the U.S. Food Chain:2001 - 2010 (Food & Drug SalesOnly) 12. The Wal-Mart Merchandising Ladder OPP =Opening Price Point in the category (typically, Private Labels) GOOD BETTERBEST = Typically National Brands Source:MVI 10/28/2004 13. Wal-Mart Buying What lies behind the glitz

Wal-Mart buyer responsibilities:

• Development of innovative merchandising solutions

• Understand customer needs and trends and set the pace of new product development & brand strategy

• Management of a diverse supplier base from major brands to own label

• Achievement of business plan targets

• Development and delivery of the categorys trading strategy

14. Wal-Mart Buying How Buyers are Measured

• Sales

• • Units

• • Dollars

• Profit dollars

• Margin %

• Turns

• Markdowns (e.g., maintained margin)

• In-stock

• Comparable store sales growth (in certain categories)

• Less tangible measures:

• • Respect for the individual

• • Service to customers

• • Strive for excellence

Wal-Mart Buyer Key Performance Measures 15. To achieve their objectives, Wal-Mart buyers proactively utilize suppliers to help run their business:

Wal-Mart Buyer > Supplier Expectations

• Annual plan -- rolling 12 months by month and quarter

• • New items

• • Tab ideas

• • Modular suggestions

• • MCAPS -- community store merchandising

• Weekly monitoring:

• • Item P&Ls vs. plan

• • Sales, initial margin, markdowns, contribution margin

• • Problem stores/districts, as well as items

• • Competitive situations

• Co-managed Inventory

• • Replenishment

• • New item/promotional

• • Economic order quantities

Source:MVI, Selling Wal-Mart 10/28/2004 16. Wal-Mart Vendor Scorecard Extensive measurements for Wal-Mart and Suppliers

• Sales Measurements

• • Overall % Increase

• • Comps

• • Avg. Sales/Store

• • Sales at Full Price vs. Markdown

• Markdown Measurements

• • Markups and Markdowns (Dollars, Units and %)

• • Prior and current retail price

• Margin Measurements

• • Initial margin

• • Average retail price

• • Average cost

• • Gross profit at item level

• • Gross profit/item/store

• • Margin mix

• Inventory Measurements

• • Replenishable store inventory

• • Non-replenishable store inventory

• • Warehouse inventory

• • Lost sales from OOS

• • Excess inventory

• • DC outs

• • Total owned inventory

• Return Measurements

• • Customer defective returns

• • Store Claims

Source:Hoyt & Company Records 17. Wal-Mart Logistics How does Wal-Mart stack up versus its leading competitors?

Wal-Mart has the highest inventory turns

Wal-Mart Turns vs. Kmart + Target: 1998 - 2003

Source:Company Reports; MVI, 10/28.2004 18. Wal-Mart Logistics How does Wal-Mart stack up (contd)

and the lowest # of days sales on hand:

Wal-Mart vs. Leading Competitors:# Days Inventory On Hand:1998 - 2003

Source:Company Records; MVI, 10/28/2004 19. Wal-Mart Key Inventory Management Drivers:

Replenishment & Logistics

• Co-managed/vendor managed inventory

• Two-Tier Distribution (Replenishment vs. Promotional)

• Collaborative Planning, Forecasting and Replenishment (CPFR) works with suppliers to determine appropriate levels

• The Future:Radio Frequency IDs (RFID)

Systems

• UCCnet

• Internet EDI

Merchandising Systems

• Modular-based merchandising

• Modular Category Assortment Planning System (MCAPS) /Store of the Community

20. Why is Wal-Mart so good at logistics?

Because the buyers open-to-buy is based on inventory management and supply chain movement:

Wal-Mart Buyer Open-To-Buy

In The DC In Transit In Store On Order In Route PLUS + New Item Promotions Replenishment Seasonal What the buyer is able to order here Depends on how much $ he/she has tied-up in these buckets = why suppliers are so eager to work with Wal-Mart in helping to generate maximum sales off the lowest possible inventory base. 21. Net on Wal-Mart:EFFICIENCY!

• Consistent, clear positioning Always Low Prices everyone knows precisely what Wal-Mart stands for

• Relentless focus on the fundamentals

• Cost suppression and cost reduction is a mantra

• Cooperation with suppliers to achieve mutual objectives

• Combination of food (consumables) and traditional discount creates a low price one-stop shopping mecca

• Lightning speed to shelf on new items/trendy promotions

• Fun place to shop in-store TV, on trend promotions, parking lot extravaganzas and tie-ins with local community events

• Fierce competitor will price comp anything, anywhere

• Store manager discretion means stores can be traited and tailored demographically

22. Expect More/Pay Less

• $47.1B in 04 sales a 15.1% increase vs. 03 (less Mervyns and Fields)

• 8.9% CAGR between now and 2007 projected to do $61B versus todays $47B

• 1,313 stores 1,177 Targets + 136 Super Targets

• Comparisons to Wal-Mart are dangerous:

• • Different business model

• • Different consumer

• • Different merchandising strategy

• • No attempt to compete on same basis

• Is much more like an Exchange in assortment and operations:

• • Careful balance of high end vs. commodity merchandise PLs and exclusives are key

• • Limited CPG food representation (changing quickly)

• • Super centers are NOT the primary growth engine

• • Distinct department store heritage and orientation

23. Target Challenges:

• Narrow customer base:

• • 81% female

• • 50% between 30 and 44

• Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!

• Supercenters behind the curve

• Too Department Store-y for a discounter:

• • Clean, uncluttered store policy sometimes perceived as sterile and boring

• • Too much emphasis on want vs. need merchandise not enough everyday consumables to drive trips, create excitement or get shoppers started on the merchandise ladder

• Highly centralized operations Store Managers role is compliance and execution no local discretionary authority

=71% of Trips and 80% of Spending 24. Target Heavy Shopper Trip Frequencies Just Not Enough! Source: IRI Panel Data 52 weeks ended Dec 31, 2003 25. Being perceived as more Department Store-y than one-stop discount/convenience these days is not exactly on trend: The U.S. Department Store Death Spiral:1990 - 2010 Department Store Share of Non-Auto Retail Sales Source: Retail Forward, 2003 26. Despite these seemingly core negatives, Target has consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyns and Marshall Fields in 2003 Target vs. Wal-Mart sales and comparable store growth 2004 Source:Company 10Qs and monthly financial reportsMVI, Dec 09, 2004 27. So what is Target doing to achieve such exceptional results?

Target keys to success:

• Clear, concise, consistent positioningExpect More, Pay Less:

• • Not just words but the basis for all buying and merchandising decisions

• • The framework for Targets Merchandising Ladder

• • A short, simple slogan that shoppers can remember and relate-to

• Non-price differentiationThrough captive brands, designer exclusives, partnerships with other retailers, trendy P.L. merchandise, celebrity endorsements and Buzz Marketing

• Emotional Connection with its customers My Target

28. So what is Target doing to achieve such exceptional results, contd?

• Heavy advertisingOver $1B in 2004 to heighten awareness, sell promotions and build equity for the Target name

• Quick response segmented merchandising To capitalize on the latest generational and lifestyle shifts expanded pharmacies (seniors), Hispanic advertising and Merchandising, One Spot (dollar sections), always on-trend merchandise (soft goods, apparel and housewares) and seasonal promotions

• Rapidly adding everyday need consumables to drive trips and increase traffic significantly expanded food sections in all stores.Recently added extensive wine section.

29. Target Positioning:Expect More, Pay Less PAY LESS EXPECT MORE Were on top of trends so you will find the latest and greatest at Target. Bright, clean stores and fast checkouts make shopping at Target easy and fun. Really low prices are the number one reason to shop at Target. Great quality at a low price makes Target merchandise a great value. STYLE SERVICE PRICE QUALITY

• Increase share of wallet

• Platform for differentiation

• Fashion/Want items

• Drive trips/build traffic

• Create low price impression

• Consumables/Need items

30. Targets Expect More/Pay Less Positioning has enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

Targets Positioning vs. Discount and Department Stores

Discount Stores

• Low Margins (23%)

• Follow Trends

• Price Sensitive

• Price/Convenience

Department Stores

• High Margins (50%)

• Early Adopters

• Quality Sensitive

• Fashion/Selection

Drive Value Focus Drive Trend Focus

This positioning has become a major asset:

• Enables Target to attract a wealthier shopper than traditional discount stores.

• Improves sales per store, transaction size and gross margins (Targets are highest in the channel at 32.8%).

• Moderate margins (32%)

• Trend Seekers

• Quality/Value Sensitive

• Trend/Quality/Convenience

31. Target Buying Key Levers

• Trend Planning Crucial to Expect More:

• • Trend merchandisers travel to seek-out latest colors, fashions and designs

• • Research coordinated across departments

• • All items, color schemes, etc. are tested ahead of the season

• Customization Pressure on suppliers to co-brand or custom-pack merchandise to reinforce Targets differentiation objectives

• Competitive Line Reviews Basically auctions consisting of competitive bidding for line distribution or promotion support:

• • Target even calls these shoot outs

• • Series of elimination rounds

• • Contracts can be up to one year

• Reverse Auctions Online competition to provide lowest cost for commodity items or private label consumables

• Global Sourcing/Direct Imports Target is doing as much as it can to buy direct from lowest cost producers willing to meet product specs

32. Target Buying Supplier Mandates

• Reduce cycle timesallow for just in time inventory

• Zero tolerance for orders delivered before/after scheduled time

• One Purchase Order per Truckwhile trying to reduce overall # of POs

• Tiered in-stock level requirements identify when Target begins to lose sales maintain in-stocks above this level

• • 97% in stock for top 2500 items

• • 92-95% in stock for remainder of items

• Perfect match of invoice to receipt of product

33. Target Supplier Report Card

Targets scorecard is the most complete of the three largest Discounters:

• Perfect order rate

• Accurate invoice

• Deductions

• • Pricing

• • Advertising

• • Other

• EDI

• Transmit rates

• Percent of plan $s and unit sales

• • New items

• • Established items

• • Markets

• • New/old stores

• GMROI

• Share of space, advertising, merchandising

• • Facings (slots)

• • Ads

• • Display

• • Multiple locations

• • Signage

• On-time delivery rate

• Order

• Damage rates

• Lost time

• Missed windows

• Backhaul earned

• Bar code violations

• Order fill rate

• Turns warehouse (store?)

• Out of stocks warehouse and store lost sales

• Forecast accuracy

• Percent orders with changes (customer)

Administration Sell Through Logistics Buying 34. Target Supply Chain/Logistics Initiatives 2005 and Beyond:

• SKU Reduction To facilitate focus on fewer, more important items and be more important to fewer vendors

• Automated Receiving TechnologyElectronic labeling system that utilizes real-time information about where product is needed:

• • Automatically labels each carton

• • Significantly accelerates the flow of goods

• • Eliminates time-consuming, labor intensive procedure

• • Rollout starting December, 2004

• DPIAD irectI mport,P re-distro &A ssortment Programs

• • Converts indirect imports (no middlemen) to direct

• • Have suppliers pack store-specific and store ready pallets, reducing DC workloads and storage space

• • Have suppliers combine multiple items in cartons to reduce the number of cartons sent to DCs in stores

• • Estimated savings of$71MMin 2005

• RFID Mandatory for pallets and cases by spring, 2007

35. Target From The Suppliers Standpoint:

• Multiple opportunities to tie-in with Targets marketing and merchandising initiatives

• • Expect More/Pay Less platform

• • Target community giving/cause-related sponsorships

• • Co-Marketing to build upon each others equity

• • Current, intense emphasis on Pay Less

• Multiple vehicles Target TV and print advertising, circulars and website, etc.

• Supplier Aids:

• • Partners On Line (POL) provides suppliers with same data that buyer has (like Wal-Marts Retail Link)

• • InfoRetriever Available to Category Captains and top vendors provides a deeper level of information on a more current basis + 2 years of back data

36. Net on Target:EMOTIONAL CONNECTION!

• Non-price differentiation no attempt to compete with Wal-Mart on its own terms

• Willing to settle for a piece of the pierather than going after the whole enchilada:

• • Consumer target is not the universe but primarily women and young singles

• Clear, precise, consistent positioningthat enables Target to fill the void between commodity discounters and traditional department stores

• Unique understanding of the needs, wants and aspirations of its target shopper:

• • Designer clothes, soft goods and housewares at great prices

• • Clean, uncluttered stores with contemporary colors and thematic consistency

• • Ancillary services that cater to Target shoppers lifestyles, needs and shopping proclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)

37. Net on Target:EMOTIONAL CONNECTION(contd)

• Product assortments that cannot be purchased anywhere else designer exclusives and captive brands, etc.

• Strong, centralized controlto ensure uniformity and thematic consistency throughout all store presentations and activities

• A conscious policy of transferring as many costs as possible to the supplier communitywhile, at the same time, offering suppliers a strong upside through Targets aggressive advertising, merchandising and product exclusivity policies

• Awareness of and willingness to react quickly to current issues for example, Targets current campaign to significantly increase its consumables representation to increase traffic and trip frequencies

38. While Target and Wal-Mart have each chosen to walk different paths on route to their success, there are certain factors common to both of these retailers that make them leading edge vs. most others in the retail community.

Ten factors, as follows:

• 1. Differentiation Through constant juggling of the following elements:

• • Price

• • Formats

• • Captive Brands

• • Designer Exclusives

• • Successful Private Label Programs

• • National Brand Supplier Customization

• 2. Use of Consumables To build traffic and increase trip frequencies.

• 3. Ancillary Departments To increase convenience and share of wallet.

• 4. Fluid Merchandising (rapid ins and outs)To create excitement, build trip frequency and reinforce differentiation objectives

39. Ten factors that separate the most successful from the rest, contd

• 5. OPP/Good/Better/Best Merchandise Ladders To trade shoppers up in almost every category.

• 6. Speed to MarketNow more important than Bigness

• 7. Relentless Pressure on Costs and ProductivityBoth in general and store-specific

• 8. Willingness to Experiment New formats, ancillary businesses, stores within stores, partnerships, adjacencies, retail-tainment, etc.

• 9. Global SourcingNow direct from the lowest cost producer no middle men.

• 10. Technological Innovation RFID, etc. to reduce costs/increase speed

40. Moral of story:

Its not just price; its a combination of factors, carefully blended and balanced to satisfy a particular consumer need or aspiration.Each retailer has to search within its own strengths to find the right formula.There are no easy answers.

41. 42. A Special Thanks to Sylvia Harris and Cathy Ely of Luke AFB for their time and hospitality . . . 43. We Appreciate The Time and Attention You Have Given Us Today

Specifically, we want to thank Frank Jepson and the American Logistics Association for inviting us and P&G for sponsoring us and trust that this has been both fun and helpful.

8912 East Pinnacle Peak Road Scottsdale, AZ85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail:chrishoyt@hoytnet.com nancyswift@hoytnet.com www.hoytnet.com 44. Appendix Some particulars that may be of interest . . . 45. Target and Kmart U.S. Sales vs. Wal-Mart Relatively Small Source:MVI 10/28/2004 Wal-Mart vs. Target and Kmart Sales & Growth Projections:1999 - 2007E $19.4B $59.5B $309.4B $382.1B $100 $200 $300 $400 1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E Wal-Mart Corporation Wal-Mart US Target Corporation Kmart 46. By mid 2004, Wal-Mart U.S. had achieved 86% household penetration almost 25 points more than its next largest competitor which translates to over 130MM shoppers per month Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004 Source: IRI Panel Data (all shoppers - Total US) 47. Not content with this, Wal-Mart plans an additional 500 new store openings plus remodels in 2005, driven primarily by new Supercenters: Wal-Mart Domestic Expansion Plans For 2005 Total U.S. Supercenters Discount Stores SAMs Clubs Neighborhood Markets Total New Stores Remodels/Relocations Grand Totals +240 - 250 +40 - 45 +30 - 40 +25 - 30 335 - 365 160 500+ Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/2004 + 10/18/2004 48. Wal-Marts store expansion strategy is carefully calculated to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:

Wal-Mart Format Expansion Strategy:Capturing Consumers at All Income Levels

• Different formats:

• • Target the same consumer for different trips

• • Target new consumers

Format Consumer by HH income A B C D E 75K+ 60-75K 45-60K 25-45K < 25K Discount Supercenter N. Mkt SAMS walmart.com Source: MVI 10/28/2004 49. Wal-Marts latest and greatest

• Stores within stores:

• • Kids Connection Candy, soda, clothes, toys

• • Personal Business Centers

• • Dollar Stores plastic bunnies, etc.

• Increased focus on soft goods :

• • Coordinated lifestyles

• • Heavy focus on Wal-Mart brands

• • Integrated merchandising e.g., not just towels but everything for the bathroom

• • In-store TV support for How to decorate your home

• Apparel:

• • Mary Kate and Ashley exclusives in-store and online

• • Levi Strauss 2003

• • The Wal-Mart George line men, women and children big push!

• • Carters line in infants

• • Trend alert partnership with Seventeen Magazine to offer teens cool picks in clothing and electronics

50. Target SuperTarget Growth vs. Wal-Mart Supercenters Not exactly NASCAR competitive Source: MVI, Selling Target, 12/9/2004 51. Target Super Target Issues:

• Traditional Targets are Hi/Lo; Super Targets are EDLP:

• • Target dependent on supplier allowances to grow operating profits

• • Every time Target converts a traditional discount format to a Super Target, it loses the benefit of the allowance (which is thereby driven into price and not op. profits)

• • Building too many super centers too fast would severely impact Targets financials

• Super Target trip frequencies do not support format productivity

• Super Target layouts do not allow easy transition to the consumables section and cross-over shopping

52. Expect More Implementation is all about non-replicable differentiation

• Department store-like destination departments :

• • Apparel

• • Housewares

• • Shoes

• Captive Brands:

• • Mossimo

• • Danskin

• • Philippe Starck

• Exclusive Partnerships Fieldcrest, Boots (HBA and Cosmetics) and Amazon.com (powers the Target website)

• Private Labels :

• • 50% of the store

• • Reinforce Targets brand equity allhave either Wave or Bulls Eye

• • Key contributor toTargets 32% gross margin

• Synergistic, complementary spin between stores and website :

• • Bridal registry, Target to a T custom made clothes

• • Red hot shop hot trendy items new every week

• • Greeting cards

• • Infants and toddlers

• • Seasonal items

• • Waverly Garden Room

• • Liz Lange Maternity

• • Hello Kitty

53. Pay Less Implementation is all about driving trips and traffic:

• Price comping 2002 - Target pledges to match Wal-Mart on price item for item throughout stores

• Significant expansion of consumablesand commodity items starting in Q3, 2003:

• • Based on new P2004 format

• • 50% greater space devoted to food, beverages and snacks

• • Consumables World department placed in front of store

• • 70 remodels in 2004 all remodels and new stores starting in 2005

• Savings Spot In front of store, near registers, introduced 2004:

• • Club-like pack sizes

• • Paper, household cleaning supplies and pet foods

• One-Spot (Dollar departments) now expanding beyond test:

• • Kitchen, storage containers, toys, baby products and stationery

• • Exceptional value and Treasure Hunt items

• • Managed by separate buying group

• • Does not cannibalize other items

54. Target Ancillary Departments Return Trip and Transaction Size Drivers:

• Pharmacies :

• • 71% of stores by YE 2003

• • Extended hours

• • Pharmacy rewards program tied to use of Target Visa card

• Minute Clinics:

• • 135 sq. ft., staffed by a nurse practitioner

• • Treats about a dozen common health problems

• • Menu-priced most services $40 - $45, covered by insurance + co-pay

• • Now testing in 8 stores (BM) with plans to expand in metro areas

• • 95% of MC patients get prescriptions filled at Target

• Other Services:

• • One hour photo labs

• • Optical departments

• • In-store restaurants Starbucks, Pizza Hut, Taco Bell

• • Lawn and Garden centers

• • Portrait studios

• • Bridal and baby gift registries

55. Target aggressively advertises its benefits through multiple vehicles and is, in fact, the largest advertiser of the Big 3

Media Strategy:

• TV is strongly seasonal/holiday oriented

• Heavy print budget is targeted to women and young adults

• Unmeasured is circulars and ROP

Source:LNA and MVI, 2003 - 2004 (38) (63) (100) Index $413 $678 $1,083 $223 $198 $483 Unmeasured $8 $14 $19 Outdoor $95 $40 $293 Print $86 $426 $288 TV Kmart Wal-Mart Target Vehicle 56.

• 85% of buyer compensation:

• • Sales

• • Contribution Dollars

• • Contribution %

• • Inventory Turns

• In-Stock % (10%) and personal objectives (5%) round out compensation

• Senior Buyers are also eligible for a bonus plan that can represent up to 100% of their base compensation.

• Goals are set every 6 months, not annually.

Target Buyer Compensation Structure Including product flow costs