Target Corporation - Strategic Analysis

TARGET

By Team CAllison Friedrich,

Kyle Brown,

Subin Kim,

Kelly Lubbers,

Jacqueline Skinner, and

Kaley Young

Corporate Analysis (Part A) of:

QUESTION #1Assess the overall performance of the firm using the

Balanced scorecard.

Balanced Scorecard

Financial Customer

Learning & Growth

Internal Business Processes

BusinessStrategy

Financial Perspective

Target Corporation strives to achieve 15% or more for their average earnings per

share overtime by demonstrating effective leadership and corporate

governance.

2013

• Rev=$73,301(m)

• EPS= $4.52

• Div=$1.38

2014

• Rev=$72,596(m)

• EPS=$3.07

• Div=$1.65

2015

• Rev=$52,188(m)

• EPS=$1.57

• Div=$1.47


2011 2012 2013

ROCEReturn On

Capital

Employed

16.5%=5,322,000/

(46,630,000-14,287,000)

15.7%=5,371,000/(48,163,000-

14,031,000)

13.3%=4,229,000/(44,553,000-

12,777,000)

Assessment:

A higher ROCE indicates more efficient use of capital.

Since Target’s ROCE has been declining since 2011,

it indicates that Target has not utilized its capital efficiently.

In 2012, Earnings has increased, but total assets in 2011

has increased more than the EBIT. It leads to decline of

ROCE in 2012. In 2013, all components of ROCE have

decreased significantly.


(Million) 2011 2012 2013

EVAEconomic Value

Added

1739.5728=3512.52-(15487*5.75%)

2583.0246=3491.15-(15821*5.74%)

2622.0175=2706.56-(16558*5.84%)

Assessment:

EVA is a performance metric that calculates the creation of

shareholder value. Since Target’s EVA has been increasing

for the past three years, the firm has more profits remained

after the costs of the company’s capital.


(Million) 2011 2012 2013

FCFFree Cash Flows

1069=5434-4368

2048=5325-3277

3067=6520-3453

Assessment:

Cash is the real asset that firms generate. FCF gives a much

clearer view of the ability to generate profits. Target’s FCF

has been increasing in the trend where cash flows from

operating activities is increasing and capital expenditure

is decreasing. It could mean that Target started earning

profit from its investment in the past.

Consumer Perspective

• Strategic Objectives

Predicting

Customer

Needs

• Larger InventoryTarget is seen as an upscale discount store, because it has

many major designers that design a line of products just for

Target. Their chic, upscale discounter image is used as their

focus in building and enhancing their brand personality, with

the ability to better target key customer groups.

• High-end AtmosphereCustomers prefer to shop in an atmosphere where they are

treated well and feel good about the store. This results in a

willingness to pay more for items, and individuals who are

not as price sensitive.


•Strategic Objectives

Gaining

Customer

Loyalty

• Occasional Event for targeted loyal customers.

According to a study performed by Maritz Research there

20% of Target shoppers are highly loyal to shopping at

Target. There are more females than males, 80% are under

the age of 40 and are also college educated, and they are in

the middle to upper income range. Customers of Target also

prefer to shop at a place where there friends and family are

likely to shop, and they are not price sensitive.


• Strategic Objectives

Customer Service

• Online Customer ServiceThis hits more of the tech savvy buyers that like to use the

internet to search, review and buy products online than

going to the store. Other than showing products, it also

allows the customer to see where their money is being

contributed to by the company.

Learning & Growth Perspective

Providing financial

assistance

Volunteering

Social organizations

Environmental efforts

Education & Arts

Internal Business Process

Target encourages

the workplace by

enhancing the

individuality of the

staff and

employees

THE BALANCED SCORECARD

:

Learning & Growth Internal Customer Financial

Provide

Financial

Assistance

Volunteer,

educate,

participate

Promote

Individuality

Understand

customer

segments

“Expect

More Pay

Less”

Increase

customer

confidence

Annual

EPS

Growth

Effective

LeadershipSet

personal

goals

Learning

&

Growth

Business

Efficiency

Revenue

Growth

QUESTION #2Identify all threats and opportunities associated with all

7 segments of the general environment.

SEGEMENTS OF GENERAL

ENVIRONMENT

General

Environment 7 Segments

Demographics

Socio-

cultural

Political

PhysicalTechnological

Global

Economic

DemographicOpportunities • 1,801 stores in the U.S.

• 37 Distribution centers

• International locations

(India and Canada =

Ethnic)

• Continuously expanding

• Over 350,000 team

members

• Age structure for all ages

target towards families

Threats • Competitors have larger

distribution areas

• Larger amount of stores

(Walmart)

Economic

Opportunities • Continuous economic

success during economy

hardships

• Continuous sales growth

• Customers continue to

choose target as one of

the top retailers

Threats • Inflation rates could be

higher, lacking due to fall

of economy over the

years.

Global & Political/LegalOpportunities • Target Citizens Political

Action Committee

determines decisions for

corporate.

• Joins organizations and

associations to be apart of

corporate contributions on

state/national level

• Expansions outside of U.S.

• Education learning

strategies such as book

donations, field trips, food

pantry visits, and cash

donations.

Threats • Backlash from some

donations (Ex. Target

protests in Minneanapolis

due to support of anti-same

sex marriage campaigner.)

Sociocultural & Physical

Opportunities • “By fostering an inclusive

culture, we enable all of our

team members to leverage

their unique talents and high

performance standards to

drive innovation success.”

• Variety of services, like

online store, Super Target,

Target Financial Services

(Red Card/Visa Card)

• Contributes 5% back to

company and is an

environment friendly

corporation.

Threats • Competitors (Walmart) in

their prices, but have gone

forward to ELIMINATE the

negative by offering price

matches for identical

products.

Technological

Opportunities • Very diverse with technology

• Apps through cell phones –

Cartwheel – discounts and

coupons

• Target.com exclusive deals

• Active through social media

such as Facebook and

Twitter

• Social media is used for

customer services as well as

marketing of products and

promotions.

Threats • Security breaches with

personal information such

as social security and credit

card information has been

stolen by hackers

Porter’s Five Forces

Threat of EntryMODERATE

• National and International retail

companies

• Cut-throat Competiton

• Mergers of companies

Bargaining Powers of BuyersMODERATE

• Diversity of products to be bought.

• Arrange of prices to compliment wide

range of needs.

• Continuously growing positive

reputation.

• Large distribution of products in store.

Porter’s five forces cont.

Bargaining Supply of SuppliersLOW

• Suppliers give discounts on products.

• Incentives of giving back to the

consumers (Red Card)

• Special types of product promotions

(Donations, BOGO)

Industry RivalrySTRONG

• Amount of Retailers (Walmart, Kmart,

Kohl's, Meijer's, Etc.)

• Internet outlets (Amazon, etc) at

discounted prices and shipping

incentives.

• Carrying same type of products

Threat of SubstitutesMODERATE

• Products offered at other retailers.

• Similar products being offered at

lower prices.

• Choosing another retailer based on

convenience

Most

Important!

Collectively, we find Target company to be an attractive industry with high profit potential!

Attractiveness of Target Co.• Simple slogan: Expect more, pay less

• Recognizable branding with products.

• Expanding of stores nationwide.

• High end deigns and innovation of products.

• Higher end products for everyday, affordable

costs.

• Distinguish themselves compared to their

competitors (Ex. Target has a distinct logo)

• Competitive incentives such as price matching,

coupons, discounts.

• Target has several different types of programs

for the customers as well as through corporate.

• Continuous growth of consumers and sellers of

products.

Industry AttractivenessThe attractiveness of the industry…

A. Attractive: Economic Opportunity…

Consumers regularly shopping for their

needs/wants

B. Unattractive: Industry Rivalry…

Many different retailers for consumers to

choose from

Heavy competition from successful

Walmart

Key Success Factors

Many buyers and suppliers

Recognizable Brand

QUESTION #3To what extent is the firm’s performance attributable to

industry attractiveness and to what extent to competitive

advantage?

Target’s Performance –

1. Target vs. Competitors

ROCE

TGT= 13.3%

WMT= 19.93%

AMZ= 3.77%

Margin

SGA Expenses/Sales

TGT= 21.18%

WMT= 19.18%

AMZ= 26.23%

COGS/Sales

TGT= 70.5%

WMT= 75.18%

AMZ= 72.77%

Profit Margin

TGT= 2.7%

WMT= 3.36%

AMZ= .37%

Fixed Assets/Sales

TGT= 43.2%

WMT= 24.76%

AMZ= 14.71%

Capital Turnover

Inventory Turnover

TGT= 8.28

WMT= 10.62

AMZ= 10.05

Fixed Asset Turnover

TGT= 2.31

WMT= 4.04

AMZ= 6.80

Receivables Turnover

TGT= 12.43

WMT= 71.33

AMZ= 15.62

EBITTOTAL

ASSETSCurrent

LiabilitiesROCE


1. ROCE Concept

• Return on Capital Employed

(ROCE) depicts a corporations use

of capital.

• The higher the ROCE, the more

efficient the use of its capital

• Let’s utilize this concept to

compare Target’s advantages and

disadvantages with a competitor…


1. Compared with…

Advantage Ratios Why?

1 ROCE TGT = 4,229,000 / (44,553,000 -

12,777,000) = 13.3%

AMZ = 647,000 / (40,159,000 -

22,980,000) = 3.77%

ROCE = EBIT / (total assets - current liabilities)

Target has a 10% higher ROCE than Amazon.

This high ROCE means Target uses their capital

more efficiently.

2 SGA / Sales TGT = 15,375,000 / 72,596,000 =

21.18%

AMZ = 19,526,000 / 74,452,000 =

26.23%

Target has a 5% lower SGA to sales ratio than

Amazon.

This shows their Selling, General, and

Administrative expenses are taking up a smaller

percentage of their sales.

3 COGS /

Sales

TGT = 51,160,000 / 72,596,000 =

70.5%

AMZ = 54,181,000 / 74,452,000 =

72.77%

Target’s 2% lower COGS to sales ratio indicates

that they don’t have to spend as much money

on the goods that they sell.

4 Profit

Margin

TGT = 1,971,000 / 72,596,000 =

2.7%

AMZ = 274,000 / 74,452,000 =

.37%

Profit Margin = net income / revenues

Target’s profit margin is significantly higher due

to its superior net income.

Target’s net income benefits from its lower

selling/general/administrative expenses

compared with Amazon.


1. Compared with…Disadvantage Ratios Why?

1 Inventory

Turnover

(Days Sales

Inventory)

TGT = 72,596,000 / 8,766,000 = 8.28

*days sales inventory = (1 / 8.28) x 365

= 44.08

AMZ = 74,452,000 / 7,411,000 = 10.05

*days sales inventory = (1 / 10.05) x 365

= 36.32

Days Sales Inventory = [1/ (sales/inventory)] x 365

Target’s days sales inventory of 44.08 means that they sell

their entire inventory in 44 days. However, Amazon sells

their entire inventory within 36 days, which is 8 days faster.

This means Amazon doesn’t have to store inventory as long,

giving them lower inventory storage costs and the ability to

put new merchandise out their sooner.

2 Fixed Asset

TurnoverTGT = 72,596,000 / 31,378,000 = 2.31

AMZ = 74,452,000 / 10,949,000 = 6.80

Fixed Asset Turnover = net sales/net property, plant,

equipment

Amazon has a significantly higher fixed asset turnover ratio,

indicating that they generate more sales from their fixed

asset investments.

3 Receivables

TurnoverTGT = 72,596,000 / 5,841,000 = 12.43

AMZ =74,452,000 / 4,767,000 =

15.62

Receivables Turnover = sales / accounts receivable

Target’s receivables turnover is slightly lower, meaning they

should investigate their method of collecting accounts

receivable.

They aren’t quite as efficient as Amazon.

4 Fixed Asset /

SalesTGT = 31,378,000 / 72,596,000 =

43.2%

AMZ = 10,949,000 / 74,452,000 =

14.71%

This ratio shows the percentage of fixed asset dollars per

sales dollars.

Target’s percentage is about 30% higher than Amazon’s,

concluding that Amazon once again generates mores sales

dollars from their fixed assets.


2. Compared with…

Advantage Ratios Why?

1 COGS / Sales TGT = 51,160,000 /

72,596,000 = 70.5%

WMT = 358,069,000 /

476,294,000 = 75.18%

Once again, Target excels at their COGS to

sales percentage.

They have a 5 % advantage on Walmart, who is

spending significantly more on their goods that

they sell.

COGS /

SalesTarget beats both

Amazon and Walmart

when it comes to this

ratio!


2. Compared with…Disadvantage Ratios Why?

1 ROCE TGT = 4,229,000 / (44,553,000 -

12,777,000) = 13.3%

WMT = 26,991,000 / (204,751,000 -

69,345,000) = 19.93%

ROCE = EBIT / (total assets - current liabilities)

Target’s ROCE is 6.5% lower than Walmart’s, indicating their

need to use their capital more efficiently.

2 Inventory

Turnover

(Days Sales

Inventory)

TGT = 72,596,000 / 8,766,000 = 8.28

*days sales inventory = (1 / 8.28) x 365 =

44.08

WMT = 476,294,000 / 44,858,000 = 10.62

*days sales inventory = (1 / 10.62) x 365 =

34.37

Inventory Turnover = [1/(sales/inventory)] x 365

Again, Target sells their entire inventory in 44 days, while

Walmart sells its entire inventory within 34 days.

Walmart has lower inventory storage costs as a result.

3 Fixed Asset

TurnoverTGT = 72,596,000 / 31,378,000 = 2.31

WMT = 476,294,000 / 117,907,000 = 4.04

Fixed Asset Turnover = net sales/net property, plant,

equipment

Target’s fixed asset turnover ratio is about half of Walmart’s.

This means that Target must work on better using their

assets to generate revenue.


2. Disadvantages Cont’d…Disadvantage Ratios Why?

4 Receivables

TurnoverTGT = 72,596,000 / 5,841,000 = 12.43

WMT = 476,294,000 / 6,677,000 = 71.33

Receivables Turnover = sales / accounts receivable

Walmart’s receivables turnover is nearly 6 times that of

Target.

Target needs to investigate their method of collecting

accounts receivable, in order to become as efficient at it as

Walmart.

5 SGA

Expenses /

Sales

TGT = 15,375,000 / 72,596,000 =

21.18%

WMT = 91,353,000 / 476,294,000 =

19.18%

Target here has a 2% higher SGA expenses to sales ratio

than Walmart.

This shows that Target spends more on their selling, general,

and administrative expenses than does Walmart.

6 Fixed Assets

/ Sales TGT = 31,378,000 / 72,596,000 = 43.2%

WMT = 117,907,000 / 476,294,000 =

24.76%

This ratio, similar to the fixed asset turnover ratio, shows the

ratio of fixed asset dollars to sales dollars.

Again, Target does not use their assets to generate revenue

nearly as well as Walmart, whose percentage is 20% lower.

7 Profit Margin TGT = 1,971,000 / 72,596,000 = 2.7%

WMT = 16,022,000 / 476,294,000 =

3.36%

Profit Margin = net income / revenues

Walmart once again trumps Target in profit margin, by .66%.

Target keeps 2.7% of every sales dollar, while Walmart keeps

3.36%.


1. Competitive Advantages

Target will continue to

succeed in this industry

because of its competitive

advantages.

1. Low COGS % of sales

2. Strong ROCE % and Profit

Margin

3. Recognizable Branding

4. Superior Marketing

QUESTION #4Draw the firm’s value chain. In which of the firm’s

principal functions and activities does the firm

competitive advantage lie?

THE VALUE CHAIN ANALYSIS

Finance Global Workforce IT

Design

Operations

ShipSell

Use and Reuse

Support

Functions

Primary

Functions

Value Chain AnalysisA. Primary Functions

Inbound Logistics

Target Corporation promotes design through imagination, improvement

and innovative ideas that enable them to give more. While dreaming up

new products and sketching new store sites, Target is building

responsibility and sustainability into every brainstorm. This is reflected

through Target’s CGS/Sales ratios. They have a lower percentage than

Amazon and Wal-Mart.

Produce

Through Target’s everyday operations, design and raw materials merge

to become the products sold. Target collaborates with highly qualified

vendors and aim to make production better for the people of the planet.

Target’s inventory ratios are disadvantages as compared to Amazon and

Wal-Mart in that Target’s products sit on the shelves longer than its

competitors.

Outbound Logistics

Shipping is Target’s outbound logistics process of moving products from

the source to the guest. Target has reduced loads they’ve shipped and

miles traveled in order to save on fuel, reduce our carbon emissions and

lower costs, while, getting products to their guests promptly and

efficiently. This is reflected in Target’s fixed asset ratios.

Value Chain AnalysisA. Primary Functions

Marketing and Sales

Target’s main focus in selling is the guests

experience. They are focusing mainly on the

sustainability and the responsibility of operations

from their corporate headquarters in Minneapolis,

Minnesota. These ratios are reflected in Target’s

CGS/Sales ratios.

Customer Service

Use and Reuse is the motto that Target uses when it

comes to customer service. Guests determine the

destiny of the products they buy and Target

provides the tools, information and incentives to

help them reduce waste and turn their old items into

something new. Refer to Target’s Sales ratios for the

competitive advantages and disadvangtes.

Value Chain AnalysisB. Supportive Functions

Finance

A significant portion of Target’s total sales is derived from stores located

in just five states; California, Texas, Florida, Minnesota, and Illinois

which results in Target being dependent on a strong local economy in

these areas. As Target does not own a consumer credit card receivables

portfolio, they do share the economic performance of the credit card

program with TD(?) Having a deteriorated economic condition, Target

could receive lower profit sharing payments.

Global and Changing

Workforce

Target is dependent on their ability to attract, train and retain an

appropriate mix of qualified team members, contractors and temporary

staff. If they are unable to obtain these appropriate levels of staff then

the support functions of Target could suffer. Target has a concentration

of support functions in India, however, it is more unstable than the US

when taking into consideration financial and environmental issues.

Information Technology

Target is becoming increasingly reliant on technology investment and the

returns on theses investments. They are currently making and will

continue to make significant investments to support their multichannel

efforts, implement improvements and transform their computer systems

to run more efficiently and remain competitive to the guests.

Hypothesis Relationship – Principal Functions and competitive advantages.

1. Target ‘s strongest primary function is Distribution and Marketing & Sales.

The company has relatively lower 70.5% as COGS/Sales ratio compared to

other companies, which means that it maintains its efficient sales department

and distribution management.

2. Target also has strong ROCE and Profit Margin, which proves that

the company uses its capital more efficiently. It leads to the

fact that Target has been managing its business well and

generating profits properly.

3. Target is known for its recognizable Branding,

which resulted from its well-designed Marketing & Sales strategy.

Driver of Competitive Disadvantage1. Inventory Turnover

Target has competitive disadvantage as to its Inventory Turnover compared

to Amazon’s and Wal-mart’s. Sales have to match inventory purchases

otherwise the inventory will not turn effectively. Target’s inventory is 8.48

bigger than the firm’s sales.

Bigger number in Inventory Turnover indicates the fact that Target needs

to spend more of their budget on managing and storing its inventory and

has less choices when it needs to put new goods and merchandises.

2. Fixed Asset Turnover

Target’s Fixed Asset Turnover ratio is also inferior to two competitors’.

This illustrates that Target is required to create a new strategy to use their

fixed assets more efficiently rather than keeping the one they are implementing now.

3. Receivable Turnover

The reason for Target’s relatively lower Receivable Turnover is that

there might be some problems in their method of collecting accounts receivable.

As the higher ratio, the more favorable, Target should investigate what causes

its low receivable turnover ratio to improve its account receivable quality.

QUESTION #5What is the firm’s business strategy? To what extent are

the firm’s principal functions sustainable?

Business StrategyBUSINESS

STRATEGY

MODEL Lowest Cost Distinctiveness

Broad Market Cost Leadership Differentiation

Narrow Market

SegmentsFocused Cost

Leadership

Focused

Differentiation

Integrated Cost Leadership & Differentiation

Target’s Business StrategyTarget uses an integrated cost leadership/differentiation

strategy with “Expect More, Pay Less”. It has helped the

store deliver greater convenience, increased savings

and more personalized shopping experience. Target

looks to provide the consumers with new ways of

convenient retail shopping.

A way that Target puts their plan into action is by

introducing a new formatting of the store called

CityTarget, which is being tested in large urban dwellers

such as Chicago, Los Angeles, Seattle, and San

Francisco, and is continuously growing. Target is

looking at having successful branding and formatting of

the stores. Target provides its own branding such as Up

and Up, Market Pantry, C9 by Champion and several

other brands.

Target offers price matching to its competitors and

incentives to its consumers with things such as Red

Card Rewards. The Target Corporation is always looking

to bring value to its guests by finding new ways to shop

with innovative products, providing a unique experience

for each consumer.

Resources & Capabilities

1. Distribution

Logistics

Six Sigma data

driven methodology

to measure

performance and

improving

processes

Target Distribution

Center and Supply

Chain Management


2. Marketing & Sales

Customer ServiceSocial

Responsibility

Returns and

Exchanges, Target

Red Card services,

Promotions, Baby

and wedding

registeries

Lead the way to

sustainable

environments, tools for

strong and safe

communities,

volunteering, health &

well-being initiatives


3. Human Resources

Employee

RelationsAcquisitions

Retaining employees,

Employee Discounts,

Education Programs,

Motivation

DermStore, CHEFS

book, Sensa

Core Competencies

Valuable? Rare?

Costly to

Imitate?Non-

Substitutable?

Advantage

Type?

Returns

?

Distribution

Yes Yes Yes No (Different

stores and

brands)

Sustainable

Competitive

Advantage

Above

Average

Marketing

& Sales

Yes Yes Yes Yes

Sustainable

Competitive

Advantage

Above

Average

Human

Resources

Yes Yes Yes No (Other

qualified

employees)

Sustainable

Competitive

Advantage

Above

Average

Goals, Strategies, Resources &

Capabilities, and the EnvironmentGOALS STRATEGIES RESOURCES &

CAPABILITIES

ENVIRONMENT

To give outstanding

customer service

• Positive Attitude

• Refunds and

Exchange Policies

• Easy and Ready

customer service

Marketing

&

Human Resources

• Online access to

information

• Available in person

or phone

• Innovation of Target

To retain and

increase employees

well-being (avoid

turnover)

• Employee

Discounts

• Employee Benefits

• Employee Well-

being incentives

Human Resources

• Diversification in

the workforce

(Ethnics)

• Employee

Incentives

To produce and put

out quality products

• Six Sigma

Production

• Target Distribution

Center

• Supply Chain

Management

Marketing

Distribution

• Innovative Products

• Online and In-Store

• Growing technology

• Cell Phone Apps

• Marketing Sales

Catalogs

Goals, Strategies, Resources &

Capabilities, and the EnvironmentGOALS STRATEGIES RESOURCES &

CAPABILITIES

ENVIRONMENT

To see continuous

growth in sales

• Positive employees

• Customer loyalty

• Productive

business model

• Pricing and

branding

• Strategic

Management skills

ALL

Marketing

Distribution

Human Resources

• Demographics

• Family friendly

• Location of store

• Incorporation of

technology


Products

• Happy and

returning

consumers

To market Target

Corporations brand

• Team members

well-being

incentives

• Volunteering events

• Working with

environment and

educational

programs

Marketing

• Promotions in-

store, online, phone

app


products

• Quality products at

affordable costs

QUESTION #6 (BONUS)Use the Competitive Rivalry model to illustrate the rivalry

between two of the three main competitors in the industry.

Predict Competitive Behavior of your firm and that of the

competitor’s.

Competitive Analysis

- Market Commonality

- Resource Similarity

Drivers of Competitive Behavior

-Awareness

-Motivation

-Ability

Interfirm Rivalry

-Likelihood of Attack

-First Mover Incentives

-Organizational Size

-Quality

-Likelihood of Response

-Type of Competitive Action

-Reputation

-Market Dependence

Outcomes

-Market Position

-Financial Performance

Feedback

Competitive Rivalry Model

Competitive Rivalry ModelFirms are mutually

interdependent… Actions/responses affect one

another

Marketplace success is derived

from… Individual strategies AND their

consequences

The model helps… Understand the competitor

Predict their behavior

Reduce uncertainty of their

actions

1) Competitive AnalysisMarket Commonality

Associated with the number of markets with which the firm and a competitor are

jointly involved and the level of importance of their respective, individual markets

Affects firm’s perceptions and resulting motivation (i.e. more likely to attack low

market commonality competitors)

As two main players in the retail chain industry, both Target and Walmart share high-levels

of market commonality. Although their strategies and target customers differ, they

nevertheless offer similar services, such as: discounted products, pharmacy centers, and

express outlets. Furthermore, both retailers compete with one another internationally in

countries like India and Canada.

Resource Similarity

Tangible and intangible resources that are comparable to a competitor’s

Includes both type and amount of resources

Despite Walmart’s massive size, Target and Walmart have similar resources (such as

equitable brand recognition, similar amounts of human capital, and location.) However, they

tend to differ in essence: “Target's employees are proficient in project management and

leadership skills while Walmart staff concentrates on developing its sales and retail pharmacy

knowledge.” Target also places a large focus on product innovation and quality in

comparison to Walmart’s lowest price strategy. In addition, Target has superior advertising

practices. Therefore, their resource similarity is of a moderate-level.

2) Drivers of Competitive BehaviorAwareness

Extent competitors recognize the degree of their mutual interdependence that results from market

commonality and resource similarity

Greatest when firms have highly similar resources.

Target and Walmart have high-levels of market commonality and a moderate-level of resource similarity. Thus,

their awareness of one other is moderately-high. The extent of the consequences of competitive actions and

responses of one will more than likely have an impact on the other, as experienced when Walmart Express was

met with a later rebuttal of City Target.

Motivation Firm’s incentive to take action/respond to a competitor’s attack

Driven by perceived gains and losses

Because Walmart and Target have high-levels of market commonality, they will probably be less motivated to

engage in rivalry at the stake of their respective market positions. Although it tends to avoid head-to-head combat,

Target is not opposed to response. When Walmart moved into urban areas with Walmart Express, the action

became Target’s incentive to retaliate with City Target.

Ability Each firm’s resources and flexibility (i.e. financial capital and people)

Similar resources often means similar abilities

Target and Walmart have relatively similar resources and are both big-name retail industry players. Thus, they

have the ability to attack—even each other, should the need arise, as is the case with Walmart Express and City

Target. Clearly, Walmart’s threat is felt globally by all competitors.

3) Interfirm RivalryLikelihood of Attack

First-Mover Incentives

Firm that takes initial competitive action to build/defend its competitive advantages or

improve its market position.

Walmart first started defending its competitive advantages by building Walmart Express stores

which were much smaller than its supercenters. These are built in more urban areas. Target has

since built a few Target Express / City Targets, but these are directly in the city to target city goers.

Organizational Size

Small firms will launch competitive actions more readily and more quickly because of

their flexibility. Large firms will launch more competitive actions with more strategic

actions over a certain period.

Target has around 1800 stores in the U.S. and India, with roughly 366,000 employees and net

revenues of 72.6 billion. Walmart is much bigger in comparison, with 11,000 stores in 27 countries,

2.2 million employees and revenues of 476.3 billion. With Walmart’s massive size, they are able to

do a lot of strategic action like building new stores, without it being a huge deal.

Quality

When the company’s goods or services meet or exceed customers’ expectations.

Target seems to have the upper hand when it comes to quality. They partner with designers each

year to offer high-end products for great prices. Walmart is not known for its quality, but for its low

rollback prices.

3) Interfirm RivalryLikelihood of Response

Type of Competitive Action

Strategic actions usually elicit strategic responses, while tactical actions elicit tactical

responses.

Walmart opened its first smaller Walmart Express stores in 2011. Target strategically responded

by opening its first City Target Stores in 2012, just one year later. In 2014, Target also opened up

its Target Express Stores, to further compete with Walmart.

Reputation

“The positive or negative attribute ascribed by one rival to another based on past

competitive behavior” (147).

Walmart and Target both have great reputations. Because of Walmart’s size, it is always being

watched. When Walmart met with success by downsizing into Walmart Express stores, Target

jumped in this market with its City Target.

Market Dependence

The extent of the company’s revenues/profits that come from a certain market.

Both Target and Walmart are the main competitors in the retail industry. Any threats to their

market position by other retailers will cause them to respond in a strong manner. Threats by

convenience stores have caused both Target and Walmart to open their smaller express stores to

thwart this competition.

4) Outcomes

Market Position

Target’s stock price from Feb 2014 to 2015 went from 55.07 to 75.87, while Walmart’s

stock price went from 72.82 to 86.19. Although Target increased 6$ more than

Walmart’s did this past year, these two companies seem to be doing well and have a

great market position.

Financial Performance

Target’s sales revenues have stayed relatively the same from 2013 to 2014, decreasing

by less than 1%. Walmart’s sales revenues have increased by roughly 1.6% from 2013

to 2014. Both are performing well financially it seems. Although it is hard to compare

Target to the great retail giant of Walmart, we can see that Target is doing very well for

its size, and even beats Walmart when it comes to the COGS to sales ratio.

Competitive Behavior Prediction

Target Walmart

Target will continue to monitor the success

of its City Targets and Target Express

stores, since they are relatively new. They

will probably continue to open more stores

in this smaller scale to cater to consumers

in the city demanding this convenience.

Target will keep partnering with designers

each year, because these high-end goods

at great prices are something that

differentiates Target from Walmart.

Target’s failure in Canada may leave it

hesitant to attack Walmart on a global

scale.

Walmart will work on lowering their

COGS, because Target is doing

significantly better in this regard.

Walmart will try to improve their store

image in the eyes of city-dwellers. Since

Walmart is downscaling their stores to fit in

the urban areas, they will need to change

their image to fit this different clientele.

Walmart may expand the range of

products featured in its Express stores to

match the range of products found in City

Targets.

QUESTION #7Define and discuss the three major types of strategic

alliances. Review the company’s alliance strategy.

Types of Strategic Alliances

• Joint Venture

• Equity Strategic

Alliance

• Non-Equity Strategic

Alliance


• Joint VentureIs defined as two or more firms that create a legally

independent company to share resources and

capabilities to develop a competitive advantage.

By uniting, they are able to achieve those goals that they

could not by themselves. They will begin to see a more

rapid and effective growth under a joint venture together.

It is legally independent.

Ex. Disney owning ABC


• Equity Strategic AllianceIs defined by two or more firms that own different

percentages of the company they have formed by

combining some of their resources and capabilities

for the purpose of creating a competitive

advantage. They own different percentages of the

company

Example: Aircel (mobile network operator overseas)



AllianceIs defined as two or more firms that develop a

contractual relationship to share some of their

unique resources and capabilities to create a

competitive advantage.

Examples: Licensing agreements, distribution

agreements, supply contracts, outsourcing commitments



Alliance

Also uses outsourcing as apart of its

strategy, which is a non-equity

strategic alliance, it is the purchasing

of value, creating primary or support

activity from another firm.

Strategic Alliances & Target Corp.

• Alliance Strategy

Target has stated on their website---“We know we can do more good through partnerships than

we ever could on our own, which is why we turn to our

stakeholders, and listen to their ideas, concerns and

perspectives. We have ongoing relationships with

community leaders, government agencies and non-

governmental organizations that help us understand the

most pressing issues facing our communities. They also

help us influence how we support our team members and

guests.”

Resource: https://corporate.target.com/corporate-responsibility/stakeholder-engagement

https://corporate.target.com/corporate-responsibility/stakeholder-engagement


• Target Alliances Examples

• The Heart of America Foundation

• To Make US Healthiest

• Fish Wise

• Federal Emergency Management Agency

• Brands:

• Michael Graves

• Marc Ecko

• Todd Oldham

• Etc.


• Target Alliances

Examples• They have done partnerships to help the

alliance of the Target brand through the

Heart of America Foundation, which

recognizes and encourages youth who are

making a difference in their communities

and schools.

• To Make US Healthiest, which is a company

that strives to help U.S. citizens become

more physically and emotionally healthy.

• Target has also alliances Fish Wise as an

environmental partner that they work to

reduce the amount of purchased

unsustainable resources.



Examples• Lastly, Target also does work with the

Federal Emergency Management Agency in

relations for safety and preparedness within

its private and public sectors of the

company for any type of emergency that

may take place in any area of its locations.

• By joining all of these alliances it gives

Target a competitive advantage over other

retailers than do not have these agreements

with other organizations.



Examples• Target has alliances with Michael Graves,

Marc Ecko, and Todd Oldham to sell

specific types of products and designer

items within the store that other stores do

not have incorporated into their branding of

products.

• As target continues to expand, it looks to

take this innovative strategies and

partnerships to be able to expand globally,

creating a workplace that is enjoyable and

gives back to communities.

QUESTION #8What corporate governance mechanisms are available to

manage relationships with stakeholders and to influence the

strategic direction and performance of the company?

Corporate Governance

Definition: “The set of mechanisms

used to manage the relationship

among stakeholders and to determine

and control the strategic direction and

performance of organizations”

(pg. 294)

Makes sure decisions are effective

and help the company achieve

strategic competitiveness

3 Internal Governance Mechanisms

1) Ownership Concentration

2) Board of Directors

3) Executive Compensation

Ownership Concentration

Board of Directors

Executive Compensation


Target’s Ownership Concentration = Low Have 0 large-block holders that own at least

5% of their shares

Institutional owners are becoming large-

block holders, instead of individuals

Result = Diffuse Ownership This can cause manager’s decisions to be

weakly monitored

Target’s Major Shareholders

% of Shares Held by All Insider and 5% Owners: 0%

% of Shares Held by Institutional & Mutual Fund Owners: 85%

% of Float Held by Institutional & Mutual Fund Owners: 86%

Number of Institutions Holding Shares: 1063


Top Institutional Holders Shares %State Street Corporation 59,878,459 9.40

Vanguard Group, Inc. (The) 37,945,527 5.96

Franklin Resources, Inc 32,992,866 5.18

FMR, LLC 27,135,556 4.26

Barrow, Hanley Mewhinney & Strauss, Inc. 25,096,966 3.94

Massachusetts Financial Services Co. 22,455,289 3.53

Dodge & Cox Inc 17,758,389 2.79

BlackRock Institutional Trust Company, N.A. 16,895,093 2.65

Invesco Ltd. 15,496,858 2.43

Brown Brothers Harriman & Co 12,593,685 1.98

Total 268,248,688 42.12 %


Top Mutual Fund Holders Shares %Franklin Custodian Funds-Income Fund 20,000,000 3.14

Vanguard/Windsor II 13,316,400 2.09

Vanguard Total Stock Market Index Fund 10,355,738 1.63

Dodge & Cox Stock Fund 10,337,647 1.62

MFS Series Trust I-MFS Value Fund 7,693,133 1.21

SPDR S&P 500 ETF Trust 6,847,075 1.07

Vanguard 500 Index Fund 6,579,093 1.03

Vanguard Institutional Index Fund-Institutional

Index Fund

6,420,001 1.01

Franklin Managed Trust - Rising Dividends Fund 5,706,920 0.90

Vanguard Specialized-Dividend Appreciation Index

Fund

4,469,104 0.70

Total 91,725,111 14.40 %


As institutions gain more control over

corporations like Target….

Institutional activism may occur

Large institutional owners might affect the firm’s

decisions in regards to innovation and diversification

This activism can also discipline managers and

promote shareholder’s interests

Board of DirectorsDefinition: “A group of elected

individuals whose primary

responsibility is to act in the owners’

best interests by formally monitoring

and controlling the firm’s top-level

managers” (pg. 302)

Individual shareholders with small

ownership percentages are highly

dependent on the board of directors

to represent them.

Board members are expected to

provide resources

i.e. Personal knowledge and

expertise

Members include:

Insiders, Outsiders, and Related

Outsiders

Related Outsiders

(Some relationship)

Insiders

(Top-level managers)

Outsiders(Independent

counsel)

Board of Directors: TargetName Position Company Type

Roxanne S.

Austin

President Austin Investment Advisors Outsider

Douglas M.

Baker, Jr.

Chairman and CEO Ecolab Inc. Outsider

Brian C.

Cornell

Chairman of Board and CEO Target Corp. Insider

Calvin Darden Chairman Darden Development Group Outsider

Henrique De

Castro

Former CEO Yahoo! Inc. Outsider

James A.

Johnson

Founder and Principal of

Johnson Capital Partners

Johnson Capital Partners Outsider

Mary E.

Minnick

Partner of Lion Capital Lion Capital Outsider

Anne M.

Mulcahy

Chairman of Board of

Trustees

Save the Children Federation, Inc. Outsider

Derica W. Rice EVP, CFO Global Services, Eli Lilly & Co. Outsider

Kenneth L.

Salazar

Partner WilmerHale (legal) Outsider

John G.

Stumpf

Chairman of Board,

President, and CEO

Wells Fargo & Co. Outsider

Board of Directors: Target’s Guidelines

Target’s Board of Directors… The Chair of the Board…

Effectively communicates with

Stakeholders

(Directors must attend annual

shareholder meetings)

“…Facilitate(s) constructive interaction

between the Board and management of

the Corporation.”

Form or disband board committees as

needed

The CEO and Chair of the Board can be

the same person, but it isn’t required

“…Have broad perspective, experience,

knowledge and independence of

judgment, and business backgrounds.”

Brian C. Cornell is both Chairman of

the Board and CEO of Target, so he

holds CEO duality.

Ranges between 10-15 members Formerly Gregg Steinhafel before the

security breach debacle

Evaluates CEO and Chair of Board

Annually reviews its performance

Risk &

Responsibility

Board CommitteesThe board’s 5 committees, include

1 Chair + Members: Finance:

Oversees financial policies, risks, and

conditions

Audit: Oversees integrity of financial statements,

performance of the independent auditor,

collaborates with Corp. Risk and

Responsibility Committee

Compensation: Oversees the review and recommendation

of compensation plans

Nominating & Governance: “…Reviews and recommends the

composition, organization and

responsibilities of the Board and its

committees.”

Corp. Risk & Responsibility: Identifies strategic, business etc. risks.

Oversees ethics and compliance programs,

provides oversight on reputation and social

responsibility

FinanceAudit

Nominating &

Governance

Compensation


Executive compensation is a very important thing to consider when

evaluating an investment opportunity.

Executive compensation is a governance mechanism that tries to align the interests of top managers and owners through salaries, bonuses, and long-term incentive compensation, such as stock awards and stock options

Executive CompensationBreakdown of the total annual pay for the top executives at Target Corp. as reported in their proxy statements (2013).


•Total Cash Compensation is comprised of yearly Base Pay

and Bonuses.

•Total Equity aggregates grant date fair value of stock and option

awards and long term incentives granted during the fiscal year.

•Other Compensation covers all compensation-like awards that

don't fit in any of these other standard categories. Numbers

reported do not include change in pension value and non-qualified

deferred compensation earnings.

Ethical BehaviorTarget Corporation is committed to conducting business

lawfully and ethically. Every team member is obligated to act at

all times with honesty and integrity based on their Code of

Conduct.

Ethical Behavior

According to Tim Baer, executive vice

president, general counsel and corporate

secretary. “More than six decades ago our

company founders established an

unwavering commitment to ethical business

practices and generous community support.

We expect every one of our 350,000 team

members to demonstrate sound, ethical

business practices that bring good judgment

and integrity to every business decision.”

Consequently, it will strengthens competitive

advantage and supports the superior experience

guests expect.

QUESTION #9Please discuss the firm’s structure and strategic leadership

responsibilities of the firm’s CEO.

Strategic Leadership Responsibilities

Leadership

Strategic Direction

Managing Firm

Resources and Portfolios

Balanced

Organization

Controls

Ethical PracticesOrganizational Culture

Strategic Leadership Responsibilities• Leadership: The Target Brand. CEO Brian Cornell

• Strategic Direction: Strategic responsibilities, as noted in mission and value statements

‘Our mission and values work together to foster connections and conversations both

inside and outside our doors.’

• Balanced Organizational Controls: The balanced score card, which describes learning

and growth for financial assistance, volunteering, educating, participating, setting goals.

Internally through promoting, understanding consumer segments and efficiency.

Customers through confidence. Financially through EPS and revenue growth, as well ass

effective leadership skills.

• Managing the Firm’s Resources and Portfolio: All relates to the innovations and

efficiency of the technology that target maintains through its retail establishments, online

website, social media and apps. Also in programs for consumers and employees.

• Organizational Culture: Previously discussed in the strategic partnerships with Target,

such as The Heart of America Foundation, To Make US Healthiest, Fish Wise and

Federal Emergency Management Agency

• Ethical Practices: Including all types of relationships, including any types of minorities,

sex, vendors, suppliers, etc. This allows the company to become industry leaders.


CEO of Target: Brian C. Cornell

Addressed Mission Statement

“Our mission is to make Target

your preferred shopping

destination in all channels by

delivering outstanding value,

continuous innovation and

exceptional guest experiences by

consistently fulfilling our Expect

More. Pay Less.® brand

promise.”


• Target CEO Brian C. Cornell believes in social

responsibility for the branding. There are

specific types of integrated areas that the

target brand focuses in the direction of its

mission statement and value to its consumer.

• Design for all

• Great guest services

• More for your money

• A fun and rewarding workplace

• Celebrating diversity and inclusion

• A legacy of giving and service

• This is the background of the

ever popular company

slogan-----

‘Expect more. Pay less.’

QUESTION #10Please make recommendation for the firm. Help the firm

improve its competitive strategy, corporate strategy,

corporate governance and strategic leadership.

Recommendations•Keep higher quality and

innovative products.

•Bond with exclusive

partnerships with

designers.

•Appeal the firm’s

original atmosphere and

appearance.

•Increase locations the nation.

•Decrease high stock-out rate.

•Change customers’ pricing perception.

•Set the firm’s own style among the increasing rivalry in retail market.

•Predict the change in economy and

governmental policy.

•Expand in international markets.

•Diversify its grocery department.

•Engage more in exclusive design

partnerships.

•Increase advertising for private brands.

•Enhance efforts to be environmentally firendly.

Strengths Weaknesses

Opportunities Threats

Competitive Strategy

Competitive strategy is a long-term action plan devised to help a company gain a competitive advantage over its rival. To improve its competitive strategy

Target should:

• Implement a better re-stocking system for inventory management:

• Point-of-sale stocking system.

• Remove the potential for human error and would be extremely fast and cost efficient.

• Focus on design and innovation to develop a competitive advantage through value-creating diversification

• Maintain quality difference in comparison to Walmart• Incorporate employee incentive plans to decrease employee turnover and

retain valuable human capital• Identify improvements for employee hiring and training standards

• Continue finding ways to enhance the customer’s shopping experience:

• Offer free food sample.

• Install store mannequins displaying the latest fashion trends.

Corporate StrategyIdea Suggestion

Expand into South

America

Large rising middle-

class.

American companies

are perceived as having

better quality products.

Existing infrastructure

Vertical Integration Engage in vertical

integration

Continue offering

private-label brands

(i.e. Archer Farms)

focusing on quality and

cost

Explore Pharmaceutical

expansion

Corporate Strategy

Idea Suggestion

CityTarget Outreach Pursue further market

development in urban

areas with CityTarget

Create value with its

large selection targeted

at urbanites

Explore shopping

experience

enhancement

Corporate Strategy

What Went Wrong Better Suggestion

Rushed Market Entry Target bought cheap leases and opened 124 stores

in a timespan of 10 months.

Target should slowly enter the market with a few stores,

first introducing to new customers and developing hype

among fans of the US branch, like J. Crew who

successfully entered the market with this strategy.

Inconvenience Target stores were located in out-of-the-way

locations

Stores were smaller than their US counterparts and

often has smaller isles—proving difficult to navigate

in Canada’s cold winters when everyone is bundled

up!

While entering the market little by little, choose

locations convenient for customers and help the Target

brand become visible in the public eye.

Identify aspects of Canadian lifestyle despite similarity

to the US. Assumption leads to faulty judgment, as with

the size of the isles becoming troublesome in winter.

Lacked in comparison to competitors Walmart has already infiltrated the Canadian Market

Target seemed to provide less at higher prices in

comparison

Target offered less selection than that in the US, which

disappointed those already familiar with the Target

brand. If Target is going to charge a higher price, it

needs to prove its diversification.

REVALUATE INTERNATIONAL STRATEGY Implementing a transnational strategy may aid Target’s international

expansion into Latin or Canadian markets to combine global integration

and local responsiveness

Target had lasted less than two years in the Canadian market—its first

global outreach—closing 133 stores

Corporate Governance

Increase the diversity of the

backgrounds of board members…About half of their backgrounds are

financial or investment related; look for

someone with academic background

for example

Look into hiring more women (3 women

vs. 8 men) & more ethnic individuals (8

white vs. 3 non-white)

Modify executive compensation…Reduce stock options, which

sometimes cause problems such as

option backdating

Strategic LeadershipMaintain core competencies…

Including: Distribution, Marketing, and Human Resources

Keep building and improving human capital…

Provide effective training and learning opportunities for team members,

and offering incentives

Knowledgeable and happy employees help the firm’s strategic success!

Improve the balanced scorecard

framework…

Scrutinize the security

process to ensure that data

breach doesn't happen again

Improve customer

satisfaction and ensure

customers are fully satisfied

with their Target experience

Woof.(shop at Target)

The End

Target Corporation - Strategic Analysis

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Transcript of Target Corporation - Strategic Analysis