Target Corporation Introduction: Target is a superstore designed to sell a more stylish product at affordable price. Their stores include all different types of products ranging from clothes to furniture, to electronics and household products. They are an upcoming store with excellent growth potential in a wide competitive market. Target is well positioned to learn from Wal-Marts mistakes as well as some of their other competitors. SWOT SUMMARY.
Strengths - Target is well positioned to experience sustainable growth through its solid customer base, exclusive product lines, positive marketing, and its growing credit card business. II. Weaknesses - Target is a company that could improve in several different areas including their strategic operations, strategies about pricing, advertising to their customers, dealing with their two other divisions, and future investments. III. Opportunities - IV. Threats - Target is company that have threats from different sources.
They have competition from different products and companies, a gap in production, and threats that are involved with who invests in this company. Strengths Sustainable Growth Potential In 2004, there were 1, 172 Target and 136 Super Target giving a combined total of 1, 306 stores. Total square footage has increased 8. 2% from 2003 and the company has a strong network of 25 warehouses in place supplying their stores. In times past, stock outs occurred at stores hurting sales and steps have been taken over the last few years to build up the infrastructure supplying the stores. Target is growing at a sustainable rate and plans on operating about 2000 stores by the end of the decade.
Target should not experience cannibalization like Wal-Mart is experiencing for some time since there are not nearly as many Targets as there are Wal-Marts. Target also target large suburbs and cities that have people that do not want to shop at Wal-Marts for ethical and socio economic reasons. The areas in which Targets are located are because they contain the demographics that they are targeting. Target is being selective and locating in areas with the best growth potential to increase revenue. Target has been focused on consistently bringing down costs by getting rid of redundancies and using direct shipping rather then dealing with third parties to increase profitability. Sales and revenue have been consistently strong increasing year after year.
Sales in 2004 were strong with sales reaching almost $46. 9 billion, up 11. 6% from 2003 revenue of about $42 billion. In 2004, the decision was made to sell Mervyn's and Marshall Field's, which has had lagging sales, for $4. 9 billion in pre-tax profit that way the company can focus on Target operations. The board has also authorized buying back $3 billion in stock over the next 2 to 3 years, which shows good governance and it should cause the stock price to increase.
Target's ever increasing size allows it to enjoy economies of scale and benefit from cost reductions due to its size. Its strong brands differentiate it from its competitors such as Wal-Mart and others. Its strong brands will help foster brand loyalty and future sales. Solid Customer Base Target has differentiated itself from Wal-Mart and others by creating a strong brand image which appeals to the middle class, college students, and others aspiring to be perceived as middle to upper class when they can not afford to be. This has allowed them to create a strong customer base. People do not feel ashamed to shop in a target.
Most people do not feel proud about saying they bought something at Wal-Mart, especially clothing. No one wants to say they buy there clothes at Wal-Mart because they are not stylish and you become perceived as poor. Wal-Mart all but comes out and tells you that you are poor, where as Target provides style at a bargain. Target has created designer lines and carries better clothing at affordable prices. Target also does not have the bad image as Wal-Mart and Target takes steps to avoid that by being socially responsible. Target stores are also not cannibalizing themselves as Wal-Marts are doing with one around every corner.
Customers are willing to drive an hour or more to go shopping at a Target if there is not one near by. Target and Wal-Mart go after the same customer, but Target is perceived to be more stylish, hip, and funky. Target customers do not necessarily have more money to spend on goods, but they are willing to spend a few extra dollars to get something that is stylish. Target shoppers want to look more affluent and Target's goods, such as their clothing and furniture, allow them to do just that. Target is creating brand loyalty.
Target lures the aspiring affluent customer in and provides them with a more reserved atmosphere. Target does not continually have signage pointing out that the prices are low; Target customers know the prices are low, and they do their shopping. Target does not make their customer feel as if they are poor, but instead allows one to shop for a bargain. Target provides the customer with a value that they appreciate.
Exclusive Product Lines Target has taken many steps toward keeping itself perceived as a higher end discount store. One way it which it has done this is by successfully promoting brands exclusive to it without its name. It has kept its product lines strong and is continually expanding on them. The Issac Mizrahi Home Collection and Field Crest have been successful lines exclusive to Target that keeps customers coming back. Target has also moved towards selling more consumer goods through its super stores which create more traffic and more sales. The company now has over a thousand pharmacies and is focusing on is promoting health and wellness products, which the more affluent crowd is concerned about.
Target is also moving towards selling more higher end electronics like Sony, which fit its image. They have also created more partnerships with companies such as Boots Cosmetics, Apple Ipod, and Simply Shabby Chic to allure more customers. Positive Marketing Target has also been using successful campaigns such as "Expect More. Pay Less," and many more programs to promote their products.
Target has also held events like in New York City where they drove around with air conditioners for sale. They have promoted helping communities through programs like with Target House. All these programs are designed to promote Target's image and get customers to be repeat customers. Target.
com has been weak in the past, but its popularity is growing. Its website also helps reinforce its stores and offers items that are not available in stores. Growing Credit Card Business The Target credit card, REDcard is also helping Target by promoting more store sales. Customers with target cards tend to shop more and buy more goods.
Gift cards spread throughout stores have also been strong in the past year and have been increasing store sales. The REDcard provides Target with a unique marketing opportunity. It allows them to get customers to shop more through special discounts, customized offers, and loyalty programs. Target mails out special offers to card holders and if a customer uses it to buy prescription drugs at the pharmacies, after the tenth purchase they get a coupon for 10% off a regular store purchase. Target has also offered a Target Small Business card which offers enhanced reporting features and flexible payment terms to target business owners.
Credit revenue was $1. 059 billion, providing a before tax profit of $485 million, up approximately 14. 4% from 2003. Target expects this part of their business to continue to grow. Weaknesses Strategic Operations Although the company has been a success there are many areas in which an improvement can be made throughout the company. Target has been showing continuous improvement, but they still fall behind Wal-Mart, K-Mart, and Sears in the retailer industry.
Target has been ranked number twenty seven on the Fortune 500 list, but they need improvement on their global operations because they are ranked number one-hundred and twenty on the Global 500 list. One of the areas in which Target needs to improve is the section of their strategic options. Target has been very slow in moving towards the new trend of higher-end consumer electronics. Compared to Wal-Mart they are falling very far behind them, because Wal-Mart has introduced many new technologies such as Sony flat screens and Panasonic LCDs, which Target has had no interest in. Target has finally incorporated Sony into their stores, but they are a step behind the competition that has already had these products and are now moving on to the newer technologies that exist. Instead of focusing on the new and innovative technologies that are hitting the market, Target has increased the amount of each line of apparel in their stories without increasing quality.
This has decreased the companies' profits because now more money is associated with inventory and stocking costs, rather than putting those profits into other parts of the company where they need it. Strategic Pricing Target has also tried new strategies of lowering their prices even more than their already low prices. They can not compete with Wal-Mart's low pricing and this strategy has not been successful to date. There has been a misconception that when Target lowered their prices, they also decreased the quality of their products. This has drawn away from their revenue, because in the past they had a higher quality of products, which was their advantage over Wal-Mart who offers lower quality products. Now that they have lowered the prices, the consumers think that the product quality is the same so why pay more at Target when they could just go to Wal-Mart and get the same quality for a better price.
They should be focusing more on customer loyalty than just simply trying to lower prices. They have a good customer base, but have not done much to improve or keep the customers coming back and not going to their competitors. Their customer service section could be improved and this might help in the section of customer loyalty. They do not have the person standing at the door greeting you like Wal-Mart does and furthermore their return policy can not match up to Wal-Mart's. Just recently, I purchased a product that was damaged and defective and upon returning this product no discount or store credit was given. The product was obviously used and had been put back on the shelf without the proper inspection by the service desk to see if it was in working condition.
I talked to the manager and she explained that this has been happening often and is the fault of the customer service. In the same situation at Wal-Mart if a product was returned because it was defective, the customer would receive a percentage of the price taken off that particular product... Diversifying the Smaller Divisions Target had three divisions that were included in their overall company. The main one is Target stores and the two other divisions are Mervyn's, and their department stores. Their department stores include Marshall's, which was the big branch of the other department stores. Many analysts were indicating that the two other divisions, Mervyn's and the department stores are holding the company's profits back.
Target stores account for about seventy eight percent of the generated revenues, while Mervyn's only accounts for twelve percent and the department stores only accounted for nine percent of their overall sales. Both Mervyn's and the department stores revenues have been falling around 5 percent each year and with these facts Target has had to do more just to keep these two divisions producing on the plus side. Target was investing most of its research and development into these other two divisions just to keep them profitable. When Target dropped these other two divisions, they were able to invest their research and development into the main stores of Target and analysts say that this would increase profits tremendously.
These divisions have held separate agendas which also makes marketing for these stores a process because each divisions has a different, separate objective. Recently they had begun to conduct business in the same markets as Target and this has been drawing away from the overall revenue of the company. There was a lot of talk about selling the other two divisions and recently they announced that they were going to sell off the two other divisions, because according to many analysts the efforts that were putting into keeping the other divisions profitable was hurting Target. There is also a downside to selling these corporations that would hurt Target in the short-term. They would have a massive loss of jobs which would also draw away from their customer loyalty and decrease profits. Advertising Direction Target's advertising does not match up to its competitors either, where as Wal-Mart and K-Mart market low prices, Target has been focusing on their product lines.
They have gained some more customers through this marketing, but it is not nearly as effective as the strategies of its competitors. If they begin to create failing product lines like Sears, this could deter their customer base from shopping at their store. If they invest in lower quality products this could bring the integrity of the company to a new low and cost the company revenue. Investment for Future Growth Target has recently begun to invest in new consumer oriented goods in their new Super Targets.
Consumer oriented goods including groceries and other food products are less profitable then the line of products that they already have in place. This could hurt their continuing rate of profitability because their rate of growth will be decreased by adding these new products to their line. Lastly, because of the declining stock market the average income levels and savings have been lowered, so the customers have been drawn to Wal-Marts lower prices to increase their own savings. Threats The next section to be discussed for this case study will be the threats. This could be looked at as when the external environment present's a threat to the company. Naturally, there are many different threats that could occur to a company.
Some may be very simple while others are quite complex. Some possible threats that could be considered would include: a shift in what consumer's prefer, the emergence of substitute products, newer regulators, or even increased trade barriers. However, the threats that will be discussed for this topic will include product and company competition, the increase in the productivity gap, and how investors compare Target with other company's. Product and Company Competition Target, as a company, generally competes with many different stores. Such examples could include those that are of the discount type, drug store chains, moderate department store, and specialty retailers. The biggest of their competitors is obviously the worldwide giant Wal-Mart.
However, other companies that could be classified as other top competitors would be Family Dollar Stores, The Gap Inc. , or CVS. However, like it was mentioned earlier, the top competitor is Wal-Mart, which dominates many consumer good's sectors in the U. S. What they do so well is to focus on low prices and good value. Because of this, many middle class individuals will go out of their way to shop at Wal-Mart.
While Target could be considered more of an upscale discount chain, Wal-Mart is not. They have the reputation of offering the lowest prices. Super Target's rivals include grocery stores, Super centers, and warehouse clubs. Examples of these rivals would include: BJ's Wholesale Club or Costco Wholesale Corporation. Target must compete with Wal-Mart in product ranges as well as through actual store numbers. Even though Target has recently released two new higher- end apparel lines, including Todd Oldham and Mizrahi, an item specifically designed by the Target customer, Levi jeans, has been linked to Wal-Mart, an act that may lose customers for Target.
Increasing Productivity Gap The increased productivity gap between Wal-Mart and Target is affecting both companies in terms of competitive stances. With Wal-Mart doing such an incredible job at being so efficient, they use their knowledge to access the most possible room available at their stores. Target also does a decent job, but they will need to work even harder. Wal-Mart will attempt to exploit the existing gap by lowering prices further and creating an even strong advantage.
When looking at all the figures that were given out, a huge discrepancy existed when comparing sales per square foot. When they were both first compared back in 1999, there was only a slight gap, with Wal-Mart selling $441 and Target selling $260 per square foot. This did show that while Target did a decent job, Wal-Mart out-worked them, selling more things in the same amount of space. However, things change as usual. Approximately 3 years later, in 2002, Wal-Mart had increased this to $498 and Target to only $271 per square foot.
It seems as though Target felt they did a good job and did not try to increase this number, while those at Wal-Mart wanted more. It would appear this is why they are so good at what they do. Investors Continue to choose K-Mart and Wal-Mart First This threat is very crucial when looking at the stock market and everything that is involved here, it appears as though investors in retail are less prepared to acquire Target stock than the two other main competitors in the segment, Wal-Mart and K-Mart. These two competitors are very well known, which proves to be an obstruction for those at Target. The whole reasoning behind this idea that people do not want invest in Target, was the fact that they owned Mervyn's and Marshall Field. The creation of the subsidiaries made the company look and feel more like a conglomerate; furthermore, the two continue to perform badly.
It was also noticed how many individuals cited the simplicity of Wal-Mart and K-Mart for stock purchase. When an individual is looking to invest in a company, they not only want to locate a profitable company, but also have the accessibility to buy stock themselves. Besides this, another example of the increased complexity of Target is the introduction of the credit card scheme and Super Target. This makes investors want more from the company, against the no nonsense of Wal-Mart.
Works Cited 2004 Target Annual Report. February 2005. Retrieved July 13, 2005 web group / investor -relations / investor -relations. jhtmlTarget Corporation. September 2004. Retrieved July 14, 2005 web Target Corporation Company Profile.
Aug 2004. Retrieved July 14, 2005 web.