Target Corporation Business Strategy Evaluation

Abstract:

The purpose of this analysis is to inform the reader of Target Corporation’s social and economic business strategies, responsibilities, failures, and successes. Target is one of the largest retailers in the US, serving guests from more than 1,700 stores in 49 states nationwide. Target’s strategic analysis will provide an insight into the corporation and its working. It will evaluate in terms of its effectiveness in each of these areas, such as: the structure, goals, boundaries, control, culture, and decision-making processes. Based on the evaluation, this paper will help to provide suggestions for improvements within the different areas, if the need arises.

Today, Target Corporation is considered one of the largest retailers in the United States of America, with net earnings totaling nearly $3 billion in 2014 alone as well as totaling more than 1,778 stores with 361,000 employees (Target Annual Report, 2014). However, Target has quite a humble beginning dating back to one man over a century ago.

In 1903, John Dayton got his start in the retailing business in Minneapolis, Minnesota by buying shares of the R.S. Goodfellows Company. Once Dayton gained access to this company, renamed it to Dayton Dry Goods Co., thus the foundation for Target was planted. Dayton’s business thrived in Minneapolis, surviving the Great Depression and only gaining fiscal strength in the process. However, it wasn’t until 1962 when Dayton opened the very first Target store and began his move into discount merchandising.

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Over the many years since the Target has established, the company has truly gone through an evolution, especially regarding their supply chain and the way they distribute their products. It started in 1969, just seven years after the very first Target store opened, when the first distribution center opened in Fridley, Minnesota. The distribution center was supposed to serve as a quicker and more efficient way to provide to the different stores located throughout Minnesota; and that it did. Not long thereafter, Target began to modify its product placement methods inside their own stores by developing plan-o-grams. Plan-o-grams are diagrams or models that indicate the proper placement and disbursement of products on shelves to maximize the sale of each product and product groups. Not only did these changes benefit the stores, it also made the overall shopping experience easier and more enjoyable for the consumer (Nutter, 2017).

Moving forward, Target broadened its visibility by introducing coupons and sales into the Sunday newspaper – due to the fact that the World Wide Web was nonexistent. Two years later, the Dayton family stepped down from their positions, and paved way for new leadership. Target stores have never stopped trying to improve their effectiveness as retailers; always trying to be innovative in any way that they can. Thus, continuing their growth in the retailing industry and increasing their sales year in and year out.

Internal Analysis

Target has a large-scale of operations in the US, which makes it one of the largest retailers in the US. With such a large scale, Target thus has economies of scale which allows its vast buying power, further allowing the company to enforce such low prices. However, the downside of this is that Target is solely focused on branching out in the United States, which limits their customer base. Another strength that Target has shown over the years, and which coincides with the previous one mentioned, is the pricing strategy adjusted to consumer behavior. Target is consistently bringing in new schemes such as “Low-Price Promise” and “Expect More. Pay Less” to provide value in addition to their convenient prices. This helps in enhancing customer base and provides a competitive advantage with other retailers (ex. Walmart). Furthermore, in 2010 Target introduced the REDcard Rewards loyalty program. This program encourages customers to make purchases with their Target Rewards card in order to receive discounts, in-store and online. Within 5 years of its launch, the penetration of REDcard reached over 21% (2018 CSR Report). This kind of reaction can only attract customer loyalty, thus providing business security. However, in December of 2013, Target experienced an unfortunate leak of important data which contained confidential information, including credit and debit card details of its customers. Post this incident, Target has done an extensive amount of research on data security, but re-earning customers’ trust is certainly not an easy task and requires a fair amount of time. Furthermore, Target is becoming increasingly reliant on technology 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.I can comfortably say that Target is a company that sets goals with every intention of accomplishing them. Nothing that is worth anything happens overnight. However, Target has proven over the years that they are fully committed to providing healthier, eco-friendlier, and cheaper products; along with the same great guest service that they’ve always had. 

Here are a couple goals that Target has set, compared to their competitors: Target: Divert 70% of our retail waste from landfills through reuse or recycle programs by 2020. In 2016 Target exceeded their goal of 70 percent retail waste diversion and finished off with a diversion rate of 72.3 percent (2018 CSR Report). 
Walmart: Achieve zero waste in our own operations in Canada, Japan, the UK, and the US by 2025. By the end of 2017, Walmart diverted from landfills 81 percent of unsold products, packaging and other waste materials in the U.S. and 78 percent globally (2018 GR Report). 
Target: Increase organic food offerings by 25% by 2017. Target was proud to share that as of 2016 they increased their organic food offerings in all of their stores by 139%. Target will continue to expand its organic offerings in store.
Walmart: Drive an initiative with suppliers to reduce sodium, added sugar and trans fat between 2011-2015. After making progress, Walmart announced new goals in 2016 that included reducing sodium by 20 percent and bringing added sugar and saturated fats to less than 10 percent of calories, as well as removing certified synthetic colors and artificial flavors from products in which customers don’t expect to find them.

External Analysis

A few key weaknesses of Target Corporation revolves around the fact that its current locations are only in the U.S., aside from Vermont, Hawaii and Alaska (USSEC, 2011). This underlines the fact that the corporation has no presence in the international market. Alongside, researchers have noted that the corporation tends to overemphasize on quality, which drives its costs extremely high unlike those of its close competitor Wal-Mart. Another external factor, and one that I have personally had difficulties with, is that Target has an online medium to assist customers in ordering their products online, but it is sufficiently underutilized. Part of this issue is that not all Target items are offered online on Target.com.

I truly think that Target needs to increase awareness of the online medium and use of their online services/resources. However, a way that Target has put their plans 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 Corporation EFE Matrix

Opportunities

Weight

Rate

WeightedScore

Globalization

0.1

2

0.2

Remodeling of Older Stores

0.07

3

0.21

Increased Technology

0.08

3

0.24

E-Commerce Business

0.09

3

0.27

Slow Economic Growth

0.06

2

0.12

Product Availability

0.08

1

0.08

Negative Publicity

0.05

4

0.2

Product Placement on TV 

0.06

2

0.12

Data Breach

0.1

4

0.4

Governmental Wage Increase

0.08

2

0.16

Foreign Law

0.09

2

0.18

Celebrity Advertising

0.06

4

0.24

Total Weighted Score

1

2.42

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 their buyers. However, Target seems less proactive when it comes to the expansion of their corporation. It had plans to open just eight smaller Target Express locations in 2015, whereas Walmart planned on opening anywhere from 250-300 smaller stores (Target Pressroom, 2015). Unfortunately, Target will continue to face a difficult retail environment due to its competitors being so aggressive and proactive; and this will ultimately cause a huge struggle in the years ahead. 

As of June 2016 and present day, this is the published Target Stores Mission Statement, which Target refers to as its “Purpose”:

“We fulfill the needs and fuel the potential of our guests. That means making Target your preferred shopping destination in all channels by delivering outstanding value, continuous innovation and exceptional experiences—consistently fulfilling our Expect More. Pay Less. brand promise.” (Target, 2018)
This mission statement is clear enough to show that Target is focused on providing the best guest service, product service, and overall positive shopping experience – whether that be in person or via online. Their motto “Expect More. Pay Less” gives their customers confidence that they are committed to providing them with not only lower priced food, clothes, etc.; but never neglecting the quality of their products. There truly isn’t much that I would change about this mission statement. I believe that this company’s vision is ideal and their said “purpose” has allowed them to successfully become the 11th largest retailer chain in the world (Farfan 2018).

Porter’s Five Force Model: Target Corporation

Supplier Power:

Mass merchandiser Target operates in a highly competitive retail environment. It’s relatively easy to open a competing business like Target’s, though it’s harder to do it on the scale that the retailer presently enjoys. Due to the wide variety of merchandise it has available, Target faces competition from other mass merchandisers such as Walmart and Costco Wholesale, grocery stores such as Kroger and Whole Foods Market, home improvement retailers such as Home Depot, department stores such as Macy’s and Kohl’s, internet retailers such as Amazon, and other specialty retailers.

Buyer Power:

Due to the tough competitive environment that Target faces, consumers have several choices at their disposal, both at brick-and-mortar stores and on the Web. Products have a low degree of differentiation. Therefore, Target is forced to keep prices competitive in order to boost sales. Wal-Mart is Target’s top competitor (Target Annual Report). Although Wal-Mart promise the lowest price on most consumer products, their products are often found to be of less quality. This can be because Wal-Mart plays to a lower income demographic than Target does, but there’s no telling.

Competitive Rivalry:

Target Corporation promotes design through imagination, improvement, and innovation 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. Unfortunately, they have a lower percentage than Amazon and Walmart.

With that said, Target’s strongest primary function is distribution and marketing/sales. The company has relatively lower than 70.5% as COGS/Sales ratio compared to other companies (Target Annual Report, 2014). This means that it maintains its efficient sales department and distribution management. 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.

Target’s sales revenues have stayed relatively the same from 2013 to 2014, decreasing by less than 1% (Target Pressroom, 2015). Whereas, 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; Target is doing significantly better in this regard Target’s revenue has grown at a compound annual growth rate (or CAGR) of 1.8% over the last five years. In contrast, other discount retailers such as Ross Stores, and Burlington Stores have grown their revenues at CAGRs of 7.1%, 8.7%, and 6.7%, respectively, over the comparative period. Department store retailers Macy’s and Kohl’s grew their sales at CAGRs of 1.6% and 0.9%, respectively, over the same period. Target’s under-performance relative to the performances of some of its peers is partly due to its exit from Canada in 2014 and partly due to the fallout from the company’s data breach in December 2014 (Target Annual Report, 2014). The data breach resulted in falling store traffic and falling same-store sales for several quarters. Also, off-price retailers have been benefiting from cautious consumer spending habits in the aftermath of the Great Recession.

Threat of Substitution:

Products such as groceries and electronics are largely undifferentiated among retailers. Customers can easily switch between companies without incurring significant switching costs. Target has tried to inspire customer loyalty by focusing on its guest experience. The company is also known for offering products that are exclusively available at Target through its private-label brands.

Threat of new Entry:

The company delivers products and services at a low cost, which from economics of scales it considers as a competitive advantage because they can weaken their rivals on price, and at the same time, make a higher profit while doing so. In addition, the new entrants require investing large financial resources to compete in this industry with Target and other rivals. The large amount of capital is necessarily required to achieve a size needed to be competitive in a market (Economic Moats, 2015). Incumbents have high advantages, independent of size in this industry. Target’s business becomes reliant on technology investment to support multi-channel efforts and transform information processes and computer systems more efficiently and run the business and remain competitive. Moreover, Target’s growth depends on the ability to build new stores in locations in fully developed market such as City Target, the small format stores in urban neighborhood and in favorable geographic locations. Target also takes advantages of establishing brand identities to learn how to produce more efficiently (Target Annual report, 2014). Another barrier for new entrance is costly government enforcement actions and private litigation in protecting the security information about customers and guest services and team members.

Strategic Objectives

Target 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. Customers prefer to shop in an atmosphere where they are treated well. This results in a willingness to pay more for items, and individuals who are not as price sensitive. Target has had its fair share of ups and downs over the decades, but they have certainly shown a very strong interest in providing an excellent shopping experience for their consumers and an even better place to work for their team members.

“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.” (Target.com)

They’ve also done a great job in initiating relationships with other companies, therefore, allowing for partnerships and collaborations. 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.” (Target.com)

Though no company is perfect, Target is continuously putting their best efforts forward to show that they are not a company to be overlooked.

References

Farfan, B. (2018, April 16). Small Business: Get Target’s Mission Statement. Retrieved from https://www.thebalancemb.com/target-mission-statement-2891827

Nutter, James. (2015, April 05). Target: Critical Analysis Report.

Target. (2018). Target: Purpose & Values. Retrieved from

https://corporate.target.com/about/purpose-values

Target. (2018). 2018 Corporate Social Responsibility Report: Aligning With the Sustainable Development Goals. Retrieved from

https://corporate.target.com/_media/TargetCorp/csr/pdf/2016-Corporate-Social-Responsibility-Report.pdf

Walmart Inc. (2018). Reducing Waste Overview. Retrieved from

https://corporate.walmart.com/2018grr/reducing-waste

Target Annual Report. (2014, March 14). Retrieved from https://corporate.target.com/annual-reports/2014

Target Annual Report. (2018, October 12). Retrieved from 

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

Target Corporation Pressroom 2015: Retrieved fromhttp://pressroom.target.com/news/target-announces-store-growth-plans-for-2015

USSEC, (2011). Target Corporation Form 10-k. Retrieved from 

http://www.sec.gov/Archives/edgar/data/27419/000104746911002032/a2201861z10-k.htm