Company Situation Analysis for Target

1. Company Situation Analysis for Target Team 2 Shawn Buck Ashley Burnett Whitney Horton Kelly Riester Jennifer Shotts Sam Snelling Mickea Smith

2. Target • Founded by the Dayton Company in 1962. • Dayton was previously focused on department stores and bringing European quality to the mid west. • They were able to keep customer loyalty by offering name brands at discounted prices. • In 2000 the Dayton Hudson company officially changed their name to Target. • Since Founding in 1962, Target now operates 1,685 stores and is expanding on a global scale.

3. Core Competency • Focus on design. • Began with the store layout. • In the 90’s Target partnered with the world famous architect Michael Graves. • Target has also partnered with designers Mossimo Giannuli and Sonia Kashuk. • Target also puts on community art competitions to find up and coming designers. • Wal Mart and K Mart cannot compete on this level

4. Competitive Position • Target is currently second to Wal Mart. • Continue to compete, even in a troubled economy. • They have effectively differentiated themselves in their market, making their brand difficult to replace.

5. Important financial ratios- Profitability These are the profits you make after interest and taxes for every dollar.

6. Important financial ratios- Profitability This is the rate of return that the company is earning on the company’s investment

7. Important financial ratios-Profitability This is the rate of return that the company is offering its shareholders.

8. Important financial ratios-Liquidity This demonstrates liquidity. For ever dollar of short term debt that they have, they have the number above in current assets to pay

9. Important financial ratios-Liquidity This is another liquidity measure. It excludes inventory from the ratio, so it only includes cash and cash equivalents to pay off. Current debt above one is wanted

10. Important financial ratios-leverage This means for every one dollar of equity they have the amount above of debt, which means they are leveraged and thus recognized by the tax shield advantage. The Tax shield advantage is recognized by the shareholders and can be explained by the accounting rule that interest is tax deductible. The more debt present in a firm’s capital structure, the more interest payable therefore there is more interest available to be added into after tax income.

11. Kohl’s financial ratios

12. Worksheet 9.1

13. PIMS • According to the profit impact of market strategy the six steps in pims are true. The six steps are as follows: • Absolute and relative market share correlate with ROI • Product quality is key to market leadership • ROI is positively correlated with market growth • Vertical integration can help in product life cycle • High investment intensity leads to less ROI • Capacity use is critical with a high level of capital intensity • However Wal-mart has broken the mold on this and does not follow these steps and they are the leader in the discount variety stores, and because of this PIMS is used less frequently today.

14. Key People • Mr. Douglas A. Scavanner- Target • Mr. Thomas M. Schoewe- Wal-mart • Mr. Michael D. Collins- Kmart • Mr. Wesley S. McDonald- Kohl’s

15. Target • Threat of entry • Large discounters have driven down prices with imports from other countries and slower holiday sales. • Most independent retailers don’t have the margins to compete on price. • They have to be creative in finding ways to get people shopping at their stores. • Offering exclusive gift items & giving more personalized service or hosting event and fund-raisers to lure in more foot traffic.

16. Powerful Suppliers & Buyers • Suppliers • Suppliers are continuously increasing due to the boom in online retailers & large supercenters. • Target stores are able to secure a particular % of certain suppliers business. • Online market gives suppliers additional channels to get their products to consumers but it increases their ability to negotiate for their prices.

17. Powerful Suppliers & Buyers • Buyers • There are usually multiple retailer in one community that offer similar or identical products, buyers are prone to shop at a store based on factors other than loyalty. • This gives the buyers an intermediate level of bargaining power but the suppliers and retailers still control most of the power.

18. Target: • Industry overview • Annual revenue of $130 billion • Discount department store Industry encompasses 5000 individual retail stores. • Franchise giants like Target, Wal-Mart, Kmart. • Target has 26 distribution centers in 21 states. • Top 8 companies hold 100% of the industry sales.

19. Products, Operations & Technology • Products • Major products that are sold in discount stores include apparel (20% of sales) • Personal Care Products (15%) • Electronics & Groceries ( 7%) • Toys (6%) • Apparel includes women’s, men’s and children’s clothing. • Target maintains a large product inventory so they are able to offer high volume discounts.

20. Products, Operations & Technology • Operations • Discount department stores inhabit a large portion of the market & require big portions of real estate: the average size is about 100,00 square feet. • Companies like Target, K-mart, & Wal-mart select locations near population centers, other retail centers, or major highways. • Supercenter arrangement averages 180,000 square feet & offers a more wide-ranging merchandise & grocery section.

21. Products, Operations & Technology • Technology • Reduces labor costs and overall operating cost. • These systems include automated distribution centers, point of sale systems (POS), and computerized inventory management systems. • Keeping track of inventory on the floor is done electronically with hand held scanners, bar codes, and radio frequency identification (RFID) tags. • These systems can also be used on a network to connect inventory and sales information across the nation. • Wal-mart has incorporated a satellite communications system to link all its facilities.

22. Stages in Product Distribution • Target • 26 distribution centers in 21 states • Giving the ability to fulfill the needs of their stores within a 24 hour time frame • Target also competes on a cost leadership strategy but focus more on quality. “Expect more. Pay less” • Private labels such as: Massimo & Converse One Star • Target currently operates 1,685 stores in all but two states in the U.S. (Vermont & Hawaii)

23. Core Capabilities • Strategic intent- • every employee in the organization must understand his or her role and how their actions affect the outcome of the organization. • Obsessive customer focus • Understanding what customers want • Innovation and Commercialization • Private labels, customer service, POS, Supply chain Mgt. • Talent Mgt • Finding the right people to work and having them in the right places within the organization.

24. Key People – Then and Now Robert Ulrich: CEO from 1987-2008 Gregg Steinhafel: CEO from 2008-present

25. Gregg Steinhafel – Level 5 Leader • Steinhafel and Ulrich have been working together at Target since 1984 • Resolve to do what must be done • Steinhafel took a pay cut of a little over 24 percent due to the failing economy in order for Target to stay afloat • Personal Humility • Variety, a popular entertainment magazines describes Gregg by saying: • He “keeps his head down when it comes to the news media -- in fact, his handlers say he has a standing policy not to talk to the trade press.” • Willful and Fearless • “Our space, signing, promotional programs and the hundreds of millions of consumers in our stores annually should not be undervalued.” -Gregg Steinhafel

26. Design and Emphasis • Design: Target’s main focus is on innovation, design, and store experience. • Target conveys its design not only through their floor layout and in-store displays, but also through their media. • Catchy commercials targeting youth • Emphasis: “Expect more, pay less,” and “Design for all” essentially embody everything that Target stands for.

27. Training • Target prefers to recruit management at the college entry level. • Target University • A training program for educating future managers and trainers. • The graduates of Target University will eventually go out to the stores and train the store-level employees. • Additionally, each brick-and-mortar store has at least one employee who has attended the Disney training program in order to manage ongoing and new-hire training.

28. Retention Strategies • Health Benefits • Full benefits package • Dental Benefits • Vision Benefits • Use of Target Pharmacy – 10% discount • “Team Member LifeResources” counseling program • Private counseling, support, and information • Child care arrangements • Elderly care arrangements • Help developing a healthy dinner menu

29. Financial Support • Aid in saving for retirement through TGT 410(k) Plan • For every dollar an employee deposits, up to five percent of their pay, Target matches it dollar-for-dollar • Daycare Flexible Spending Account (FSA) • Save before-tax dollars from each paycheck that will be used for qualifying daycare and eldercare expenses • Insurance • Company-paid life insurance • Disability coverage (short-term) • Choice auto and home insurance • Offer group rates from various different insurance companies

30. Benefits • Team member discount • 10 percent • Qualified family members can use the discount as well • Tuition reimbursement • Up to $3,000 per year, per child • Education loan aids • Offered through Wells Fargo Student Loan program • Qualified employees may borrow up to $25,000 per year for expenses such as room and board, books, etc. • Home loans • Home Buyer’s Assistance program • Adoption Assistance Reimbursement program • Up to $5,000 to cover any fees such as application, filing, placement, and/or agency costs, as well as court costs, immigration, translation and/or attorney fees

31. Benefits (cont.) • Group Legal Plan • Gives employees access to legal representation at an affordable price • Childcare discount • Up to 10% off weekly tuition at more than 2,500 conveniently located childcare centers • Target Credit Union • Banking • Savings accounts and loan options • “Target Work Perks” - Miscellaneous Discounts • Fitness centers • Cell phone plans • Computers • Clothing • Flowers • Etc.

32. Company Culture • In Target stores, guests will always find a clean, organized, welcoming atmosphere and smart, stylish merchandise. • All Target employees are empowered • Employees are recognized as part of a winning, successful team (an asset) • “The strength of many, the power of one,” means that contributions from everyone make one end result that benefits everybody.

33. Marketing • Target’s Mission: “…delivering outstanding value, continuous innovation and an exceptional guest experience by consistently our ‘Expect More. Pay less’ brand promise.” • 96% of Americans recognize the bulls-eye symbol as representing the Target brand. • Target’s brand value was found to be $17.1 billion

34. Advertising • In the year 2008, Target spent roughly $1 billion on advertising. • Recently decided that 3/4ths of their marketing budget will be spent on advertisements that would show the price of their products. • This would go along with their brand promise, “Expect More. Pay Less” • http://www.youtube.com/watch?v=KdTwVCNKxV8

35. Store Design • The store is designed to feel more like a boutique than a warehouse style store. • Store is filled with contemporary signage, backdrops and liners • These are mostly printed on inexpensive paper or foam boards • “Tar-zhey” the psuedo-French pronunciation coined to express the designer feel of Target.

36. Store Design • Target has been experimenting with new store designs that enable them to blend within the area. • These include multilevel-building with escalators and elevators • They even designed a new carts for people to use on escalators • New “urban” designs have lead Target to expand into places such as: New York City, New Orleans, Los Angeles, etc.

37. Target’s target market • Median customer is around 41 years old • Household income of roughly $63,000 • 75% of the customers are made up of woman • More than 45% of the customers have at least 1 child • 80% of Target’s customers have attended College with around 48% having completed college

38. Sales Forces • Target created the “cheap chic” in response to the demand for cheap but fashionable clothes • Brought in Designers like Isaac Mizrahi and Sonia Kashuk who are high-end designers that developed a lower-end merchandise for Target • They are also experimenting with limited edition designer series

39. Sales Forces • The down turn in the Housing market has affected Target’s sales • Target Home goods sales have mirrored the housing market. • The rising cost of Health care has lead to innovative designs and cheaper medication. • Target Clinic has been introduced in to some store layout to provide cheap and fast healthcare.

40. Success Stems From…. • Social responsibility: • $3 million/week awarded to schools throughout the U.S. • Recycling programs in every store in a number of different ways. • Carts, carpet, boxes, bags, walls • 70% of the store has and will eventually be recycled • Always looking for innovative techniques to drive down cost while retaining quality consumer goods. • Through SKU’s, customer feedback • Employees are urged, not mandated, to perform community service (avg. store does 100 hrs./month) • Product lines are big on organics, naturals, energy saving • Infant products, domestic products such as linins, lighting throughout the stores, skin care products- Target brand • Even there gift cards are biodegradable!! • Vision: “strengthen families and communities wherever we do business.”

41. It All Starts With Diversity • Believe this motto • 57% of the corporate positions are held by women • 10% higher than the national average • Have a number of minority scholarship offered • Hispanic Sch. Fund, Unit. Negro Fund, Asian Am. Fund • Their corporate partners are from a wide range of backgrounds to “better suit the customer’s needs” • Includes employees, marketing, and suppliers • Work with independent suppliers, some of which are women (Wal-Mart can’t say that) • Support “free days” for those less fortunate • Over 1,500 events- baseball, museums, carnivals, etc.

42. Target Coordination • “Focused on the efficiency of the process as opposed to the contribution to expansion.” • Porter believed in: short term vision only breeds short term results. • Believe in “healthy relationships throughout the supply chain.” -Back to success logic • Wal-Mart will cut long standing suppliers out of deals for pennies on the dollar.

43. Innovation • “ClearRx”- introduced to the market in 2005 • “flattened out the label and turned everything upside-down for easier, more legible bottles” • Reduce and Reuse: • PVC : “Polyvinyl chloride” • Certificate of Appreciation from Sec. of State • Shopping carts, carpet, gift cards, bags, electronics • Experimenting with “gardens”

44. More Keys • Compromising is the value addition to their supply chain. • “Target spends three-quarters of their budget on advertising and logistical operations” –Corp. Website • Witty commercials and newspaper advertisements have suppliers at heart. • Good business practices • Operations are tied together by: Inbound logistics, surveillance, front of store, back of store, and operations.

45. Where Target is Now • Mature Company • Careful that “dry rot” does not set in • A few programs to prevent this circumstance • Productivity enhancement • Organizational effectiveness and training • Executive coaching • Teambuilding • Effective mentoring

46. Space Chart Analysis • Financial strength • Target was ranked 31 out of 500 for largest U.S. Corporations in 2008 • Revenue exceeding 65 billion • Competitive Advantage • Quality product and a reasonable price by world-class designers • Targets middle-class • Innovation • Clear Rx • Itso Furniture

47. Space Chart Analysis • Industry Strength • Number 2 behind Walmart • Average salary of Customer is 60,000 • Targets middle class, 51% with college degrees • Environmental Stability • Active within communities supporting the arts • Active with recycling efforts and uses of alternative energy

48. A Few Issues… • Constantly improve convenience • Instill use of SmartCart • Strive for lower prices on their goods Decrease Price Use chart from the book, Blue Ocean Strategy Goal Increase Customer Utility

49. Conclusion • Get the right people on the bus and the wrong people off of the bus • Right people are the most important tool for a successful company • Target puts prominence on their slogans to emphasize their goals • Train employees to work towards the same goals

50. Conclusion • Target aims for the middle class • Walmart is ahead, but Target is keeping up soundly • Target is a sound company, but needs to make sure they avoid “dry rot” • Keep focusing on making shopping more convenient and driving costs of their quality products down