Target & the Discount, Variety Stores Industry

1. Target& the Discount, Variety Stores Industry by Jennifer Kellner

2. Why study the business & its environment? • A thorough assessment of the company’s business env’t is key • Provides a solid foundation for each step of valuation • Knowing the Env’t • Several characteristics • Porter’s 5 forces • Influenced by Industry Competition, Buyer power, supplier power, product substitutes, threat of entry

3. Target: the Business • Everyday essentials, fashionable merchandise, all at a discounted price • Focus on “shopping experience” • Target Credit Card + Target Visa + Target DC • Strengthens bond with guests • Seasonal sales (4th quarter) • General Merchandise (and CityTarget stores) & SuperTarget stores • Significant portion of sales from national brands • 1/3 from owned & exclusive brands (ex: Merona, Xhiliration, Mossimo)

4. Where is Target making money? • Pharmacy, beauty, personal care, baby care, cleaning

5. Other Revenue-generation… • Target Café • Target Clinic • Target Pharmacy • Target Photo • Leased/licensed departments

6. Distribution • 40 Distribution Centers (37 U.S., 3 Canada) • Target.com • Through third parties, directly from vendors, own distribution network

7. Employees • Referred to as “team members” • Highly value their “team member relations” • Company-paid benefits include: • Pension plan, medical/dental plans, retiree medical plan, disability insurance, paid vacation, life insurance and merchandise discounts, etc.

8. Critical Components • Inventory mgt is key • Demand forecasting • In-stock in core product offerings • Positive vendor relationships • Careful planning of inventory levels for seasonal and apparel items to minimize markdowns • Brand image (“Bullseye Design”)

9. Strategic Initiatives • Increase presence in areas w/ strong sales • New stores (13 alone in 2013) • Introduce more CityTarget stores • Recently announced price-matching policy • Improve the “shopping experience” • Renovations, latest products/services Source: http://finance.yahoo.com/news/targets-strategic-initiatives-201851286.html

10. The Risks…

11. What we’re all thinking… • Data breach: December 19th • Have they lost trust? • As many as 110 M customers • Announced 1 year of free credit monitoring and identity theft protection • Do they need to do more? • Implications for the entire industry • Could happen anywhere http://www.washingtonpost.com/blogs/on-leadership/wp/2014/01/13/target-ceo-opens-up-about-data-breach/

12. Additional Risks • (Cyber security) • Pricing pressures • Reputation as a core part of business • No one advantage • Changing consumer preferences • U.S. Economy • Suitable locations • Product safety

13. Porter’s Forces • Industry competition • Wal-Mart (main), Costco, Dollar General, Retail stores • Intense competition (99% of Target stores within 10 minutes of a Wal-Mart ) • Broad product mix • Buyer power • No single buyer, discretionary income • Supplier power • Large volume sales • Substitutes/Complements • More specialized stores (grocery stores, pharmacies) • Threat of entry • Brand, presence, makes it difficult • Immense capital outlay • Access to primary locations • Existing relationships w/ suppliers • Experience Source: http://economics-files.pomona.edu/jlikens/SeniorSeminars/sagegroup2005/Reports/Targetreport.pdf

14. The Industry: Discount, Variety Stores • Target • Dollar General • Wal-Mart • Costco

15. How are they unique? • Wal-Mart • Greatest coverage • Low operating costs, lower price • Influences the industry immensely • Target • Positioned itself as a “higher quality, fun” discount store (competes on value) • Dollar General • Convenience (residential) • Low prices • Limited product assortment • “In and out” • Costco • Membership • “Buying in bulk” • Gas stations

16. How are they different? • Domestic • Dollar General • Target (exception: Canada) • International • Walmart • Costco

17. Different Customers • Target • Customer’s avg household income: $64K • Dollar General • ~$40K or less • Wal-Mart • $30K-$60K • Costco • $74K

18. In addition…

19. The Industry: As a Whole • Tend to offer a wide variety of products/services • Competition on price is key* • Constantly reducing costs to maintain profit margins, maintain market share • Economy plays a major role

20. The Headlines • “Discount Retailer Dollar General Taking Away Market Share From No. 1 Wal-Mart” • “Retail Industry security hacks may surge in 2014” • “2 Retailers to Watch: Amazon, Buckle & Costco” • “Holiday Sales Rise on Discounts, Online Shopping”

21. Questions?