Lyssette Salazar

BUSI 4369.61
Dr. Steve Lovett
April 20, 2006

Target Corporation
Strategies for Tomorrow
Executive Summary

The purpose of this paper is to present an executable and practical strategy for Target
Corporation. A variety of factors influenced strategy formulation. The company’s mission
coupled with a SWOT analysis provided the basis for the recommendation. The differentiation
strategy selected supports the company mission and addresses issues from the SWOT analysis.
An implementation plan is provided for the suggested strategy as well.
Background

Introduction
Target Corporation’s history began in 1902 as a department store chain. The actual Target brand
was created in 1962 as a discount retailer. This history has provided Target the basis for its
differentiation. With department store roots, Target has always been consumer-oriented. The
brand includes Target stores, Super Target, Target Greatland, and Target.com. Other operations
include ownership of the Associated Merchandising Corp., financial services, and commercial
interiors.

Environment
The retail industry is highly competitive and saturated. Moreover, Target’s unique upscale,
discount-store approach broadens its competitor list. Major competitors include: Wal-Mart,
Kmart, Dollar General, Sears, and JC Penney. Another aspect of the retail environment is the
online shop. Like Target, Wal-Mart also offers online shopping convenience. The online
shopping realm is equally intense with competitors like Old Navy, offering $5 shipping.
Target.com is still, however, in its rudimentary stages. Retail competition is fierce, but the
greatest risks are interest rates. Interest rates affect both debt and market returns. Given Target’s
debt to total assets ratio of 64%, any change could be considerable.

Management
Target’s top executives include Robert Ulrich (CEO) and Gregg Steinhafel (President). Ulrich
has had the most impact on Target. Arriving in 1984, he set on differentiating Target from
competitors. He has set the industry standards on quality and value. Steinhafel previously headed
Target’s merchandising operations. He is known for taking a more hands on approach. He
frequently visits Target stores and competitors to compare. The duo has set a clear vision for
Target: always provide the greatest value to the consumer.

Recent Performance
Today, Target Corp. operates about 1400 Target stores and Super Target’s. The Target chain has
been prosperous, representing 90% of annual revenues. Sales have increased steadily the past
three years, ending at $46.839 billion in 2004. Ratio analysis shows a drop in overall debt and
increases in liquidity. Despite positive indicators of growth, other company finances show poor
asset utilization. This is particularly true when compared to industry averages. (Appendix A)

Future Prospects
In 2004, the company disposed of the Mervyn’s and Marshall Field’s brands. This was the result
of lackluster performance. The effects of this decision have yet to materialize. However, analysts
agree that the outcome will be a more focused direction. The Target.com website is still very
promising and most agree that Target has, “arguably the best brand name in retail.” (Grom).
Additionally, store growth is projected to increase 50% within the next decade. The eastern
United States still represents much growth potential. Target has yet to exploit many of these
opportunities.
Mission

Introduction
Target has long been a trendsetter in the retail industry. It all began with the idea of, “fashionable,
smart design . . . delivered at competitive discount prices.” (Target). Target strives to deliver to
customers a unique shopping experience. This can be seen in its innovative merchandising and
design. Moreover, the company has always been dedicated to social responsibility. This includes
commitments to charity, diversity, and the environment. In brief, the company has always been
an innovator. This innovative spirit is incorporated in the company’s vision, values, and goals.

Vision
The essence of Target’s vision is, “Expect More. Pay Less.” (Target). This is embodied through a
mission to create value for Target guests. Value is created by providing customers with the right
combination of quality products. It is also a commitment to provide a unique product. Quality at
Target means a variety of things. In summation, quality means providing a superior product.
Customers have come to expect great design at affordable prices. Overall operations are guided
by fulfillment of this expectation.

Values
Target is committed to its customers. This commitment entails endeavors in and out of the
workplace. This means a passion for delivering just what the consumer wants. It is achieved with
dedication to delivering great quality and value. In addition, Target has always been active in
philanthropy. The tradition began with Target’s founder, George D. Dayton. Today, the tradition
has grown into national partnerships, local initiatives, and store programs. Additionally, Target is
committed to diversity. This is apparent in store design and merchandise as well as employees.
Target is also committed to protecting the environment. As part of this commitment, Target has
reduced waste by at least 70%. This is accomplished with extensive recycling and becoming
more energy efficient.

Goals
The main goal at Target is to maintain a competitive advantage. Accomplishment of this goal is
measured through increased shopping frequency. The challenge includes creating and identifying
opportunities for continual growth. This is ultimately accomplished with persistent innovation.
Innovative design, technology, and supply chain management all support this goal. Innovative
design entails all business aspects. This includes merchandise and stores, which are frequently
updated. This creates greater customer appeal and convenience.
SWOT Analysis

The analysis of Target Corporation’s strengths, weaknesses, opportunities, and threats exposed
key areas for improvement. The analysis revealed a robust company affected mostly by easily
controllable factors. Addressing these issues would result in greater productivity and strengthen
Target’s competitive advantage.

Strengths
Target is a company of several internal strengths. However, its main strength is its differentiation.
This differentiation has been achieved through continued customer responsiveness. This enables
Target to maintain a loyal consumer base. Differentiation has enabled Target to create one of the
most recognized brands. It is the epitome of what Target represents. Continued differentiation is
still possible through the use of new and existing technologies. Exploiting this strength would
reduce some weaknesses.

Weaknesses
Two aspects of operations were considered flawed. These were logistics and asset utilization. In
recent years however, Target has steadily tried to improve its supply network. This entailed
construction of additional regional distribution centers. In addition, three more DC’s and two
import warehouses are planned within the next two years. In light of this, the company’s biggest
weakness remains asset utilization. Of specific concern is receivables turnover. The company is
overwhelmed by receivables. Further, it has exhibited poor collection of these receivables.
Inventory and asset turnover have also been consistently lower than industry averages.
Additionally, productivity comparisons with competitors show lower performance. Target had
the lowest sales per square foot ratios in the industry.

Opportunities
Opportunities for Target are mostly growth based. This includes a variety of growth mechanisms.
First, Target has yet to fully saturate the U.S. retail market. Second, credit card operations are
still in the infancy stage. Third, the company’s website represents a strong complement to in-
store growth. Fourth, international markets are a viable market for Target’s ultra-chic products.
The area with the largest growth potential is the company’s website. In fact, the website could be
used as an international penetration mechanism. Moreover, costs and risks associated with
increasing focus on the website are substantially lower than the other options.

Threats
The retail industry poses many barriers to entry that help reduce threats to Target. The biggest
threats to Target are existing competitors and economic conditions. However, the threat of
existing competitors is limited. This is because of Target’s strong consumer base and brand. This
makes economic downturns the biggest threat of all. The retail industry is highly dependant on
consumer spending. This in turn is highly dependent on prevailing economic factors. Further,
these economic factors affect interest rates. This affects Target in both its investments and debts.
The company’s 2005 debt to equity ratio of 64% puts it in a risky position. This is compared to
the industry average of 48%. (Appendix A)
Strategic Alternatives

Target has built a strong reputation through differentiation. This is what separates it from its
competitors. It is what customers have come to expect. For this reason, any strategy must further
enhance this competitive advantage. Differentiation strategies to increase efficiency, innovation,
and customer responsiveness present good opportunities. These are also most suitable in
satisfying the company’s vision.

Efficiency
Differentiation through efficiency leads to a more productive company. Efficiency is the most
basic method of decreasing costs. At Target this means addressing poor asset utilization. In
addition, it means closing the productivity gap. This is particularly important in the retail
industry. This benchmarking ratio determines the company’s vitality. Addressing these issues
would enhance performance. This would lead to savings that could be passed on to the consumer.
The main benefit to customers is lower prices or value. Aiming to increase turnovers benefits the
customer. For example, inventory turnover reflects the right combination of products. Focusing
more on this inadvertently addresses customer responsiveness. More interestingly, it could mean
investment in value creation activities. For example, savings could be diverted to design or
marketing.

Innovation
Differentiation through innovation leads to a more competitive company. Target has long been a
leader in creating unique products. Innovation is not germane only to products however. Other
areas exist in which creativity and innovation could flourish. The Target website is the best
opportunity for innovation. The site is currently powered by Amazon.com. While the site is
visually appealing, navigation tends to be troublesome. Moreover, the cluttered look does not
reflect Target stores. Developing the website in house has some key advantages. First, it allows
greater control over the company image. Second, it could enhance store sales by providing in-
store pickup options and just browsing features. Third, new technology can enhance the shopper
experience. These include virtual dressing rooms and product ratings. Fourth, website statistics
could be manipulated to produce usable information. These web analytics could determine future
site design and even product decisions.

Customer Responsiveness
Differentiation through customer responsiveness is the key to building loyalty. At the core of
customer responsiveness is understanding and predictability. A variety of methods exist to
address these two concerns. New technologies are able to collect and analyze consumer
information. Target’s credit cards offer a means of tracking consumer data. However, it fails to
track the habits of non-card guests. Indiscriminately providing guests with store cards would
yield much valuable information. Demographic and consumer shopping trends could be more
easily traced. This would also enhance loyalty when linked to shopping rewards. The information
collected could then be used to address customer’s needs. This would also simultaneously
address turnover inefficiencies.
Recommendation

Only one differentiation strategy truly addresses the company’s mission. Concentrating on the
company’s website would further advance company goals. In addition, it fully addresses the
concerns raised in the SWOT analysis. The redesigned website would be a differentiating
mechanism unlike any other. Further, the website addresses the needs for better asset utilization
by creating virtual inventories and economies of scale. The internet also provides a wealth of
opportunities for the company to reach new customers and achieve growth. Finally, the internet
as a growth mechanism is less susceptible to economic risks due to economies of scale and
substantially lower investment. This strategy is befitting to the company’s overall mission and
provides the only all encompassing solution. For these reasons it is the best option.
Implementation Strategy

The purpose of the company website is to advance the company’s strategy. For this reason the
newly created division should institute its own structure and controls. The structure and controls
are to support the culture and overall company objective. However, the same companywide
culture must be preserved.

Structure
Current website operations are entirely outsourced to Amazon.com. (Appendix B) This structure
is in opposition to the company mission. The setup does little to advance the company’s strategy
to be a differentiator. The redesigned website should be treated as a new division with its own
group of functions. Because the website’s purpose is to be at the forefront of company
innovation, a decentralized, flat structure is most appropriate. It should enhance coordination and
teamwork between functions. This structure would be easy to maintain given the low
coordination needed as opposed to coordinating nationwide stores.

Controls
The nature of the new division’s operations demands personal, output, and behavioral controls.
Because the website is a portal of innovation, personal control is mandatory. This provides
managers with the best feedback about customers, emerging technologies, and trends. The
website operation can provide two forms of measurement. These are online presence growth and
in-store complimentary growth. Both of which are measured by sales. To be truly effective and
measurable, output controls need to be coordinated with goals set by headquarters. Behavior
controls apply to customer service support functions of the division. Standardization is necessary
to guarantee superior customer service. It is also necessary to gauge goal accomplishment.

Culture
The same culture needs to be maintained throughout the organization. Customers are the focal
point of business. Target website operations are no exception. The atmosphere must allow
customer responsiveness, initiative, and creativity to flourish. The structure and controls
employed should support this culture. Management needs to ensure ingenuity will be rewarded
and failures will be a source of reflection. Moreover, the culture should be one of unity. It must
not portray an image separate from the Target Corporation umbrella.

Expected Difficulties
The biggest foreseen difficulty involves structure. Target is a highly centralized company. All
decisions are made at headquarters in Minnesota. The proposed division with its own
decentralized authority could meet much opposition. Coordination with headquarters over goals
and strategies would help alleviate the problem. An approval mechanism for major decisions not
necessarily related to the immediate scope of website operations may be necessary. In addition,
rewards must be tied only to Target.com transactions, to include in-store pickup. This is to
prevent difficulties between employees of Target.com and store associates. Another possible area
of concern is the cannibalization of in-store sales. To prevent this, Target.com managers must
precisely implement the prescribed culture of unity.
References

"About Target." Target.Com. 23 Feb. 2006

<http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-000482>.

Associated Press, The. "Exit of Target CEO Candidate Puts President in Running." USA Today 5
Oct. 2005. 7 Apr. 2006 <http://www.usatoday.com/money/industries/retail/2005-10-05-
target_x.htm>.

Desmarteau, Kathleen. "Organic's Andrew Frank Discusses ETailing Technologies." Apparel

Magazine 1 Sept. 2005. 17 Apr. 2006
<http://www.organic.com/about/news_detail.jsp?619>.

Halverson, Richard. "Bob Ulrich: Chairman, CEO, Dayton Hudson and Target; DSN's 1995
Discounter of the Year Takes DH by the Reins - the Power Players." Discount Store News
4 Dec. 1995: 1-3. Find Articles. Business & Finance. 4 Apr. 2006
<http://www.findarticles.com/p/articles/mi_m3092/is_n23_v34/ai_17818368>.

Hill, Charles W.L., and Gareth R. Jones. Strategic Management Theory: an Integrated Approach.
6th ed. Boston: Houghton Mifflin Company, 2004.

"Target Corporation: Key Ratios." MSN Money. 4 Apr. 2006

<http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=TGT>.

Yerak, Becky, and Susan Chandler. "Gamble Seen in Go-Alone Target: Department Store Savvy
Polished Discounter Image." Chicago Tribune 14 Mar. 2004. 4 Apr. 2006
<http://www.chicagotribune.com/business/chi-
0403140393mar14,0,323946.story?coll=chi-news-hed>.
Appendix A

Growth Rates % Compan Industr S&P

y y 500
Sales (Qtr vs year ago 11.5 9 12.6
qtr)
Net Income (YTD vs -24.7 1.8 16.6
YTD)
Net Income (Qtr vs 16.4 12.2 19.4
year ago qtr)
Sales (5-Year Annual 6.93 6.65 5.24
Avg.)
Net Income (5-Year 18.74 17.95 14.94
Annual Avg.)
Dividends (5-Year 11.17 19.15 7.82
Annual Avg.)
Financial Condition Compan Industr S&P
y y 500
Debt/Equity Ratio 0.64 0.48 1.04
Current Ratio 1.5 1.1 1.4
Quick Ratio 0.8 0.3 0.9
Interest Coverage 9.3 13.4 3.3
Leverage Ratio 2.5 2.4 5.7
Book Value/Share 16.31 12.51 13.37
Management Compan Industr S&P
Efficiency y y 500
Income/Employee 7,000 7,000 30,000
Revenue/Employee 156,000 187,000 362,00
0
Receivable Turnover 9.8 56.1 7.7
Inventory Turnover 6.2 7.3 8.5
Asset Turnover 1.6 2.4 0.4
Table 1 Data from MSN Money
Appendix B

Figure 1
Figure 2