Case Analysis Target - Capstone: Strategic Management Senior | BUSA 499, Papers of Introduction to Business Management

Download Case Analysis Target - Capstone: Strategic Management Senior | BUSA 499 and more Papers Introduction to Business Management in PDF only on Docsity!

Case Analysis Target Prepared for Dr. Pham December 6, 2007 By Jackie Cornwell and Haley Babare BUSA 499: Strategic Management Pacific Lutheran University

Table of Contents

• History……………………………………………………………………….
• Company Profile……………………………………………………………..
• PEST Analysis……………………………………………………………….
• Five Forces Model…………………………………………………………...
• Value Chain Analysis………………………………………………………..
• VRIO Testing……………………………………………………………….
• Competitor Analysis………………………………………………………..
• SWOT Analysis…………………………………………………………….
• Financial Analysis………………………………………………………….
• Marketing Strategies……………………………………………………….
• Potential Strategies & Implementation Strategies…………………………
• References………………………………………………………………….

Robert J. Ulrich is the chief executive officer and chairman of Target Corporation. Ulrich is considered to be a significant force in business and is credited with crafting Target's unique brand, marketing image, and focus. He is widely known to be a key contributor to the company's success in the challenging retailing industry. P.E.S.T Analysis Political Factors Political factors include government policies relating to the industry such as: tax policies, laws and regulations, trade restrictions and tariffs, etc. There are quite a few political factors that significantly affect the discount/variety retail store industry. Recent changes overtime regulations have had a significant effect on Target and many other discount/variety stores. As of August 23, 2004 the following changes to overtime regulations took affect. Under the new FairPay rules, workers earning less than $23,660 per year, or $455 per week, are guaranteed overtime protection. This has strengthened overtime rights for 6.7 million American workers, including 1.3 million low-wage workers who were denied overtime under the old rules (U.S. Department). The old law required employees to work eight hours a day, five days a week, where employers had to pay overtime for anytime over eight hours worked in a single day. The new revisions allowed employees to work forty hours a week with overtime not based on daily hours worked. This change in overtime regulations has affected how Target schedules and now provides more flexibility to their employees. Another political factor that could negatively affect the discount/variety store industry is the recent Fair Share Healthcare Bill. The number of people without health insurance continues to climb, from 41 million in 2000 to 46 million in 2004. At the same time, more companies are cutting back employer-based health coverage. In 2000, 69 percent of firms offered health coverage to workers, but in 2005 that percentage dropped to just 60 percent. As more firms drop health insurance coverage, workers, taxpayers and other businesses are forced to pick up the tab. The Fair Share Health Care Act has recently been implemented in Maryland and requires organizations with more than 10,000 employees to spend at least 8 percent of their payroll on health benefits, or put the money directly into the state's health program for the poor. Similar Fair Share Health Care Bills are being increasingly discussed in various states. For example, Washington State Representative Eileen Cody stated “The Fair Share Health Care Act is the best approach to set a floor for health care. People who work for a living should have health care (AFO-CIO).” Although the discount/variety store industry business model is built around keeping prices and labor costs low, we very well could see government mandated health care changes, shifting health care costs on employers such as Target. Economic Factors Economic factors relate to changes in the wider economy such as economic growth, interest rates, exchange rates, inflation rate, etc. The condition of the country’s economy is a determining factor in the success of companies in the discount/variety store industry. This is because in times of economic growth, consumers have an increasing amount in their purchasing power. On the other hand, in times of economic downturn consumers have less of an ability to buy, and companies such as Target see the negative effects in sales. Dramatically increasing oil prices, war, and natural disasters over recent years has threatened inflation and unemployment, although the economy has continued to grow. According

to the 2007 Bureau of Labor Statistics, since August 2003, 8.31 million jobs have been created helping the unemployment rate remain low at 4.7 percent. GDP grew at a strong 3.9 percent in the third quarter of 2007. The economy has now experienced six years of uninterrupted growth, averaging 2.8 percent a year since 2001. Real after-tax per capita personal income has also risen by 12.7 percent, which is an average of over $3,800 per person (CIA). The U.S. is a market-oriented economy, and businesses are experiencing more flexibility than their counterparts in Europe and Japan in decisions to expand capital plants, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets, than foreign firms face entering US markets. It is important to note possible long-term economic problems as well. Some possible future economic problems include: inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. Also, the merchandise trade deficit reached a record $750 billion in 2006 (CIA). Social Factors The U.S. certainly has a broad variety of people and changing demographics that can make it difficult for marketers of brands to target individuals. The United States can be known to be a rather rapid paced society with markets that are very diverse. Religions, race, nationality, age, income, etc. vary greatly and are constantly changing. Dealing with this diverse nation could be a challenge for Target. They are currently working to build a diverse workforce which could be a great advantage for the company. Firms in the retail industry must identify target markets and develop strategies and marketing campaigns to attract these consumers and develop a form of brand loyalty. Due to changing demographics such as the aging baby boomers, significant rise in the Hispanic population, and increase in single-mom parenting, companies such as Target will need to continue to re-evaluate their product mix and target markets to keep up to date on who their customers are, as well as, meeting their wants. Technological Factors The U.S. has the largest and most technologically powerful economy in the world, with a per capita GDP of $43,500 (CIA). That being said, the Internet has played a significant role in the discount/variety store industry in numerous ways. Through the Internet, potential customers can get information about the company, as well as, their competitors. Through the company website, they can also perform searches, compare prices, stay updated on latest products, and make purchases without leaving their home. This is a convenient benefit to consumers and provides online retailers several benefits. Not only can retailers expand their product mix and offer such things as “on-line only” products, but they can significantly cut costs by shipping products straight from the warehouse. In addition, the Internet provides companies with the ability to have another effective promotional tool. Companies send e-mails to their customers to advertise their new events and services by doing online advertisings, such as banner and pop-up ads. Companies can better organize and manage their employees through a variety of software programs and creations on company intranets. Target has also recently created, Target Technology Services India (TTSI). This service will provide technology solutions for its parent Target and its affiliated companies worldwide. It will look at hiring 500 employees in the next three years and will work on application development, and offer maintenance and support services. This offshore extension of Target

products is high. One factor that lessens the intensity of this threat is the idea that the leader in this industry, Wal-Mart, works for the lowest price. Target, on the other hand, has a different strategy; they work toward higher quality products as reasonable prices. Rivalry among competing firms The competition within the discount and department sector of the retail industry is intense. With a company like Wal-Mart leading the market, other companies in “the race” have to work hard to further develop their core competencies and innovate new, differentiated ideas. (See Competitors Analysis for greater detail) Industry Attractiveness We believe at this point in time, the retail industry is attractive for those who are already established. We think that for those on the outside, it may appear to be attractive as there is a global appeal; however, the competition right now is aggressive, and the front-runner is nearly impossible to beat. Wal-Mart is leading the industry by great lengths and can afford to buyout small, unsuccessful companies if they so choose. Although, the discount variety store industry is very unattractive for any business wanting to enter into it. However, those who have already established a sturdy foothold realize that the U.S. is very consumption-oriented, which is excellent quality for this industry. Also, companies with a strong foundation here in the U.S. could potentially go internationally as many countries throughout the world are developing at a rapid pace. Value Chain Analysis Primary Activities Inbound Logistics The inbound logistics include an Expeditor, who is responsible for managing carrier, vendor, operational management and merchandising relationship to accomplish inventory logistics. Furthermore, it consists of a Regional Transportation Supervisor, who leads a team of technicians that are responsible for the delivery of shipments and the use and maintenance of the shipping resources. Lastly, the inbound logistics involves a Region Transportation Manager that leads and develops a team of executives to ensure a smooth and efficient flow of merchandise between distribution centers and the Target stores (Careers, 2007). Operations Target’s operations include many team members, leaders, and managers, whom all work together to make sure the necessary activities are completed. There are team leaders and group leaders who work directly above the hourly warehouse workers. They are in charge of leading their teams in a fast-paced environment and are required to run his/her distribution center productively. The group leaders have a few more strategic aspects to their job. The senior group leader manages all of these team members, but most importantly, focuses on budgets, improvements to the systems, and forging good relationships internally and externally. As a general manager of operations, he/she is responsible for the overall success of the Distribution Center they are working for as well as make sure it is a great place to work. They work closely

with all areas in the business as well as strategize with the senior group leader to make their division most productive (Careers, 2007). Outbound Logistics The following is a very general description of Target’s outbound logistics system. Target receives trucks on designated days. Depending on the size of the store, Target will receive between three to fifteen trucks per week (with a greater quantity of trucks arriving during busy times, like the holidays). The products that arrive on the trucks are based upon forecasts from previous years, as well as, their usual products that are automatically being reordered through their “pushing to the piece” system. Once the truck arrives, “backroom” employees unload the products, stock the new merchandise on the backroom shelves, or pull what needs to be put out on the floor. Later, sales floor stocks their shelves with the pallets that the backroom has pulled for their department. Everything is scanned and put into the Target system. Marketing & Sales Target has also begun an unconventional marketing program that is referred to as dimensional advertising. One example is Club Wedd. “In 1998 it launched a bridal registry program, Club Wedd. The registry quickly became the largest in the world, surpassing Macy's long-established program and confirming Target's upscale positioning relative to Wal-Mart and Kmart (Barwise & Meehan, 2004).” Business throughout the world has changed. The Internet is an extremely useful tool for businesses today. In 1999, Target began its online existence. Customers can lookup and purchase items or products from Target very easily now. They do not even need to leave their homes. Convenience throughout the United States is a huge selling point, and Target joined the rest in establishing a website where customers can do shopping, provide feedback, lookup information, find the weekly ads, and much more online. In general, Target has been very successful with most all of their advertising and marketing strategies. As we have mentioned many times, Target has a very well known and strong brand image. There are so many aspects that Target has nailed. They have weird, quirky commercials that can’t be ignored by viewers, as well as the Target dog, the bullseye, and their slogan, “Expect more, pay less”. Service Target has three positions that we found very interesting. These employees help protect guests, team members, shareholders and communities by implementing programs that maximize safeness. They work to minimize theft and fraud as well as increase profits by reducing preventable losses. These positions include: an assets protection group leader, an assets protection investigator, and supply chain security. On top of this, there are electronics systems specialists, facility operations group leaders, and facility operations senior group leaders, who help keep productivity at its best by guaranteeing the distribution centers’ equipment and systems are properly maintained. They lead training and development for executives and technicians can properly run facilities (Careers, 2007). Support Activities

striving toward positive culture and strategic goals within the organization. There are also a couple of teams within the Target Human Resources division, a generalist team and a recruitment team. The generalist team works with recruiting, compensation, and employee relations to provide ongoing HR support. They are the generalists that work with every issue, every change, and every department. The recruitment team is just that; they recruit hard and ensure each candidate has a “Target-brand experience” (Careers, 2007). Firm Infrastructure Target has an interesting infrastructure in that the company has a large supply chain. Each division plays an important role. Supply Chain:  Transportation: connection between internal purchasing, import warehouses, distribution centers, and stores  Customs/Imports: bring products from more than 80 countries, ensure customs border protection laws are abided, process financing, payment, and accounting for all transactions  Vendor Operations: offer logistical support, make vendors meet Target’s expectations  Distribution Planning and Engineering: up-to-date on new technologies, process and network configurations, find ways to improve the supply chain, forecast and evaluate  Distribution Operations: consult and improve the distributions centers, driving service, financial, safety and quality performance  Facility Operations: ensure that every distribution center has the technical resources they need, maintain grounds, building, equipment and systems  Distribution Human Resources: recruit, develop tools, create a positive culture, and help carry out the brand (Careers, 2007). In addition to the supply chain, each internal department within Target plays a significant role as well. Earlier on, I discussed the role of general managers and planning within Human Resources, and finally finance, accounting and legal are vital to the success of the company, also. Target has its own Infrastructure and Support team. This team engineers and implements infrastructure solutions and provides production systems assistance for all Target properties. These teams include: Enterprise Support Services, Client Services, Enterprise Tools, Distributed Database, Operations, Engineering, Technology Acquisition and Vendor Management (Careers, 2007). VRIO Analysis Valuable Capabilities Target is an innovative and influential retail store. Their mission statement focuses on four core roles: great guest service, clean stores, in-stock merchandise, and speedy checkout. These guidelines make up the culture of the fast, fun, and friendly stores. Target has a variety of capabilities that serve as a source of competitive advantage over their rivals. Marketing is one of Target’s strongest core competencies. From their “expect more, pay less” slogan to the company’s well-known bullseye logo, Target has become a very identifiable company. In fact, 96 percent of people recognize the bullseye even nudging out the

apple and the swoosh (Target, 2007). Unlike their major competitor, Wal-Mart, with their “smiley face” logo, the majority of our society accepts Target as an all-around good company; whereas, Wal-Mart’s image has become somewhat tainted. Top designers have signed agreements with Target to sell their items at affordable prices. For example, Victoria Secret produces the Gillian O’Malley lingerie line that is sold at Target (Target, 2007). Although Target’s competition offers some designer brands, Target provides a higher quality selection. Target also recognizes the value of human capital. The company realizes that they have a better chance of retaining their employees, partners, and customers if they are appreciated. They understand that low wages never equal a satisfied employee, which can reflect negatively on the company. Target identifies that morality in the workplace can be raised in other ways other than wages. In fact, they have a requisition account that has been created and is used for cost-saving company sponsored things, such as recognition walls, birthday parties, cookouts, etc. (Target, 2007). It is obvious that Target values its customers as they refer to them as their guests. They work hard to live up to their fast, fun, and friendly motto as well as provide a clean, bright, and comfortable shopping environment. To help satisfy their guests, Target also attempts to provide a speedy checkout process. Not only does the company strive for excellent guest service, but their customers have come to expect it. Rarity of Capabilites Unlike any of Target’s competition, many Target stores have been positioned in accordance with trendy malls. Even though Target is often located within ten miles of one of its competitors, they have the advantage of convenience being connected with numerous other stores. Target is committed to the pursuit of profitable and sustainable growth consistent with their unwavering dedication to the social, environmental, and economic well-being of the global community in which their guests, team members, and shareholders live and work. This commitment reflects a conscious, company-wide dedication to constant innovation and improvement in everything they do. They strive to ensure the ongoing health and strength of the communities by giving more than three million each week and hundreds of thousands of volunteer hours in support of education, arts, and social service organizations. They show respect for their physical environment through the products they offer, the facilities they build, the vendors they work with, and the resources and materials they use (Target, 2007). Since 1946, they have contributed five percent of their annual income to serve the local communities. Target strives to be a leader in recycling and salvage, minimizing their impact on the environment and has done so for decades. They also strive to satisfy their guests’ preferences by offering natural, organic, and eco-friendly products, including items made from recycled materials or all-natural ingredients. Target uses LEED rating system as a guide for their newer stores. LEED stands for Leadership in Energy and Environmental Design and helps to improve the quality of Target buildings and decrease their impact on the environment. One of the programs Target has created is Take Charge of Education, which has raised more than two hundred million for schools since 1997. Another program that they have implemented is partnered with the Tiger Woods Foundation called, “Something”, which helps kids build character as they identify and achieve their dreams (Target, 2007). Costs to Imitate Capabilities

Wal-Mart Wal-Mart Stores are by far the largest retail chain in the world, operating retail stores in various formats, including supercenters, discount stores, and neighborhood markets. Their slogan “Always low-price!” has become their mission statement. Bigger than Europe's Carrefour, Tesco, and Metro AG combined, it is the world's #1 retailer, with about 6,775 stores, including some 1,075 discount stores, 2,250 combination discount and grocery stores and 580 warehouse stores. Also, about 60% of its stores are in the US, but Wal-Mart is expanding internationally and is currently the number one retailer in Canada and Mexico. Wal-Mart has also expanded and opened stores in Asia, Europe, and South America (Yahoo). Wal-Mart employs about 1,900, people. The company recorded revenues of $348,650 million during the fiscal year ended January 2007, an increase of 11.7% over 2006. The operating profit of the company was $20, million during fiscal year 2007, an increase of 9.5% over 2006. Their net profit was $11, million in fiscal year 2007, an increase of 0.5% over 2006 (Datamonitor). Costco Wal-Mart isn't the biggest in "every" business. Costco Wholesale is the largest wholesale club operator in the U.S. (ahead of Wal-Mart's Sam’s Club). The mission at Costco has guided how the company operates, and states “to continually provide our members with quality goods and services at the lowest possible prices.” The company operates nearly 490 membership warehouse stores serving more than 47 million cardholders in 37 U.S. states and Puerto Rico, Canada, Japan, Mexico, South Korea, Taiwan, and the UK, primarily under the Costco Wholesale name. Stores offer discount prices on over 4,000 products in bulk packaging, ranging from alcoholic beverages and appliances to fresh food, pharmaceuticals, and tires. Certain club memberships also offer products and services such as car and home insurance, mortgage and real estate services, and travel packages (Yahoo). K-Mart Kmart is the #3 discount retailer in the US, behind Wal-Mart and Target. The mission statement at Kmart states: “Kmart will become the discount store of choice for middle-income families with children by satisfying their routine and seasonal shopping needs as well as or better than the competition.” They sell brand-name and private-label goods (including their Martha Stewart label), mostly to low- and mid-income families. It runs nearly 1,400 off-mall stores (including 55 Supercenters) in 49 US states, Puerto Rico, Guam, and the US Virgin Islands. About 1,100 Kmart stores contain in-store pharmacies. The company also operates the kmart.com Web site. Low sales and the decrease supplier confidence led Kmart to file for bankruptcy in 2002 although were able to make a come back in 2003. (Yahoo). S.W.O.T Analysis Strengths Target has a very strong market presence. Target has over 1,488 stores in 47 US states, including 1,311 Target general merchandise stores and 177 SuperTarget Stores. Target's large size and vast resources allow it many benefits; cost reductions through economies of scale and a strong brand image that allows it to introduce high-margin private label brands. Another strength Target possesses is it’s balanced brand mix. Target has a brand mix,

comprising private labels and external brands. The company sells merchandise under its private label brands such as Archer Farms, Choxie, Circo, Embark, Gilligan & O'Malley, Kool Toyz, Market Pantry, Merona, ProSpirit, Room Essentials, Target Limited Edition, Trutech and Xhilaration. Additionally, the company stocks prominent brands. They have slowly begun introducing “inexpensive but designer brands”. Target’s objective with this particular startegy is to appeal to and gain a wealthier customer base. Some of these designer brands include: C9, ChefMate, Cherokee, Eddie Bauer, Fieldcrest, Isaac Mizrahi, Kitchen Essentials, Liz Lange, Michael Graves Design, Mossimo, Nick and Nora, Genuine Kids, Sean Conway, Smith & Hawken, Simply, Shabby Chic, Sonia Kashuk, Thomas O'Brien, Waverly, and Woolrich. By providing designer brands, they hope to attract a customer base that appreciates both the new designer brands not to mention the low prices. Target has also accumulated an increasing operating cash flow that they have used to their advantage. “Strong operating cash flows have allowed the company to invest heavily in new stores and expansion and remodeling of existing stores. The company's capital expenditure was $3,068 million in fiscal 2005, $3,388 million in 2006 and $3,928 million in 2007. Increasing operating cash flows have also enabled the company to retire long-term debt of $1,487 million in fiscal 2005, $527 million in 2006 and $1,155 million in 2007. Target has also paid regular dividends during the last three fiscal years (2005-2007) besides repurchasing shares worth $ million in fiscal 2007. Strong operating cash flows have allowed the company to invest in growth initiatives, strengthen its balance sheet and reward its investors (Datamonitor, 2007).” Weaknesses Quality control is one issue or weakness Target is currently dealing with. Target gets its merchandise from numerous vendors, because of this, they little control on the quality of their products. Lately, the company has been involved in several product recalls. For instance, Target recalled activity cart toys in April 2007, because it could choke young children. In November 2006, Target also recalled various toys containing lead paint. These products could cause adverse health effects if ingested by children due its toxicity. This is a current issue many top manufacturers are dealing with. In addition, some toys had sharp points that could result in laceration hazards for children. Frequent product recalls are due to the lax quality controls Target possesses. These recalls are harming the company’s brand image by reducing customer confidence, which in turn could have a corresponding adverse effect on customer purchasing and loyalty. Another weakness Target is facing is due to recent litigations. In August of 2006, Target was accused of racially biased hiring practices by the Equal Employment Opportunities Commission. The US 7th Circuit Court of Appeals in Chicago reversed a 2004 Wisconsin trial court decision regarding four black job seekers who were denied management level job in Target because of their skin color. The company settled the racial bias case with a payment of $775, in January 2007. Such litigations reduce the credibility of the company as an equal opportunity employer. Racial bias litigations such as these form negative company image, which could also turn away customers. Target is US based company that is dependent on the US market for most all of their revenue. The company does not operate in any other geographical region, and in result may be at a competitive disadvantage. Competitors such as Wal-Mart have global operations, which provide them with a better revenue profile and economies of scale in purchasing. A geographic concentration of revenues makes Target vulnerable to worsening market conditions in the US

“According to OPEC economic outlook 2007, the US real GDP growth could fall from an estimated 3.4% in 2006 to 2.4% in 2007. A slowdown in the US economy would depress the purchasing power of the retail customers, which in turn will depress revenue growth and reduce margins of Target (Datamonitor, 2007).” Rising interest rates are already beginning to decrease consumer spending, where as the percentage of disposable income that US households pay out to service mortgage and consumer debt is increasing. This reduction in consumer spending does not look good for retail chains like Target. Slowdown in the US, the only market for Target, will put pressure on the revenues of the company. Marketing Strategies Marketing Target has a variety of marketing strategies. One strategy Target executes is selling different products each year. One important aspect of Target’s strategy has been in the home furnishing and apparel areas. They have slowly begun introducing inexpensive, but designer brands. Target’s objective with this particular strategy is to appeal to and gain a wealthier customer base. They want to bring in customers who are attracted to these new designer brands, but also appreciate their low prices on the essentials (Lamiman, 2006). Some other of Target’s marketing programs in which they give back to the community include:  Sponsorship of the restoration of the Washington monument  Take Care of Education program  Partnership with Coca-Cola in the Color My World red line campaign  Sponsorship of the CBS program Survivor (Barwise & Meehan, 2004). On a completely different note, Target “…has launched a new format that provided 50 percent more space for food and beverages in its general merchandise stores. This has allowed Target to double its food offerings,” (Lamiman, 2006). Each customer expectation directly correlates with the Target brand strategy. The reason customers or “guests” have certain expectations is due to the corporations promotion of the meaning of their brand. As mentioned before was the idea that Target is supposed to be clean and have helpful employees. Some of the strategies they use to ensure they receive those results are “Fast, fun, & friendly” service. They hire friendly faces and the employees are required to greet customers as well as ask, “Can I help you find something?” Cleanliness and organization begins in the parking lot to the end of the store. The corporation wants a clutter-free environment that is easy to navigate. The layout of each store is open with relatively large aisles. They create fast service with the “1+1” policy at each register. The company goal is to have only one person in line behind the customer being rung up. They have “Need Assistance?” phones where the employees are required to answer the call within 60 seconds. They are able to communicate this with one another using their headsets and walkies. Every time an employee rings a guest up, they are scored on the time it takes them. They receive a red, yellow, or green. Those that are Red overall will eventually be terminated. One last brand strategy that is often heard and recognized is “Expect More, Pay Less.” Each of these ideas and policies have been implemented into Target’s marketing to create a great target brand experience.

Pricing Strategies Target may not perform price adjustments or match ads when customers come in and say their competitors have lower prices; however, they do execute a competitive price shopping with Wal-Mart on the basic items, such as toothpastes, shampoos, etc. Target also clearances many of their products. They will start between 15% and 30% and some will clearance to 90%. The following discounts Target apply: Sporting Goods: 30% - 90%, Goodwill Food: 15% - 50%, Donation Clothing: 30%-75%, Goodwill Electronics: 30%- 75%, Goodwill Toys: 30% - 90%, Goodwill Seasonal: 30% - 90%, Goodwill Pets: 15% - 75%, Goodwill If products are not selling well, and it will be noticed in the weekly research, they will get rid of the products by placing them on clearance. No matter what they reset every six weeks to provide change and fresh prices. Promotional Strategies Ads are setup approximately six months in advance, and go out weekly in the Sunday paper. The ads also show up on the Target website. Target does constant signing. There are large posters for every event, season, and holiday that are usually changed every four to six weeks. They display “headers” that can be seen from a distance. They are, for example, the prices that are displayed on the end caps. Then, as you walk closer, there is 7x11 signing at eye level. Target does weekly sales signing that correspond with their ads, as well as additionally temporary price cut signing that is typically done to capture additional sales on items that discontinue. These promotional strategies help with sustaining Target’s market share and competitive advantage. Financial Analysis Profitability Ratios Return on Assets ROA is an indicator of how profitable a company is relative to its total assets. It gives an idea as to how efficient management is at using its assets to generate earnings (Investopedia, 2007). Target has a 7.27% return on assets. Return on Equity ROE is a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested (Investopedia, 2007). There are three levers that management can control ROE: Profit Margin- the earning squeezed out of each dollar of sales, Asset Turnover- the sales generated from each dollar of assets employed, and Financial Leverage- the amount of equity used to finance the assets. The attainment of an unusually high ROE by one company acts as a magnet to attract rivals anxious to emulate the superior performance, so we did a little comparison of Target and two of its top competitors. We were unable to include K-Mart because it is a privately held company, and the information was

5,000. 10,000. 15,000. 20,000. 25,000. 30,000. EVA Economic Value Added 2004 2005 2006 until now Target has accomplished an inventory turnover every four to four and half months. This figure is really competitive for the discount retail industry. Total Asset Turnover Total asset turnover is the amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue, the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Target’s total asset turnover is 1.6 times. Accounts Receivable Turnover: 9.9 times Average Collection Period The average collection period measures the average number of days customers take to pay their bills, indicating the effectiveness of credit and collection policies of the business. This ratio also determines if the credit terms are realistic (Investopedia, 2007). Target has a very reasonable average collecting period of 41 days. Economic Value Added (EVA) is often regarded as a simple and effective measure of the quality of managerial decisions. EVA can also be a reliable indicator of a company’s value growth in the future. It can serve to motivate managers to create shareholder value and become a basis for the calculation of management compensation. EVA can be assist in making better investment decisions, identifying improvement opportunities, as well as help in considering long-term and short-term benefits for the company. In 2004 Target’s EVA was found to be approximately $29,061.37. As of 2005 Targets EVA decreased, with an EVA of $10, 272.92. In 2006 Target’s EVA slightly increased to equal about $13,001.11. The following table shows Target’s EVA from the past three years. We also wanted to look at Targets past earnings growth rate and compare it the retail industry, as

well as, the S&P 500. Target appears to be have had a growth rate of 15%, significantly higher than the industry average and the S&P 500. Financial analysts have predicted continuous growth for the company over the next five years with an expected earnings growth rate 14.10%. The following table compares the earnings growth rate for Target, the retail industry, and the S&P 500 (MSN Money). Earnings Growth Rate Last 5 Years Fiscal Year 2008 Fiscal Year 2009 Next 5 Years Target 15.00% 8.40% 13.10% 14.10% Retail Industry 4.70% 3.50% 18.30% 12.30% S&P 500 12.90% 7.20% 7.40% NA Strategies Global Expansion Target’s focus right now is to expand in the U.S. market and open stores in Hawaii and Alaska. The company’s goal is to have opened 2,010 stores by the year 2010. They will surpass this goal. We believe this is a good strategy, and they should enter every possible market. However, that is also why we believe they should expand globally. The U.S. economy is expected to face some problems and consumers’ purchasing power may decrease. If this happens, and it is likely in the future, it will create problems for Target if the company stays only in the U.S. Also, U.S. markets are becoming saturated, whereas, many international markets are developing. Expanding globally will be essential to ensure the company’s competitiveness in their industry as their top competitor, Wal-Mart, is already located in various countries. We feel Target could open stores in Eastern Europe in countries similar to ourselves, such as Germany as well as in the major developing countries of China and India. Change of Supply Chain One problem Target currently faces is having excess inventory. Often, by the time, the products make it to the sales floor, they will immediately go on clearance. This is due to Target’s timeline policy of allowing inventory to be in-store for six weeks before being required to be discounted on most products. Target has what is called Pushing to the Piece which is a system that tracks each sale at the register, sending information to the distribution center to for the products that need to be loaded onto the next day’s truck. Wal-Mart currently allows their inventory to completely run out before replenishing. They order from their distribution center by cases often are out of products, but do not lose money from having excess inventory. Strictly from a profitability stand point Wal-Mart’s process is a better way. The only downside to this would be a decrease in customer satisfaction, as well as a negative change in their brand image. Preservation of Brand Image A third strategy we would recommend, which they have already recognized as a company, is the importance of preserving their brand image. As previously mentioned, between their logo and their slogan, Target is a well-recognized company. Their consistent clean and positive atmosphere and their excellent guest service had created a positive image for the company. One way they are working to further improve on this is by continuing to acquire higher quality designers. Recently, Target has signed an agreement with Coach, allowing them to