Target Corporation Strategic Analysis (2024)

A. Executive Summary

Target Corporation is a publicly traded company that generates over $70 Billion in annual revenues. Their stores are a one-stop shop, where guests have access to a wide variety of products and services. Their sales consist of household essentials, hardlines, apparel and accessories, food and pet supplies, and home and furnishing décor. As emphasized in their mission statement, Target aims to be their customers preferred destination for any sort of good by providing a high value proposition. Over the years, Target has been able to do this by differentiating themselves from other general merchandise retailers such as Wal-Mart & K-Mart.

The strategic issue that is addressed in this report is apparel profitability. Due to the steady increases in international labor rates and transportation costs, which specifically affect Target since most of their products are manufactured in China, Target is looking to find new and innovative ways to address apparel profitability. In 2011, there was margin pressure across the industry due to the skyrocketing cost of cotton, which also had an impact on Target’s apparel profitability. Target is committed to delivering profits to its shareholders, as well as providing cheap chic apparel to its customers. In order to do this, Target must follow trends and remain relevant in a very competitive retail environment.

After extensive analysis of the industry, and specifically Target’s current operations and competitive advantages, we have come up with an innovative and refreshing strategy that incorporates more stylish apparel to attract more male shoppers. This will occur through a partnership with the globally established, trendy, and ever-expanding brand that is H & M.

B. Restatement of External Analysis

1) PESTEL

a) Technological

i) In today’s business environment, it is crucial to keep up with technology in order to remain competitive. Keeping information secure and having the ability to use technology to gain a competitive advantage is key to economic success in today’s business environment. This force can have a positive impact by allocating enough resources in order to have the technology necessary to provide an all-around quality customer and business experience. However, the uncertainty of the fact that “systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses and malicious attacks, security breaches and catastrophic events” can lead to a negative effect.

b) Economical

i) As a publicly traded corporation, the nation’s economy plays a major role in Target’s operations. Consumers are looking for the best deals, and in order to continue to differentiate itself from competitors, Target must analyze the current economic conditions to price their products accordingly. The economic conditions impact the earnings of the company, as well as of their customers, affecting their spending habits. When the economic conditions are prosperous, the effects are positive, but when they deteriorate, the impact can be negative.

c) Political

i) The relationship between the United States and China has a direct relationship on Target’s business. As most of their products are supplied from China, issues between the two countries’ relationship can affect their operations, however, if things are going smoothly, the supply chain can operate efficiently at a high level. The issues that may disrupt or change the product sourcing include, but are not limited to, political or financial instability, taxation, tariffs, trade restrictions, the outbreak of pandemics, labor unrest, transport capacity, and costs.

2) Porter’s Five Forces

a) Intensity of Competitive Rivalry in the Industry (High)

i) There are numerous competitors in Target’s marketplace, such as Wal-Mart, Costco, Amazon, Big Lots, Dollar General, Macy’s, Dillard’s, J.C. Penny, Walgreens, and CVS. Stores are following the leader in the industry, Walmart, with low prices, wide variety of products, and numerous locations to provide the highest level of convenience to consumers. Offering low prices, while not initiating or engaging in price wars, requires a balance of strategy and research. In order to separate themselves from the leader, Target must create an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service, loyalty programs and marketing efforts.

b) The Power of Buyers (High)

i) Due to the large amount of retailers, physically and virtually, available to shoppers, it is incredibly easy to switch from one store to another. There are no costs associated with switching stores, allowing customers to freely choose where to purchase the products based on prices and convenience. Target has a loyalty program that can entice customers to buy consistently from their stores in order to be rewarded that can reduce the possibility of switching. Lastly, it is important to monitor the trends of buyers to see where spending patterns are and what tastes are trending due to the seasonality of the industry.

c) Threat of Substitute Products/Services (Medium)

i) Technological advancements have changed the retail world in a sense that it is not limited to delivering a quality experience in stores, but across multiple channels. Having an appealing physical store, website, mobile website, and application are necessary to keep up with an ever-changing industry. When other stores run promotions, Target can utilize its price match guarantees to keep customers coming back to their stores and enjoying the experience that their brand has to offer.

d) Power of Suppliers (Low)

i) Target has solid vendor relationships in order to create deals that benefit both parties, as well as consumers in their stores. Having private label products as well as general products available at other retailers allows Target to negotiate and decide what to keep in stock.

e) Threat of New Entrants (Low)

i) With the high level of competition that exists in this industry, the threat of new entrants is relatively low. Too many barriers exist, such as having a solid reputation, large amount of capital, loyal customer base, product variety, and suppliers.

C. Internal Analysis

1. Client’s Vision and Mission

Target’s mission is to provide their customers with a high value proposition that will make Target their preferred destination for any sort of good. The main areas in which they are most focused on providing value are through innovation in store layout and offerings, as well as providing the customers with an excellent shopping experience(Target, 2014). Target has largely been able to deliver a strong value proposition through differentiation in their layout and offerings in their brick and mortar stores as well as a strong mobile application. The perceived value creation has been recently affected due to the data breach that they have experienced and more work needs to be done to increase their value proposition in regards to internet commerce.

2. Client’s Strategy and Operations

Target is third in market capitalization in the U.S. in the General Merchandise/Department stores at 37.97 Billion behind Wal-Mart and Costco(Mergent Online, 2014). They operate mainly in the U.S. but have recently entered into the Canadian market. Their sales in the U.S. consisted of household essentials at 25%, hardlines at 18%, apparel and accessories at 19%, food and pet supplies at 21%, and home and furnishing décor at 17% in 2013(Target Corporation, 2014, p. 25).

Target is strongest in its ability to do outbound logistics, as well as marketing and sales. These strengths allow Target to differentiate itself from the other low cost leaders by creating the image of being more upscale and trendier than the other low cost leaders. Target has been able to capitalize on the weakness of the other low cost leaders in regards to outbound logistics through creating a higher scale in store atmosphere with more space rather than cramming items into the middle of aisles. This stylistic choice in store layout has helped to develop their competitive position, as well as improved their brand, which allows them to diversify their offerings into higher end designers.

The other factor that has hugely helped in their creation of their valuable brand is marketing and sales. Marketing and sales is important to Target because it is quite necessary to emphasize the low cost leader portion of their strategy, which leads to the engagement of constant price wars. The main way to battle the other competitors is through, at the very minimum, keeping up with competitors offerings through discounting, couponing, and other marketing campaigns.

As far as support activities, Target is strongest at its ability in procurement. Procurement is ultimately what allows them to be a low cost leader. They are able to leverage their size to get better discounts as well as to use economies of scale to more cheaply manufacture their own private label brands. These owned and exclusive brands accounted for around one-third of sales in 2013(Target Corporation, 2014, p. 4).

Target is currently aiming to grow in the Canadian and urban U.S. markets and further expansion will greatly depend on the Canadian move being a successful one. Target has a low cost leader strategy but is more differentiated than any of the other low cost leaders by creating the perception of being cheap, yet chic. Target has a very large breadth of different goods that they sell but has recently been teaming up with suppliers to try and focus in on products that are not as easily imitated to try and avoid the practice of show rooming that has become more common.

One of the ways that they have tried to avoid this show rooming practice is by teaming up with high end designer names to create limited time designer brands that cannot be easily copied by online competitors. The other main aspect that makes Target unique is their brand, which has been positioned in a spot that none of its competitors have been able to reproduce.

3. Client Analysis

For the strategic group map, the variables that are used are the number of employees and net income. The reason these were chosen is to show how efficiently each company uses its workforce to create net income. While Target is comparable to most of the other big companies, besides Wal-Mart and Sears Holdings in regards to net income, it also uses a lot more people in order to come up with this result. This map also shows that due to how much larger Wal-Mart is then any of the other competitors, it will likely be able to compete more fiercely on price or just be able to be more profitable due to being able to better leverage its size when making deals with suppliers. It should be noted that the current year used for Target is skewed downward in comparison to most years for two reasons; the data breach that occurred late last year and the underperforming Canadian Target branches. The data for the strategic group map was taken from Mergent Online database(Mergent Online, 2014).

With the BCG Matrix, it shows which companies are best positioned based on this year’s performance. Walmart has the greatest current position due to the large size of their market share, while Amazon is showing that it has some pretty promising potential due to their very large increases in revenue. Target is in a decent position but needs to be careful and avoid any more slip ups that could cause it to slide over into the dog quadrant that Sears Holdings is in. Sears on the other hand needs to do something drastic to change their current situation. The other companies are worse off relatively but they still have plenty of opportunity to compete, especially if they are able to successfully grow. The data used to build this matrix was taken from Mergent Online database(Mergent Online, 2014).

D. Smart SWOT Analysis

For the SWOT analysis, we divided the characteristics into four groups; market penetration, differentiation strategy, digital channels, and factors that affect product cost. For the market penetration group the most important factors included the financial performance of Canadian stores and tapping into a larger portion of the internet commerce market. The Canadian stores were a significant investment by Target to help increase their international footprint but in 2013, were negative 941 million(Target Corporation, 2014, p. 30). It is important, not only for further expansion, for Target to succeed in Canada but also, for the strength of the company as a whole. The next important factor of tapping into a larger portion of the internet commerce market is an opportunity for target to combat two problems. By becoming a more attractive company online, it will help to combat show rooming, as well as to help Target remain relevant as more and more business is occurring online.

The two main factors that are important under the differentiation strategy include the Target brand and the differentiation in customer store experience. The Target brand is important because a lot of marketing as well as customer experiences have gone into creating their very recognizable image of cheap, yet chic. It is one of their biggest strengths and they very carefully micromanage the brand in order to help maintain their overall strategic position. The differentiation in customer store experience helps to build the brand but it also capitalizes on the weaknesses of the other low cost leaders in regards to store layout, which has largely been neglected by them.

The two biggest factors affecting digital channels are online presence and electronic data breaches. Target currently makes less than 2% of its revenues from its online sales(Banjo & Ziobro, 2013). In order to keep up with Amazon, who does more business online then its next twelve competitors, it must become a greater focus and turned from a weakness into strength(Banjo & Ziobro, 2013). The other big thing in digital channels involves preventing data breaches. Target has a risk of 8.7% of being hit by a data breach in the coming year with an average cost of over 20 million(Ponemon Institute, 2014). Data breaches are very expensive not only in the actual costs but also can have very harmful effects on the brand image that Target has done so much to create. This is a threat that needs to be avoided, especially so soon after the 2013 breach.

The two biggest factors that affect product cost are size and cost advantages, as well as general increasing costs. The size and cost advantages are the cornerstone of being able to be competitive with Wal-Mart on price through utilizing economies of scale as well as leveraging their size in dealing with suppliers to negotiate more favorable terms. The increasing costs come from seasonal shortages, increasing legal costs from the data breach, healthcare changes, as well as a potential raise in the minimum wage. Increases in costs from these directly affect not only profitability but also the prices that can be charged while remaining profitable. It is important with Target’s current positioning to remain competitive with other low cost leaders while being able to effectively differentiate themselves.