Company Focus
Design for All®
Great design not only allows for product differentiation, but also contributes to a pleasant store experience. Target also focuses on designing innovative solutions for customers seeking more than what low prices can offer.
Innovations include:
1. ClearRxSM
- Easy-to-read bottle
- Minimize confusion of medications between family members because of color-coding system
- Clear bottle, elongated bottle allows greater visibility
2. itsoTM
itso furniture helps with organizing by providing plenty of storage space through compartmentalization.
3. Archer Farms®
The innovative packaging, found on chip bags and cereal boxes, features plastic zippers and hinged, plastic lids that help maintain freshness of dry food.
Inside Target
As of 2009, Target has employed 351,000 full-time partners, all of which are described as “fast, fun, and friendly.”Chairman, President, and CEO, Gregg Steinhafel, looks to make Target the “Best Company Ever,” and that starts with teamwork—one of the key factors to meeting challenges while having fun at the same time. The diversity, engendered in its team members, allows Target to reach out and serve its guests and communities. Target enlists employees with diverse backgrounds in order for the company and its locations to mirror that of the guests. The pace is fast, the atmosphere is fun and the people are friendly.
Every team member—from stores to Distribution Centers to corporate offices—is empowered and encouraged to innovate, contribute ideas and discover solutions. People at Target are respected and recognized for their work and know they are a unique and important part of a world-class team. Team members receive one of the best pay and benefits package in retail, including competitive pay, insurance coverage, plus other perks and benefits. With over 1600 stores in the U.S., including office sites around the world, career opportunities can be found almost everywhere.
Community Outreach
Target fosters community giving through a variety of programs to help strengthen the communities it serves and donates 5% of its income to communities - roughly $3 million dollars a week. Target has formed national partnerships with United Way, American Red Cross, St. Jude Children’s Research Hospital, Target House, United Negro College Fund and the Hispanic Scholarship Fund. In addition, Target Corporation donated over 350,000 volunteer service hours to approximately 7,000 projects nationwide in 2003.
Education
Take Charge of Education (TCOE) helps improve funding for schools and education programs through the Target Visa and Target Guest Card (Target REDcard). REDcard purchases are then tracked and Target donates 1% of a guest’s purchase made with these credit cards to the school of their choice. Target has donated more than $273 million since 1997 thanks to this program. Target also sponsors “Ready. Sit. Read!” a program that encourages early childhood reading through book festivals and reading contests. With the partnership of Tiger Woods, Target co-sponsors “Start Something,” a dream-building program for youths that helps them define and achieve goals and dreams (www.target.com).
Arts + Culture
Target sponsors over $3 million a week to local communities for programs, exhibits, and performances that make artistic and cultural experiences more visible and accessible to families. The company sponsors free and reduced-admission tickets in museums, as well. Through store grants, Target also provides art supplies to local schools
Social Services
To strengthen the communities they serve, Target is dedicated to providing basic needs to families in crisis, supporting disaster relief efforts, and preventing family violence. Target House provides families with housing, as they seek treatment for their critically ill children. Target also supports the American Red Cross, the Salvation Army, Feeding America, and the United Way.
Products & Services
The company offers an assortment of general merchandise, including consumables and commodities; electronics, entertainment, sporting goods, and toys; apparel and accessories; and home furnishings and decor, as well as food items under private label brands. It also offers merchandise through programs, such as ClearRx, GO International, and Home Design Event. The company also provides merchandiseunder licensed brands comprising of: Converse One Star, Eddie Bauer, Genuine Kids by Osh Kosh, and Kitchen Essentials by Calphalon, just to name a few.
In-store amenities include Food Avenue, Target Clinic, Target Pharmacy, and Target Photo; leased or licensed departments include Target Optical, Pizza, Portrait Studio, and Starbucks. Target Corporation also provides credit to qualified guests through its REDcards, Target-branded proprietary credit cards—Target® Visa® Credit Card, Target Credit CardSM, and Target Check CardSM. Target’s popular GiftCards are also sold year-round, in set amounts of $5-2000.
II. Business Environment
Macro Environmental Analysis
Economical
One of the most visibly prominent factors affected the Target has been the crisis that hit the American economy in 2007, spilling into 2008. The credit crunch and increasing unemployment rates has left consumers with less disposable income, creating a greater dependence on credit cards. Bad debt expense grew from $481 million with annualized rated of 6.61% in 2007 to $1.251 billion with annualized rated of 14.4% in 2008, primarily due to REDcard payment defaults or personal bankruptcy.Many retailers, including Target, are using stricter credit guidelines as reassurance of getting their money returned.
With the holiday season approaching, Target is hoping Black Friday deals and Internet sales will pump up 2009 sales overall. The recession has also made customers more reluctant to spend on excessive items, such as clothing and accessories compared to food and fuel. Interestingly enough, Target’s Annual 2008 Reports shows that revenue increased from 2007 to 2008, but profit margin decreased from 4.50% to 3.41% from 2007 to 2008. During this time period, Target introduced the Target Visa card, which charges rates at about 20% higher than other REDcards, increasing the receivables balance since it allows cardholders to charge outside of Target stores.
Technological
With the use of Target’s website, , consumers have a wider range of products to select from, compared to that of any Target store location. Customers can now create, manage, or view baby and wedding registries from the web, as well as their Target REDcard. Gift items and gift cards can also be ordered and delivered to recipients. Other technological advancements that directly influence prospective sales pertain to the emergence of the iPhone, smartphones devices, and on-the-go telecommunication devices that enable one to access the store’s site.
Demographical
The median age of a Target shopper is 42 years. Median household income ranges at around $60,000 a year, and more than half of its customers, approximately 51% of them, have graduated from college. 33% of these households consist of families with children (). Moreover, most of these households are concentrated in metropolitan and suburban areas.
Its largest sales per capita group, spending $300 or more, is identified within the states of Colorado, Minnesota, and North Dakota. The second largest, spending $201-300, identifies with Arizona, California, Florida, Illinois, Iowa, Kansas, Maryland, Montana, Nebraska, New Hampshire, New Jersey, Texas, and Virginia (please refer to Appendix for illustration).
Although these demographics seemingly label the typical Target shopper, the corporation recognizes diversity throughout every aspect of its operations; it therefore participates in multicultural marketing. Multicultural beauty products are featured in Essence magazine, a predominantly African y American magazine, and in Latina magazines. Target also recognizes the Latino community through “Target Presenta Nuestra Navidad,” a holiday musical celebration featured on Univision (www.target.com).
Political
In spite of vigorous competition within the marketplace, Target adheres to antitrust and related laws, requiring businesses to make their commercial decisions independently without the collaboration of their competitors; employees may not disclose prices, margins, markdowns, merchandise selection, promotional plans, or other purchase terms and conditions. Transparency and regular communication with suppliers allows Target to provide the best products and information for its guests.
In strict compliance with all federal, state and local environmental protection law, Target only purchases products that adhere to laws, regulations, standards and orders of the United States (e.g., U.S. Customs Service), or any state or local government; this includes all of its international operations. The United States and a number of international authorities periodically impose restrictions on trade dealings with certain entities and individuals based on their involvement or sponsorship of terrorism, arms proliferation or drug trafficking. Target strictly follows these restrictions along with U.S. Anti-Boycott Act. Target strictly prohibits any payments to any government official, either directly or through any intermediary, for the purpose of obtaining any improper business advantage.
Natural
Target, along with other “green” and energy-efficient companies, cares about its surrounding natural environment. It reuses materials within its stores and recycles certain products such as broken hangers, cardboard materials, and rechargeable batteries.
Target has collaborated with additional environmental agencies on special projects to help promote sustainability. The Garment Hanger reuse program keeps millions of pounds of metal and plastic out of landfills (). It also sells reusable bags and utilizes resources and materials that promote natural ingredients, recycling, and nontoxic chemicals products and packaging.
In attempt to reduce energy costs, store locations now use only LED and fluorescent lights and low-flow restrooms that reduce water consumption by a third. Some locations are also installing roof gardens or green roofs, which absorb storm water and cut down on surface runoff, regulate temperature fluctuations and provide habitats for birds.
SWOT Analysis
Target has always been in direct competition with the world's largest retailer, Wal-Mart, since 1962, but what makes target so different from most mass merchandising stores is that it focuses on the overall experience for the shopper, not just great prices. Aside from these facts, there are many strengths, weaknesses, opportunities, and threats to this company.
Strengths:
1. Strong Brand Value
Target enjoys strong brand value in the U.S. With a brand value of $17.1 million in 2009, Target is ranked fourth among the top twenty US retail brands. The Bullseye Design is a valuable, registered trademark of Target Brands Inc.; it conducted a study, concluding that 96% of Americans recognize the Bullseye Design (www.target.com). Target spends roughly $1 billion a year on advertising, well above that of its biggest competitor, Wal-Mart. Target has positioned itself as a provider of quality products at competitive prices—which is reflected in its slogan of “Expect More. Pay Less.” By virtue of its strong brand value, Target has a loyal and satisfied shopper base and scores high on the American Customer Satisfaction Index. The company has harnessed its brand potential to attract more customers, thereby strengthening its bargaining power. Target has a balanced brand mix, comprising national and licensed brands as well as private-label brands. While a significant portion of the company’s sales is from national brand merchandise, it also sells merchandise under private-label brands including. A balanced mix of brands provides various revenue streams for the company and also enables it to attract a wide customer base.
2. Global Sourcing Capabilities
Target has participated in worldwide trading practices for about 90 years. The Associated Merchandising Corporation (AMC), which became a part of Target in 1998, was established the US to provide American retailers assistance in buying, policymaking, and planning. This partnership gave way to international markets for Target. Target sources merchandise without involving wholesalers or trading companies—a strategy, which has substantially reduced operating costs for Target. Target’s international sourcing operations have 34 office locations in 24 countries. The company brings products into the US from more than 80 countries around the world. Strong supply chain capabilities have enabled Target to manage its operations efficiently, thereby maximizing profitability.
3. Leading Market Position
Target is the one of the leading retailers in the US. In 2009, the company was ranked 28 among Fortune 500 and the Standard and Poor's 500 companies. A strong market position enhances Target’s market penetration and adds to its bargaining power.
Weaknesses:
1. Frequent Product Recalls in 2009
Target recently recalled several products, reflecting a weakness in the company’s product management operations. Most of the products recalled in the past year were children’s items. Target voluntarily recalled a hooded pink jacket (for girls), identifying flawed zipper pulls that could potentially cause ingestion hazard. The company also recalled 100,000 units of Safety 1st SmartLight Stair Gates, discovering that the hinges holding the stair gate in place could break. The company also recalled about 200,000 units of Rainforest Portable Play Yards andmore than 500,000 Stork Craft Baby Cribs.
2. Involvement in Civil and Environmental Lawsuits
Target was subject to a civil lawsuit (filed in October 2008) alleging that the company had sold certain products that contained volatile organic compounds in excess of regulated limits (windshield washer fluid and air fresheners) and other products that were not approved for sale in California (gas cans and gas generators). In addition, Target is also one of many defendants in a lawsuit (filed in February 2008) involving environmental matters that may involve potential monetary sanctions in excess of $100,000. Should the outcome of these legal proceedings go against Target, it will be detrimental to the company’s credibility.
3. Geographic Concentration
Target derives substantially almost all of its revenues from the U.S., and it does not have strong retail presence in any international market. This makes the company vulnerable to adverse market conditions in the country and puts it at a competitive disadvantage over global retail giants.
Opportunities:
One great opportunity for target would be to start a club card kind of like what grocery stores do. This way people would shop more to get more points on their cards and would not worry so much about the high prices. This would take away from the fact that it is more expensive than Wal-Mart.
1. Positive financial results amidst difficult economic conditions
Target recorded positive results in its core business of retail sale in the first quarter of 2009. The results were in line with the company’s expectations, reflecting disciplined execution of its strategy in a difficult environment. In the retail segment, the company experienced positive comparable store sales results in its traffic-driving food and commodity categories. In the first quarter ending May 2009, sales increased by 0.4% to $14.4 billion in 2009 from $14.3 billion in 2008, due to the contribution from new store expansion. Its profitability in the quarter was also higher than expected due to strong gross margin and expense rate performance. The segment’s operating income was $962 million in the quarter, a 0.3% increase from the previous year. Stable financial results reflect the company’s resilience in spite of difficult economic times, especially when a majority of retail companies are financially weak.
2. Growth through Target.com
Target.com, offering a wide assortment of general merchandise including many items found in its stores and a complementary assortment, such as extended sizes and colors, sold only online. Recent online retail sales figures suggest that amidst the economic recession, interactive online shopping is increasingly being preferred over traditional shopping. The US e-commerce sector recorded sales of $10.87 billion in January 2009; this represented an unexpected rise of 2% over the previous year. The increase in online retail sales was mainly driven by the middle-income consumers, looking for ways to reduce expenses. Based on these trends, the online retail sales are forecast to grow at 11% in 2009. The positive outlook for online retail spending in the US is expected to further drive the company’s sales.
Threats:
1. Competition from Wal-Mart
While Target has achieved comparatively stable financial results, it is struggling to retain its customers against the world's largest retailer, Wal-Mart. Wal-Mart's low-price message and emphasis on necessities are helping it grab new customers worldwide in a recession, while Target with greater emphasis on trendy merchandise has been struggling to hold on to its shoppers and is now turning to groceries for growth (about 37% of Target's revenue comes from basic necessities while for Wal-Mart, that figure is about 60%). Furthermore, Wal-Mart is expanding its selection of non-essentials such as home furnishings, while improving the quality of its store-brand food. Amidst the financial downturn, declining income and increasing unemployment, price is the shopper’s primary concern. Therefore, consumers are increasingly opting to shop at Wal-Mart for just about everything (as indicated by recent survey results). If the economy continues to recede, competition from Wal-Mart could put pressure on the company’s sales and erode its market share.
Graph courtesy of )
2. Dependence on foreign third-party vendors
Target is dependent on its vendors to supply merchandise in a timely and efficient manner. A substantial amount of the company’s inventory is sourced from outside the US, with China as its single largest source. Political or financial instability, trade restrictions, tariffs, labor unrest, transport capacity and costs or other events that could slow port activities and impact foreign trade are beyond the company’s control.
Perceptual Map of Business Environment
On October 21st, the group members conducted a survey, focusing on the customer perceptions of Target in contrast to Wal-Mart’s. The sample groups consisted of family, friends, UST students, and in-store shoppers at Target and Wal-Mart. The survey questions pertained to product (home goods, electronics, clothing, groceries) and service quality, product selection, store layout, convenience, and parking lot safety—all features categorized under “Quality & Design” of its products and services and “Store Experience.”When analyzing Target and Wal-Mart’s responses, the group concluded that customers exceptionally preferred Target’s quality and selection of home goods, electronics, and clothing; store layout; convenience; and its parking lot safety over Wal-Mart’s.
III. Marketing Strategy
Segmentation Strategy
Target’s new broadcast campaign reflects real moms. This more direct and genuine approach to broadcast marketing shows moms telling personal stories about Target’s great store experience and prices. There's no place like Target at Christmas to save. Advertisements feature children during the season, and some use humor to connect with the budget-limited shopper. One example is a school Christmas pageant, showing parents quietly inserting money-saving Christmas tips into their children's speeches.
Targeting Strategy
Target uses differentiated (segmented) marketing strategy attracting all kinds of shoppers – affluent, middle, and low-income consumers. Target designs its stores to be more attractive than its competitor Wal-Mart and other large department stores by having wider aisles, contemporary signage, backdrops, and a more attractive presentation of merchandise. Target’s use of super size graphics, portraying common household items embellish the walls of Target's housewares department. Target also offers inexpensive yet chic and trendy apparel and accessories attracting younger and affluent crowds. Target emulates retailers outside the discount space, such as Pottery Barn, Restoration Hardware and The Gap(Prior 2002).
An early strategic choice to build a brand around the Target name fostered the company's steady growth. Gerald Storch, Target's former vice chairman, noted this strategy in one of his interview by saying: “The company had faced three strategic choices to tackle the increased competition in the retail market: to specialize, to become the low-cost producer, or to differentiate [itself]. The first choice would have thwarted future growth, and Wal-Mart was already a low-cost producer, so Target chose the third option and decided to reposition itself as a mass merchandiser of affordable chic goods.”
Marketing Mix
Product Strategies
The merchandise mix is diverse though consistently stylish at Target, with low-rent products from high-rent designers displayed on shelves and racks under one roof. Target has consistently challenged other competitors’ strategies and has always come up with new ways of providing its merchandise in the seasonal "must-have" columns. This technique has not only been successful but also made discount shopping experience even better. Target owns and oversees its private label products, including the grocery brands Archer Farms, Market Pantry, and Sutton & Dodge.
In using this powerful tool, good brand management makes it possible for Target to maintain positive customer relationships, by way of strong brand recognition and its value proposition that is incomparable to that of other discount retail competitors’. Its value proposition, the promise it makes to its customers, is embodied by the slogan, “Expect More. Pay Less.” There is more to it than mere promises; Target maintains its brand loyalty by managing each customer’s experience and by providing higher quality goods at discount prices.In addition, the Target brand changed its name and visually corresponding trademark to “Up & Up,” in the effort to communicate the high quality of its private brand’s products, despite its lower costs when compared to most leading brands.
Pricing Strategies
Target has adopted “status quo” pricing strategy, influenced by nearby retail competitors, its trade market area. It is not based on demographics, income of an area, or location. Every Target store has “The One Spot” section, usually located near the entrance, which contains a range of products that only cost a dollar. The items in this section also change frequently, providing consumers with a sense of bargain.
Promotional Strategies
Promotional campaigns play a vital part to the success of Target. Advertisements and inserts in newspapers allow the company to reach large segments of consumers. Free shipping is offered periodically at Target.com. During the holidays, Target offers special extended holiday hours as well as special promotional pricing for new products or products with high demand. In September 2006, Target launched organic foods and beverages, sold under the Archer Farms label, into their stores. The purpose of the move into organics was to attract younger, female shoppers. “Target was voted # 1 on the top 10 retailers based on consumers' favorite TV holiday advertisements with 24.2 percent compared to Wal-Mart with 21.1 percent.” (Hall 2008). The Bullseye Dog, together with the promotional slogan, “See. Spot. Save,” is found on discount in-store signage and weekly circulars.
Distributional Strategies
As of August 2009, Target Corporation has been operating 27 distribution centers across the United States. With the exception of vendor supplied items, such as greeting cards and soda, these distribution centers ship items directly to Target stores. It also has four facilities, operating in the ports of Rialto, California; Savannah, Georgia; Lacey, Washington; and Suffolk, Virginia, which receive shipments from overseas manufacturers and suppliers. The imported merchandise is then directly sent to regional distribution centers.
In August 2004, Target announced to its suppliers that it was going to perform a trial on the effects of radio frequency identification (RFID) on the efficiency of supply chain management in the Dallas/Fort worth Metroplex; as of 2009, RFID has been phased out of this geographic segment.
Target developed an e-commerce strategy that involved managing its own online distribution at the start of the century. Online retailing gained a larger profile in early 2000 with the formation of a separate e-commerce unit called Target Direct. New store brand web sites were also launched later that year. Its Annual Report of 2008 also discloses that merchandise sold through Target.com is distributed through Target’s own distribution network, through third parties, or shipped directly from vendors.
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