CASE 19
Target Corporation
Written By: Stephanie Milas, Amber Wells, Justice Young, Kodi Kuhnash,
Herbert Lohrberg, and Chelsea Synder
March 28, 2019
Financial Analysis and Decision Making, MBA 7300-01
Case Introduction
During 1962 in Roseville, Minnesota the Dayton Company opened the first Target store for the
purpose of providing customers with discounted prices. The main objective for this was to create
an atmosphere that was different from the Dayton Company’s more upscale stores. By using this
concept, the Target store flourished ultimately leading to more stores opening across the United
States. By 2000, the official name of all the Target stores become known as the Target
Corporation
In the Target Corporation case study, it compares Target’s business model and marketing
strategies to other discounted retailers including Wal-Mart and Costco. While at the same time, it
analyzes Target’s capital budgeting process. Additionally, some of the other information given
consist of Doug Scovanner being the CFO and having to analyze 5 different capital project
requests (CPRs) to accept or reject in order to create the most value and growth for the Target
Corporation and its shareholders. Some factors to consider with accepting each CPR are by
evaluating the financial calculations, as well as customer demographics and brand awareness.
With looking at these factors, it can be determined what the positives and negatives of each of
these CPRs are. The names of the CPRs are Gopher Place, Whalen Court, The Barn, Goldie
Square, and Stadium Remodel.
Business Model Comparisons
Targets two main competitors in the retail industry are Walmart and Costco. Target and Walmart
are competitors because they have similar store formats, meaning they have food sections,
clothing, electronics, home décor, and pharmacy. Where Target and Costco are competitors
because they have similar target markets, customers who are looking for great value at a fair
price. The similarities start to stray though from there, Costco requires a membership card to
allow access to the store where at Target you do not have to be a member to shop there. Costco
also operates on the strategy of buying in bulk to save money on the purchase. Target and
Walmart don’t operate on bulk sales, they operate on the strategy of low prices but great value
for your dollar.
Walmart is the dominant player in the retail industry due to its size and extensive globalization
strategy. To gain a foot hold in the industry Target had to put more emphasis on the profile of its
target customer. Target homed in on the target customer being an educated family woman who
was more affluential than the typical Walmart customer. So, to appeal to this target market
Target decided to focus on the ambience and style of the interior of the store, to make the
shopping experience feel classier and user driven. Target realized its main specialty was in
apparel and home décor, but it still priced competitively on other goods that were common in
other competitor stores.
Target generally selects areas to build a new location that are experiencing high population
growth and change towards becoming affluential communities. Sometimes new stores are
selected though to block out other retail competitors, despite the stores ability to generate returns
for the overall company. Target announced plans to continue to open approximately 100 stores
per year for the foreseeable future to continue growing domestically.
Target’s Capital Budgeting Process
Every company has some sort of a capital budgeting process. Capital budgeting is the process
through which companies decide which projects to accept or reject and which long-term
investments to make. Capital budgeting includes the valuation of potential long-term projects,
which create cash flows for several years. The decision whether to accept or reject a project
depends on many factors. These factors are different for all companies and/or industries. The
most common factors include the project’s Net Present Value (NPV), its Internal Rate of Return
(IRR), and the cash flows that are created by the project over its life time.
Target’s capital budgeting process is comprised of the Capital Expenditure Committee (CEC).
The top executives of Target make up the CEC. They meet monthly to evaluate all the Capital
Project Requests (CPRs) that are greater than $100,000. The CEC can accept any CPR up to $50
million. However, the Board of Directors decides to accept or reject the CPRs in excess of $50
million. By taking this out of the hands of the day to day operations the personal agendas and
agency problems are largely taken out of the highest impact projects which will ideally be
decided on the merit of maximizing stockholder’s wealth.
CPRs that fall into the CEC category are decided by this designated committee as described
above consisting of key top executive officers. Exhibit 1 offers a breakdown of all the executive
officers and the Capital Expenditure committee members. The CEC members include:
• VP of property development
