Target Corporation case questions
1. How does Targets business model compared with Wal-mart and Costco?
2. What is Targets capital budgeting process? Is it consistent with the companys business
and financial objectives?
3. Explain what the dashboard tells you as a manager. Isnt the NPV enough information for
you to make a go/no-go decision?
4. Which of the five CPRs did you accept? Which project attributes did you consider as
part of your decision?
Introduction
The Dayton Company entered discount merchandising in 1962 by opening the first Target
store in Roseville, a suburb of Minneapolis. The idea behind Target was to take quality
merchandise, found in the bargain basements of high-end department stores, and sell it in
its own store. Target was the first retail store to offer well-known national brands at low
prices. Target became the corporations largest source of revenue, surpassing the
department store division. Dayton Hudson acquired Marshall Fields in 1990 and changed
its named to Target Corporation in 2000.
The department store divisions helped Target Corporation by giving it an edge in
predicting fashion trends that were passed along to Target Stores. The inventory
management skills perfected through Target Stores improved the efficiency of the
department store division.
In 1990, Target began opening larger Target Greatland stores; in 1995, Super Targets,
which also sell groceries, were introduced. In 2002, the Minneapolis-based Target
Corporation became the United States second largest discount retailer behind Wal-Mart.
Targets around the country offer everything from household essentials, to computer
software, to groceries and selling many of their products under private label brands. In
addition to their retail segment, the company also offers credit and debit cards to its
frequent customers. Target`s success can be attributed to two key factors: the right kind of
differentiation and distinctive marketing communications. In general merchandise
retailing, Target`s primary competitors are Wal-Mart and Costco.
Targets Capital Expenditure Committee (CEC) was responsible for reviewing and
approving Capital Project Requests (CPRs) on a monthly basis. The projects presented to
the CEC were all financially attractive, with weaker projects having been rejected earlier
in the rigorous capital budgeting process. With the knowledge that their decisions could set
precedent for future spending, and have significant impact on the short-term and long-term
profitability of the company, the CEC carefully weighed different financial measures of the
projects prior to accepting or rejecting the CPRs. A list of recommended projects has been
included.
1. Targets Business Model
A kind of mental model, or gestalt, of how the various strategies and capital investments
made by a company should fit together to generate above-average profitability and profit
growth is what is known as a business model. 2 A business model encompasses the totality
of how a company will:
* Select its customers * Define and differentiate its product offerings * Create value for its
customers * Acquire and keep customers * Produce goods or services * Deliver those
goods and services to the market* Organize activities within the company* Configure its
resources* Achieve and sustain a high level of profitability* Grow the business over time.
Target, Wal-Mart, and Costco have similar business model designed primarily around the
traditional physical value chain.
All three stores have chosen to perform similar activities (retail) in different ways.
Wal-Mart operates with store formats similar to Target. Most Target stores operate in trade
areas where one or more Wal-Mart stores are located. Both Target and Wal-Mart carry
similar merchandising assortments such as food, commodities, electronics, toys, and
sporting goods.
Costco, on the other hand, attracts a consumer base that overlaps closely with Target`s core
customers, but there is less overlap between Costco and Target in respect to trade area and
merchandising assortment. Most of the sales of Costco are in broad categories of general
merchandise and goods, including electronics, entertainment, sporting goods, toys,
apparel , accessories, home furnishing, d*cor, and food items.
Target, Wal-Mart, and Costco have different business models with respect to their
marketing and sales activity. Target Corporation helped set up the Worldwide Retail
Exchange, an internet business-to-business marketplace that allows its members to
compete against the online trading system used by Wal-Mart and its suppliers. By 2005,
the company was operating more than 1300 Target and Super Target stores in 47 states.
From the beginning, Target aimed to distinguish itself from other discount retailers by
offering a more up-style selection. Target has successfully carved out a niche market for
itself by concentrating on a hip, stylish brand image and products, not just price
competition. 2005 also saw the launch of the Target Guest Card, the first store credit card
in the discount retail industry. Eventually, the company converted the Target Guest Cards
into Target Visa cards. The credit card operations have driven revenue growth and are an
important part of Targets business.
Target operates as two reportable segments: Retail and Credit Card. The Retail Segment
includes all of their merchandising operations, including their large-format general
merchandise and food discount stores in the United States and the fully integrated online
business. Targets ability to deliver a shopping experience that is preferred by its customers,
referred to as “guests,” is supported by its strong supply chain and technology
infrastructure. As a component of the Retail Segment, their online business strategy is
designed to enable guests to purchase products seamlessly either online or by locating
them in one of its stores with the aid of online research and location tools.
Target has reportedly spent 2% of its revenue in advertising compared to 0.5% spent by
Wal-Mart. Target faces strong competition from wholesalers such as Wal-Mart and Costco.
