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Case Study on Target Target is an upscale discounter that provides quality merchandise at attractive prices in clean, spacious, and guest friendly stores. Products available in Target stores include mens, womens and childrens apparel, toys, small appliances, dress, casual and athletic shoes, health and beauty aids, and much more. Their focus is on general merchandise retailing and their operating strategy is to provide exceptional value to American consumers. Target has 1147 stores in 47 states, including 94 SuperTarget stores in 17 states. They also have 15 distribution centers and approximately 280,000 employees. Their main headquarters is located in Minneapolis, Minnesota. Their median age is 44 with a median household income of approximately $54,000 with 81% of shoppers being female and approximately 40% having children.
Target is committed to offering guests an exciting shopping experience that combines fashion newness, trend-right design and superior quality with compelling value and exceptional convenience. Target continues to execute their basic strategy while remaining competitive in their pricing and differentiated in their merchandise. Target plans to further lower its costs, primarily through buying merchandise at lower prices and reducing supply chain expenses, through inventory reductions. Targets president Gregg Steinhafel states We also continued to benchmark a large number of similar items and lowered our prices on these products appropriately. And we initiated priced reductions on a meaningful portion of our assortment, in keeping with our Expect More/Pay Less philosophy. Joseph Hudson opened a mens clothing store in Detroit in 1881. When he died in 1912, it was the largest retailer of mens clothing in the U.S.
In 1902, George Dayton opened a dry-goods store in Minneapolis that grew into a 12-story, full-line department store. After WWII, both Hudson and Dayton saw that growth would come in the suburban areas. In 1954, Hudson built Northland in Detroit, then the largest shopping center. In 1956, Dayton built the first fully enclosed shopping mall in Edina, Minnesota, a Minneapolis suburb. In 1962, Daytons opened its first discount store in Roseville, Minnesota (naming the store Target to distinguish the discount store from its higher-end department stores). Daytons went public in 1966 and three years later, merged with Hudson becoming the Dayton Hudson Corporation.
Target Stores became the Corporations top moneymaker in 1977 according to Hoovers a data tracking research firm, or 1979 according to Targets website. The following year, Dayton Hudson bought California-based Mervyns. In 1990, Dayton Hudson bought 24 Marshall Fields stores and in 2001, Dayton and Hudson stores were re-named Marshall Fields department stores. In 1990, the Target Greatland store was opened (Target Greatland stores are 70% larger than the traditional Target Store). SuperTarget stores were introduced in 1995. In 1998, to help its Internet presence, Dayton Hudson purchased the direct-marketing company Rivertown Trading.
It also bought an apparel supplier, Associated Merchandising. Target Stores was the first discount retailer to offer a proprietary store-brand credit card and has recently expanded that company credit card to a Target Visa smart card. This promotes Target Financial Services strategy of deepen relationships with guests, drive sales and increase profitability. The Target Visa smart card offers two distinct advantages, an increase in the credit card sector, plus the smart card technology. A growth vector analysis, as described by Kluyver and Pearce, shows Target concentrating within the existing market by adding Target Visa and offering it to current cardholders. If the Corporation expands the market to others, potential cardholders, Target will move into the market development segment.
The smart card part of Targets Visa card is one of the latest innovations in information technology. Smart cards has a microprocessor or memory chip embedded in it that, with a reader, has the processing power to serve many different applications. Smart card technology is touted as a way to improve brand affinity, enhance operating efficiencies, to help create flexible marketing programs to market to customers. Target will use that technology to provide merchandise promotions that are tailored to individual guests tastes. One such application could be a customer downloading a coupon into the smart card either from an advertisement or at the point of sale. Then when the guest uses the smart card at the check-out stand, the coupon would automatically credited to the guests account. A guest without a Target Visa might be compelled to apply for a card to receive such a convenience.
Target visa has seen strong acceptance since its introduction (over 2.5 million cards issued in May of 2003, 6 million as of June 30, and 8 million by the end of the third quarter (September 30). Part of the strong acceptance is due to Target Awards that awards points for purchases that can be redeemed at Target stores, an initial 10% savings on all purchases the day the card is received, and school fund raising cash awards. Targets strategy is to compete with other bankcard companies by offering competitive rates that range from 9.9% for low risk customers to 18.9% for higher risk customers. Target Corporation had a built-in advantage over other credit card lenders because it has a large built-in pool of creditworthy customers. The Corporation can convert current in-store cardholders to the new Target Visa with very little expense. In addition, it has the expertise of managing the receivables portfolio. Bear Sterns indicates that approximately one-quarter of Targets management team has relevant prior bankcard experience amounting to a total of 370 cumulative years.
A report by Bear, Stearns indicated that Target undertook a review of the performance and profitability of its receivables assuming that a third-party manager would be more cost effective. To Targets surprise, the opposite was found. The analysis showed that the current in-house management was at least as profitable as third-party comparables. Target determined it would keep managing the receivables in-house. The low cost of acquiring accounts (one-tenth those of a bank card issuer), the cost-effective in-house management of receivables, and the smart chip technology are seen as positive benefits to the Target Corporation. Bear Stearns views Targets credit operation as a core business with significant growth opportunity through receivables management and cross-marketing opportunities. Barrons, a weekly investors publication, recently reported that third quarter credit card losses could cut Targets credit card earnings from a 4 percent after-tax return to a more industry-standard of 1.5 percent.
However, a follow-up report by Bernstein Research Call indicated that the Barrons story was one-sided; that most of the issues raised regarding Targets credit operations existed because the portfolio was in its first stage of growth. Bottom line is that investors are watching Target Corporations growth in the credit card arena. If successfully managed, it could positively add to the Corporations stock price or it could cause the Corporation to look at selling the portfolio to a third party in order to keep the Corporations expansion efforts of Target Stores. Target Stores have added SuperTarget stores, similar to Wal-Mart Super Centers, offering groceries. Grocery retail stores have lower profit margins than discount retailers; however, Doug Scovanner, executive VP and CFO stated in June 2001 that the supercenter was yielding higher average ticket prices and more than twice the number of store visits per customer than a regular discount store. He indicated that approximately 80% of sales were coming from Target Stores and the remaining 20% from Archer Farms grocery business.
He continued, The magic is in the sharp increase in number of store visits. The annual report indicated that in 2003 Target Stores would grow approximately 40 percent, which included an additional SuperTarget stores. Helena store manager, April Towle, indicated the SuperTarget expansion would be in the large metropolitan areas. She further stated that the goal for Target is to have 2,010 stores in the year 2010. As presented above, the success of Target Stores is in its strategy of differentiation combined with operational efficiencies by staying current with technological advances. Differentiation can be seen when a guest walks in the door.
The way the store is presented, the lighting and the displays, to carrying highly regarded brand names brands and proprietary names. That strategy has been successful and should carry into the future. That said, a watchful eye needs to be placed on the Target Visa card. The ability of Target Corporation to control credit losses is very important. In addition, Target Stores are succeptable to a long-term recession due to its differentiation strategy and not trying to be the low cost provider. During a recession, customers would be more mindful of their personal bottom-line, and could easily switch to the low-cost leader, WalMart. Target Stores have been successful, and I believe will continue to be successful; however, I do not believe it is recession-proof.
Bibliography: Target Corporation Bear Stearns, Equity Research, Consumer Feb. 22, 2003 Target Corporation Annual Report, 2003 pg. 1 Cornelis A. DeKluyver & John A. Pearce II. Strategy A View From The Top. New Jersey: Pearson Education, 2003 p.
60 www.gleplus.com Smart Card Basics copyright 2002 Business Editors and High-Tech Writers Gemplus Technology Powers Target Corporations New Target Smart Visa Card Business Wire July 31, 2003 Target Corporation Annual Report, 2001 pg. 2 Emme P. Kozloff, Howard K. Mason, Rick L. Biggs, Ian J. Gordon. Discount Retailers and the Bank Card Business Bernstein Research.
June, 2003 Risk Analysis on Target prepared by Montana Board of Investments, Investment Analyst Lon Whitaker June 21, 2003.
Research essay sample on Case Study On Target