Target Corporation - Consulting project

Eeshin Chang, Meg Crawford, Yuliya Kozyreva, Erin (Yale) Lim, Jonathan Zimmermann

Company Background

Guiding Questions

Situational Analysis

Industry Analysis

Internal Analysis

Issue Tree

Initial Recommendations

Data Collection Strategy

● Founded in 1902 as a subsidiary of Dayton-Hudson Corporation

● Became Target Corporation in 2000

● Divested credit business in 2013

● Divested Marshall Field’s and Mervyn’s in 2004 because lag in

revenues

● Rolled out PFresh in 2010 (grocery in Target)

● First Super Target (hypermarket) opened in 1995

● Purchased Canadian mass merchandiser Zellers in 2011 (expand

internationally)

● Data breach between November and December 2013

● Decrease in sales due to lowered customer trust in Target in 2014

How can Target be the leading omni-channel retailer?

Strengths

- Multiple stores across the U.S.

- One-stop-shop

- Well-known and respected brands

- Knowledge of consumer

- No brand identity confusion

- High end with low prices

- Clean, bright, and inviting stores

- Strong CSR practices

- Well-know brand: 97% of people are able to

recognize the Target Bull’s-Eye

- Exclusive products and partnerships with designers

- Price matching

- Treat employees well

- Great customer service

- High customer loyalty

Weaknesses

- Not an international company

- Low number of distribution center

- Low number of locations in comparison to

competitors

- Lack of online review, and minimal product

descriptions

- Weak competitor in telecommunication and IT

distributor

- Difficult to differentiate from other online

competitors due to the nature of the industry, as

they are not a niche in any category and some

online stores cater to a specific category

- Difficult to compete from a strategic level

Opportunities

- Open more stores throughout the U.S. (i.e.,

Hawaii, Alaska, Vermont)

- Venture into international markets

- Focus on cost-cutting to increase market share

(acquisition, steal share)

- Capitalize on the fact that they have brick-and-

mortar stores (vs. Amazon’s online presence) for

in-store pickup, convenient returns, etc.

- Increasing awareness of the price-matching policy

Threats

- Dependence on the US market

- Low margins

- High price sensitivity of customers

- Competition from Wal-Mart, Kmart and Amazon

- Tension between high-end feel and low price

- The need to constantly keep up with market trends

- The continuing migration and evolution of retailing to

online and mobile channels has increased the

challenges in differentiating from other retailers

- Rise in popularity of price comparison tools, which can

lead to decisions based solely on price

- Earning are highly susceptible to the state of

macroeconomic conditions and consumer confidence

- Failure in accurately predict and respond to changing

market trends

Strengths

● Exclusive brands and products

○ Over 9 exclusive brands

○ Over 11 owned brands

● Competitive prices

● High breadth on select products

● Many stores across U.S.

Opportunities

● Synergies between online and

Brick-and-Mortar stores

● Expansion of product lines

Weaknesses

● Lack of online reviews and product

information

● Low depth within IT and

telecommunication

Threats

● Competition from Walmart (cost)

and Amazon (convenience)

● Price comparison tools - difficult to

differentiate

● Failure in accurately predict and

respond to changing market trends

● Ranked 5th in overall retailing with 3% value in 2013

o Maintain market share by anticipating and responding to consumer needs

● Largest mass merchandiser in the country (1,541 locations in 2013)

○ Increased number of mass merchandising stores by 1% every year since 2010

○ Pace was 5% and 3% in 2008 and 2009 respectively

● 8 CityTarget locations in 2013 to attract urban customers

● Ranked 4th in hypermarkets in US in 2013

● Significantly behind Wal-Mart in sales -> Wal-Mart held 82% value share of channel compared to

Target’s 5%

● Had not expanded hypermarkets; instead focusing on smaller stores for highly populated urban

areas - CityTarget (2011)

● 251 SuperTarget outlets; number constant since 2009 to focus on smaller outlets instead of

competing with Wal-Mart

● 10th largest internet retailer in the country

○ Offers full range of merchandise online with exception of food and beverages

In 2013, Target ranked #10 in internet retailing.

There is a lot of room to improve and gain

market share.

● Target continues to focus on its grocery offerings

● Target‘s audience:

● Referred to as "guests"

● On average younger, better educated, and more

affluent.

● Target has successfully associated its name with

a younger, hipper, edgier, and more fun image

than its competitors

● “Cheap-Chic" strategy

● Enabled Target to become a major brand and

consumer-shopping destination, articulated

around two main interrelated branding

activities:

● designer partnerships

● clever, creative advertising

● High-profile design partnerships across merchandise lines

● Apparel: partnered with Mossimo, Isaac Mizrahi, launched new lines that complemented its

own private labels, such as Cherokee, Merona, and Xhilaration

● Each brand has a specific positioning so that Target's overall assortment appeals to a

broad customer base

● Decided to reposition itself as a mass merchandiser of affordable chic goods

● 33% of company sales come from private label or

exclusive merchandise

● Known for partnering with popular clothing designers to

launch limited edition product lines

○ Missoni partnership of 400 piece collection of

apparel, footwear, accessories, and homewares

in 2011

■ Most items sold out in less than 24 hours

○ Prabal Gurung to launch similarly limited fashion

exclusive in February 2013

● Launched standalone C9 by Champion store in San

Francisco in May 2012

○ Sold clothing inspired by the success of women’s

performance wear lines

○ Compete against Lululemon and Gap’s Athletica

● 4% of Target sales occur online

● March 2013: Acquired Chefs Catalog

and Cooking.com - websites that have

an active user base that contributes

reviews and recipes (gain consumer

insights)

● 2013: Launched Cartwheel - mobile

retailing grew from 8% of Internet

sales to 12%

Pharmacy:

● Market: sales are expected to increase in

2014

● Target only major player to show significant

gender bias for drug store needs

○ In store: Male (34%) versus female

(42%)

● Target fails to attract older shoppers in store

○ 18-24 (46%), 25-34 (50%), 35-44

(42%), 45-54 (34%), 55-64 (30%), 65+

(25%)

In Store/ Online41%

In Store38%

Online8%

Other13%

Pharmacy Sales

Beauty:

● Online-only retailers are most commonly used for beauty and personal care purchases (42% of online

beauty shoppers buying from here)

● Total US consumer expenditure on beauty and personal care products at current prices (between

2008-2013) is steadily growing

● Target has already aquired an online-beauty store

Cleaning:

● Market: On an inflation-adjusted basis, sales of household surface cleaners declined

modestly, a drop of 6% between 2009 and 2014.

● Increased consumers’ willingness to spend leads to positive gains

Laundry Products:

● Market: On an inflation-adjusted basis,

sales of home laundry products fell by

16% between 2009 and 2014

● Less than 1% of food and beverage

sales occur online

● Shopping habits are changing

● Niche online grocery services that

compete on convenience and

selection are gaining traction

● High distribution costs associated with

getting perishable items to customers

● Target’s grocery items on their

website are in-stores only, which

defeats the purpose of online-

shopping

● AmazonFresh will play a role in

compressing margins for the whole

industry Although US grocery sales are expected to

grow offline by 2018, online grocery sales are

not expected to grow much (only 3.1% of total

grocery sales).

Between 2013 and 2018, online grocery sales will grow

at a compound annual growth rate (CAGR) of 21.1%,

reaching nearly $800 billion.

● Online Pet Food and Pet Supply Sales industry has increased at an average annual rate of

8.3%, totaling $3.3 billion in 2014

● Industry revenues will increase at an annualized rate of 8.2% to $4.9 billion in the five years

to 2019

● With rising revenue, industry profit margins have increased to 6.0% over the five-year period

Rising pet ownership in the U.S.

and growth across the e-

commerce sector have caused

the industry to experience overall

growth, despite the recession

● From 20% in 2009, revenue share of apparel and

accessories declined gradually to 19% at the end of

2013

● While the decline in revenue contribution of

fashion and furnishing categories isn’t alarming,

it clearly indicates that Target is shifting its

focus from its iconic categories to groceries

● This strategy hasn’t worked well for the retailer

so far, which is evident from its recent results

● Target made a name for itself in the U.S. market by

selling affordable stylish merchandise

● However, with its aggressive push towards

groceries, the retailer’s focus on its core

categories diminished

● With these efforts, Mr. Cornell believes that

Target’s brand image will gradually recover

● US market size: 156.9B (2014)

o Expected market size: 190B (2019)

● Very small relative size of the department, notably compared the competitors

● High price sensitivity, but many still value expertise of in-store shopping experience

o Pickup locations also appreciated

● Low growth for traditional electronics

(replacement of old items +

occasional upgrade to newer version)

● Big potential for newer categories

such as smartphones and tablets (not

reached market saturation yet)

● Upgrading an item is the leading

motivation

● Most prominent frustration for electronics shoppers when buying products at a physical

store is limited product selection

Big opportunity to combine online store with pickup at brick-and-mortar

● Nearly 1/3 of consumers say they prefer retailers with both an online and physical

store

Opportunity for Target to create a comprehensive, hybridized strategy and meet

customers’ demands across both channels

● The rapid growth of online purchases for CE products indicates that retailers with a

strong brick-and-mortar presence can use e-commerce to augment the in-store

shopping experience

Target’s online store can expand a given location’s selection

● Target can offer consumers the ability to research products online and reserve or

purchase them to pick up items in stores

Encourages more interaction with sales associates and potentially increase

impulse buys when the consumer visits a store to collect his or her items

● Lack of these products on the shelves

● Could be popular during Christmas/Valentine’s day

periods

● Incorporating a few of the most popular gadgets in

the brick and mortar stores could make the visit of

customers less boring, and then lead them into the

online store

● Target audience:

General computer users, students, geeks, fans

of a specific imaginary universe, pranksters,

children

● Good opportunity to differentiate and increase

number of exclusive brands, and potentially to

create a new brand

● Gamers spend thousands of dollars per year on

games, and a big fraction of their time on online

gaming stores

● Video games is more and more popularized

Consumers buy less and less physical

games

● Generally prefer to download them on platforms

like Steam, Origin or Uplay

Still buy an activation code somewhere else,

sometimes even for a lower price

● Gamers love special promotions and pre-orders

with exclusive gadgets

● The Retail Market for Toys is expected to remain

in a mature and steady state of growth during the

next five years

o Drivers:

steadily rising disposable income levels

growing amount of children in the U.S.

increasing popularity of online shopping

● Consolidation and merger activity will continue

● The total number of industry operators is

expected to decrease an annualized 2.1%

over the five years to 2019

3,851 businesses

● E-commerce operators are expected to control an

increasing share of the total market, causing the

average industry profit margin to rise

● Online retailers are expected to

increasingly dominate The Retail

Market for Toys during the next five

years,

Leads to increased consolidation

from brick-and-mortar retailers due

to competition

● As consumers continue to shop online,

e-commerce retailers fine-tune their

precise suggestion algorithms and

convenient delivery and shipping

options

Opportunity: Consumers have increasingly become

comfortable with purchasing goods and

services online. This has benefited online

baby product sellers, as demand has

shifted from brick-and-mortar stores to

online retailers. The percentage of

services conducted online is expected to

increase over 2014, representing a

potential opportunity for the industry.

Growth in

Furniture MarketBetween 2015 and 2014, Mintel

forecasts steady, continued

growth of 16%

Between 2009 and 2014, the US retail

furniture market grew by $13.8 billion,

or 16.6%, to reaching $97 billion in

2014

Drivers of Furniture Purchases● A majority of respondents are averse to buying furniture online, with 58% preferring to see

and touch the furniture before buying it, and ⅓ considering it “too risky”

● In-store displays, sales associates, retailers’ own catalogs, and seeing items in the homes of

friends and family are the biggest motivators of furniture purchases.

Retail Channels● Furniture stores still continue to command the majority share in the retail furniture

between 2012 and 2014

● There is growth in the “other” category of furniture sales, but this does not include

online retailers

● Biggest challenge of Target.com

● Few ratings for most products, especially

compared to other online stores

● Lack of description of the product, etc.

● A link to a review/test could also be useful for

some products

● Retailers’ websites are the most commonly used

sources of information when consumers are

shopping for electronics

● 80% of respondents saying they use a retailer’s

website at some stage of the buying process,

compared to 48% who say they use

promotional email to help them discover or

research electronics products

Opportunity: Target has an opportunity to improve the

quality of information on its website, and

have more rankings

How can Target be the leading

omni-channel retailer?

Differentiation strategy:

●Synergies between online and Brick-

and-Mortar stores

●Exclusive brands and products

● Information search and product

comparison

1. Pet food and suppliesa) The demographic of people who are buying pet food online is similar to the demographic of people going to

Target

b) Growth is very high (2009 - 2014 was 8.3% growth)

c) From 2014 - 2019, projected growth is 8.2%

2. Toysa) In 2015, total retail spending on toys is expected to grow 1.3%, reaching $50.3 billion in annual revenue by

2019

b) Online retailers are expected to increasingly dominate The Retail Market for Toys during the next five years

c) The total number of brick-and-mortar stores is forecast to decline an annualized 0.6%

d) Total number of industry operators is expected to decrease an annualized 2.1% over the five years to 2019,

to 3,851 businesses

3. Review Aggregatora) Retailer's website is the most commonly used source of information when shopping online

b) Many review aggregation start-ups that could potentially be acquired for a fair price

c) Target.com's main weakness (compared to Amazon and other online retailers) is its lack of consumer

reviews

d) Consumers are looking for a fully integrated experience (not having to switch of websites for the different

steps of their purchases)

Secondary Research

●Databases

IBIS World

Mintel Reports

OneSource

ThompsonONE

Euromonitor Passport

●Web Resources

Forbes.com

Target.com

Primary Research

● Interviews

● In-store

● Focus group

● Qualtrics survey

● Observations

● Target

● Wal-Mart

● Pet Smart / Petco

● Toys R Us

Secondary Research

● Databases:

● Mintel Report

● IBIS World

● Simmons Data

● Online research