8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]www.hoytnet.com What’s Leading Edge With Today’s What’s Leading Edge With Today’s Leading Mass Volume Retailers? Leading Mass Volume Retailers? March 8, 2005 Dallas, TX American Logistics Association Exchange Roundtable
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What’s Leading Edge With Today’s Leading Mass Volume Retailers
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What’s Leading Edge With Today’s Leading What’s Leading Edge With Today’s Leading Mass Volume Retailers?Mass Volume Retailers?
What’s Leading Edge With Today’s Leading What’s Leading Edge With Today’s Leading Mass Volume Retailers?Mass Volume Retailers?
March 8, 2005
Dallas, TX
American Logistics AssociationExchange Roundtable
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Based on most recent research, the top 3 retailers shoppers rank as Based on most recent research, the top 3 retailers shoppers rank as literally “indispensable” to their daily lives are Wal-Mart, Target and literally “indispensable” to their daily lives are Wal-Mart, Target and Costco:Costco:
Base: Among those who shop the storeBase: Among those who shop the store
Wal-MartWal-Mart 31%31%
CostcoCostco 17%17%
TargetTarget 13%13%
BJ'sBJ's 11%11%
KrogerKroger 9%9%
Albertson'sAlbertson's 9%9%
SafewaySafeway 8%8%
Sam's ClubSam's Club 7%7%
CVSCVS 5%5%
7-Eleven7-Eleven 3%3%
Dollar GeneralDollar General 3%3%
WalgreensWalgreens 3%3%
Rite AidRite Aid 2%2%
KmartKmart 2%2%
69%
31%
Total respondents
Could livewithout anyspecificretailer
Could notlivewithout…
Meyers Research: “Retailers Consumers Could Not Live Without” Meyers Research: “Retailers Consumers Could Not Live Without” (Aug, 2004)(Aug, 2004)
Source: Meyers Research, Aug, 2004
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Not coincidentally, Wal-Mart, Target and Costco are also the same Not coincidentally, Wal-Mart, Target and Costco are also the same retailers that consumers find the “most fun to shop”:retailers that consumers find the “most fun to shop”:
Base: Among those who shop the storeBase: Among those who shop the store
TargetTarget 30%30%
CostcoCostco 30%30%
Wal-MartWal-Mart 28%28%
SAM’s ClubSAM’s Club 20%20%
BJ’sBJ’s 11%11%
Dollar GeneralDollar General 6%6%
Albertson’sAlbertson’s 4%4%
KmartKmart 3%3%
WalgreensWalgreens 3%3%
CVSCVS 2%2%
KrogerKroger 2%2%
Family DollarFamily Dollar 1%1%
SafewaySafeway 1%1%
Rite AidRite Aid 1%1%
Total respondents
Do not findany specificretailer funto shop
Find… mostfun to shop
85%
15%
Specific Retailers Consumers Find Most Fun To ShopSpecific Retailers Consumers Find Most Fun To Shop
Source: Meyers Research, Aug, 2004
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Today:Today:
What is it about Wal-Mart and Target that makes them so What is it about Wal-Mart and Target that makes them so successful, not only with shoppers, but from a business successful, not only with shoppers, but from a business standpoint in general? standpoint in general?
What lessons can Exchanges take away from this, given their What lessons can Exchanges take away from this, given their objectives and the constrictions under which they operate?objectives and the constrictions under which they operate?
Q&AQ&A
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The Leaders – The Leaders – Snapshot of Current Vital Statistics:Snapshot of Current Vital Statistics:
While Wal-Mart and Target are very different retailers, both share While Wal-Mart and Target are very different retailers, both share the same objectives as all other retailers– specifically:the same objectives as all other retailers– specifically:
Grow profitable sales by aligning and focusing all marketing, Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logistics functions on one or more of the merchandising, buying and logistics functions on one or more of the following objectives:following objectives:
ExchangesExchanges
Increase customer count (new customers)Increase customer count (new customers) XX
Increase productivity (Human and Financial)Increase productivity (Human and Financial) YesYes
Reduce costs (COG’s and Operations)Reduce costs (COG’s and Operations) YesYes
As you will see, the paths that Wal-Mart and Target have chosen to achieve As you will see, the paths that Wal-Mart and Target have chosen to achieve these objectives represent today’s industry Best Practices.these objectives represent today’s industry Best Practices.
7ALA2005R3.ppt
The 800 lb. Gorilla The 800 lb. Gorilla In Every Retailer’s Living Room!In Every Retailer’s Living Room!
The 800 lb. Gorilla The 800 lb. Gorilla In Every Retailer’s Living Room!In Every Retailer’s Living Room!
$284B – Largest company in the world – greater than the GDPs $284B – Largest company in the world – greater than the GDPs of Austria, Colombia, Czechoslovakia, Denmark, Greece, of Austria, Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden, Switzerland, Ukraine and VietnamNorway, Portugal, Sweden, Switzerland, Ukraine and Vietnam
$20K in profit $20K in profit per minuteper minute!!
13% WW CAGR – projected to do $1 trillion by 201413% WW CAGR – projected to do $1 trillion by 2014
$233B U..S. sales – CAGR of 9.9% to 2007$233B U..S. sales – CAGR of 9.9% to 2007
3,711 U.S. stores:3,711 U.S. stores:• 1,706 Super Centers1,706 Super Centers• 1,370 Discount1,370 Discount• 549 SAM’s Clubs549 SAM’s Clubs• 86 Neighborhood Markets86 Neighborhood Markets
500+ new stores/remodels planned for 2005500+ new stores/remodels planned for 2005
Objective is to become the largest retailer in every market in Objective is to become the largest retailer in every market in which it operates (now #1 in only two countries out of 10)which it operates (now #1 in only two countries out of 10)
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So what are the key growth drivers that enable Wal-Mart So what are the key growth drivers that enable Wal-Mart to sustain the momentum of this juggernaut?to sustain the momentum of this juggernaut?
Let’s look at these from the standpoint of what’s relevant Let’s look at these from the standpoint of what’s relevant to Exchanges in terms of:to Exchanges in terms of:
Marketing and MerchandisingMarketing and Merchandising
BuyingBuying
LogisticsLogistics
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The key elements of the Wal-Mart marketing mix – elegant and The key elements of the Wal-Mart marketing mix – elegant and sophisticated – way beyond just “Always Low Prices”:sophisticated – way beyond just “Always Low Prices”:
1.1. EDLP made possible by EDLCEDLP made possible by EDLC – Global buying and relentless – Global buying and relentless pressure on COGs and operating costspressure on COGs and operating costs
2.2. Use of consumablesUse of consumables (food and non-edible CPG items) to drive (food and non-edible CPG items) to drive traffic and transaction sizetraffic and transaction size
5.5. Ancillary businessesAncillary businesses – hearing aids, optics, stores within – hearing aids, optics, stores within stores, etc.stores, etc.
6.6. Consumer-centric versus supplier-centric business modelConsumer-centric versus supplier-centric business model – all – all allowances are driven into price and not used to subsidize allowances are driven into price and not used to subsidize operating profitsoperating profits
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The key elements of the Wal-Mart marketing mix (cont’d)The key elements of the Wal-Mart marketing mix (cont’d)
7.7. Shop-abilityShop-ability – wide aisles, mucho signage, well lit, easy to navigate – wide aisles, mucho signage, well lit, easy to navigate
8.8. Speed to marketSpeed to market – new items and promotions – 24/7 + 48 hour – new items and promotions – 24/7 + 48 hour turnaroundturnaround
9.9. Community involvementCommunity involvement – parking lot extravaganzas, fishing – parking lot extravaganzas, fishing contests, high school marching bands, etc.contests, high school marching bands, etc.
10.10. Retail-tainmentRetail-tainment – in-store TV sets, trendy promotions (Shrek 2 and – in-store TV sets, trendy promotions (Shrek 2 and Britney Spears)Britney Spears)
11.11. EDLP reinforcementEDLP reinforcement – roll backs, action alley, special buys and – roll backs, action alley, special buys and multiple clearance itemsmultiple clearance items
12.12. Clicks and bricks synergyClicks and bricks synergy – what you can’t get in-store, you can – what you can’t get in-store, you can get onlineget online
13.13. Store managers have broad discretionStore managers have broad discretion – can tailor assortments, – can tailor assortments, authorize local displays and recommend new distribution of local authorize local displays and recommend new distribution of local itemsitems
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Wal-Mart strategy to drive trips/provide one-stop Wal-Mart strategy to drive trips/provide one-stop shopping convenience – sell need (read “food”) items!shopping convenience – sell need (read “food”) items!
Source: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003
2001$63B
2002$82B
2003$95B
2004$112B
2007$162B
2010$195B
35%35%
Bigger than Kroger,
Albertsons, Safeway and
Ahold combined
Bigger than Kroger,
Albertsons, Safeway and
Ahold combined
Bigger than Kroger & Albertsons
Combined
Bigger than Kroger & Albertsons
Combined
Surpasses Kroger as the nation’s #1 food retailer
Surpasses Kroger as the nation’s #1 food retailer
+17.0%/Year C
ompounded
Vs. 4.0% For S
upermark
ets!
Wal-Mart’s March To The Top of the U.S. Food Chain: 2001 - 2010Wal-Mart’s March To The Top of the U.S. Food Chain: 2001 - 2010(Food & Drug Sales (Food & Drug Sales Only)Only)
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OPP = Opening Price Point in the category
(typically, Private Labels)
GOOD
BETTER
BEST = Typically National Brands
The Wal-Mart Merchandising LadderThe Wal-Mart Merchandising Ladder
Source: MVI 10/28/2004
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Wal-Mart Buying – What lies behind the glitzWal-Mart Buying – What lies behind the glitz
Development of innovative merchandising solutionsDevelopment of innovative merchandising solutions
Understand customer needs and trends and set the pace of new Understand customer needs and trends and set the pace of new product development & brand strategyproduct development & brand strategy
Management of a diverse supplier base – from major brands to own Management of a diverse supplier base – from major brands to own labellabel
Achievement of business plan targetsAchievement of business plan targets
Development and delivery of the category’s trading strategyDevelopment and delivery of the category’s trading strategy
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Wal-Mart Buying – How Buyers are MeasuredWal-Mart Buying – How Buyers are Measured
To achieve their objectives, Wal-Mart buyers proactively To achieve their objectives, Wal-Mart buyers proactively utilize suppliers to help run their business:utilize suppliers to help run their business:
• Problem stores/districts, as well as itemsProblem stores/districts, as well as items
• Competitive situationsCompetitive situations
Co-managed Inventory Co-managed Inventory
• ReplenishmentReplenishment
• New item/promotionalNew item/promotional
• Economic order quantitiesEconomic order quantitiesSource: MVI, Selling Wal-Mart 10/28/2004
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Wal-Mart Vendor ScorecardWal-Mart Vendor ScorecardExtensive measurements for Wal-Mart and SuppliersExtensive measurements for Wal-Mart and Suppliers
Sales MeasurementsSales Measurements• Overall % IncreaseOverall % Increase• CompsComps• Avg. Sales/StoreAvg. Sales/Store• Sales at Full Price vs. MarkdownSales at Full Price vs. Markdown
Markdown MeasurementsMarkdown Measurements• Markups and Markdowns Markups and Markdowns
(Dollars, Units and %)(Dollars, Units and %)• Prior and current retail pricePrior and current retail price
Margin MeasurementsMargin Measurements• Initial marginInitial margin• Average retail price Average retail price • Average costAverage cost• Gross profit at item levelGross profit at item level• Gross profit/item/storeGross profit/item/store• Margin mixMargin mix
Inventory MeasurementsInventory Measurements• Replenishable store inventoryReplenishable store inventory• Non-replenishable store Non-replenishable store
inventoryinventory• Warehouse inventoryWarehouse inventory• Lost sales from OOSLost sales from OOS• Excess inventoryExcess inventory• DC outsDC outs• Total owned inventoryTotal owned inventory
Wal-Mart Logistics – How does Wal-Mart stack Wal-Mart Logistics – How does Wal-Mart stack up versus its leading competitors?up versus its leading competitors?
Wal-Mart has the highest inventory turns…Wal-Mart has the highest inventory turns…
Wal-Mart Turns vs. Kmart + Target: 1998 - 2003Wal-Mart Turns vs. Kmart + Target: 1998 - 2003
6.3
4.1
6.76.9
4.1
6.3
7.2
4.4
6.3
7.7
4.9
6.3
8.1
4.9
6.4
7.7
4.4
6.3
0
1
2
3
4
5
6
7
8
9
Wal-Mart Kmart Target
1998 1999 2000 2001 2002 2003
Source: Company Reports; MVI, 10/28.2004
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Wal-Mart Logistics – How does Wal-Mart stack Wal-Mart Logistics – How does Wal-Mart stack up (cont’d)up (cont’d)
……and the lowest # of days sales on hand:and the lowest # of days sales on hand:
Wal-Mart vs. Leading Competitors: # Days Inventory On Hand: 1998 - 2003Wal-Mart vs. Leading Competitors: # Days Inventory On Hand: 1998 - 2003
Two-Tier Distribution (Replenishment vs. Promotional) Two-Tier Distribution (Replenishment vs. Promotional)
Collaborative Planning, Forecasting and Replenishment (CPFR) Collaborative Planning, Forecasting and Replenishment (CPFR) – works with suppliers to determine appropriate levels– works with suppliers to determine appropriate levels
The Future: Radio Frequency IDs (RFID)The Future: Radio Frequency IDs (RFID)
Modular Category Assortment Planning System (MCAPS) /Store of the Modular Category Assortment Planning System (MCAPS) /Store of the CommunityCommunity
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Why is Wal-Mart so good at logistics?Why is Wal-Mart so good at logistics?
Because the buyer’s open-to-buy is based on inventory management and Because the buyer’s open-to-buy is based on inventory management and supply chain movement:supply chain movement:
What the buyer is What the buyer is able to order hereable to order here
Depends on how much $ he/she has tied-up in Depends on how much $ he/she has tied-up in these “buckets”these “buckets”
= why suppliers are so eager to work with Wal-Mart = why suppliers are so eager to work with Wal-Mart in helping to generate maximum sales off the in helping to generate maximum sales off the
lowest possible inventory base.lowest possible inventory base.
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Net on Wal-Mart: Net on Wal-Mart: EFFICIENCY!EFFICIENCY!
Consistent, clear positioning – “Always Low Prices” – everyone knows Consistent, clear positioning – “Always Low Prices” – everyone knows precisely what Wal-Mart stands forprecisely what Wal-Mart stands for
Relentless focus on the fundamentalsRelentless focus on the fundamentals
Cost suppression and cost reduction is a mantraCost suppression and cost reduction is a mantra
Cooperation with suppliers to achieve mutual objectivesCooperation with suppliers to achieve mutual objectives
Combination of food (consumables) and traditional discount creates a Combination of food (consumables) and traditional discount creates a low price one-stop shopping meccalow price one-stop shopping mecca
Lightning speed to shelf on new items/trendy promotionsLightning speed to shelf on new items/trendy promotions
““Fun place to shop” – in-store TV, on trend promotions, parking lot Fun place to shop” – in-store TV, on trend promotions, parking lot extravaganzas and tie-ins with local community eventsextravaganzas and tie-ins with local community events
Fierce competitor – will price comp anything, anywhereFierce competitor – will price comp anything, anywhere
Store manager discretion means stores can be traited and tailored Store manager discretion means stores can be traited and tailored demographicallydemographically
$47.1B in ‘04 sales – a 15.1% increase vs. ‘03 (less Mervyn’s and Fields)$47.1B in ‘04 sales – a 15.1% increase vs. ‘03 (less Mervyn’s and Fields)
8.9% CAGR between now and 2007 – projected to do $61B versus today’s 8.9% CAGR between now and 2007 – projected to do $61B versus today’s $47B$47B
1,313 stores – 1,177 Targets + 136 Super Targets1,313 stores – 1,177 Targets + 136 Super Targets
Comparisons to Wal-Mart are dangerous:Comparisons to Wal-Mart are dangerous:• Different business modelDifferent business model• Different consumerDifferent consumer• Different merchandising strategyDifferent merchandising strategy• No attempt to compete on same basisNo attempt to compete on same basis
Is much more like an Exchange in assortment and operations:Is much more like an Exchange in assortment and operations:• Careful balance of high end vs. commodity merchandise – PLs and Careful balance of high end vs. commodity merchandise – PLs and
exclusives are keyexclusives are key• Limited CPG food representation (changing quickly)Limited CPG food representation (changing quickly)• Super centers are NOT the primary growth engineSuper centers are NOT the primary growth engine• Distinct department store heritage and orientationDistinct department store heritage and orientation
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Target Challenges:Target Challenges:
Narrow customer base:Narrow customer base:
• 81% female81% female
• 50% between 30 and 4450% between 30 and 44
Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!
Supercenters behind the curveSupercenters behind the curve
Too “Department Store-y” for a discounter:Too “Department Store-y” for a discounter:
• Clean, uncluttered store policy sometimes perceived as sterile and Clean, uncluttered store policy sometimes perceived as sterile and boringboring
• Too much emphasis on “want” vs. “need” merchandise – not Too much emphasis on “want” vs. “need” merchandise – not enough everyday consumables to drive trips, create excitement or enough everyday consumables to drive trips, create excitement or get shoppers started on the merchandise ladderget shoppers started on the merchandise ladder
Highly centralized operations – Store Manager’s role is compliance and Highly centralized operations – Store Manager’s role is compliance and execution – no local discretionary authorityexecution – no local discretionary authority
= 71% of Trips and 80% of Spending
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Target Heavy Shopper Trip Frequencies – Just Target Heavy Shopper Trip Frequencies – Just Not Enough!Not Enough!
15.713.9 15.1
30.0
16.2 15.3
21.6
25.425.7
22.1
16.216.3
40.9
29.8
15.8
43.4
12.6
28.2
16.9 16.1
22.1
15.4
45.3
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
KmartTrad.
TargetTrad.
Wal-MartTrad.
Wal-MartSC
SAM'sClub
BJ's Costco DollarStores
2001 2002 2003
Source: IRI Panel Data 52 weeks ended Dec 31, 2003
Being perceived as more “Department Store-y” than “one-stop Being perceived as more “Department Store-y” than “one-stop discount/convenience” these days is not exactly on trend:discount/convenience” these days is not exactly on trend:
The U.S. Department Store Death Spiral: 1990 - 2010Department Store Share of Non-Auto Retail Sales
Source: Retail Forward, 2003
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Despite these seemingly core negatives, Target has consistently Despite these seemingly core negatives, Target has consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyn’s and Marshall Fields in 2003Mervyn’s and Marshall Fields in 2003
14.5% 14.5%13.9%
12.7%
8.7%
9.9%
8.5%
12.8% 12.8%
9.0%
12.6% 12.3%
10.5%
11.7%
8.3%9.3%
7.0%
9.4% 9.4%
6.6%
8.0% 7.8%
6.2% 5.8%
4.1%
1.8%
4.7%
0.1%
2.0%2.2%3.2%
6.0%5.6%
0.3%
3.6%
1.3%
2.4% 2.4%
6.0% 5.6%
0%
5%
10%
15%
20%
Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Sales Growth Sales Growth
Comp Growth Comp Growth
Target vs. Wal-Mart sales and comparable store growth – 2004
Source: Company 10Qs and monthly financial reports—MVI, Dec 09, 2004
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So what is Target doing to achieve such So what is Target doing to achieve such exceptional results?exceptional results?
• Not just words but the basis for all buying and Not just words but the basis for all buying and merchandising decisionsmerchandising decisions
• The framework for Target’s Merchandising LadderThe framework for Target’s Merchandising Ladder
• A short, simple slogan that shoppers can remember and A short, simple slogan that shoppers can remember and relate-torelate-to
Non-price differentiationNon-price differentiation – Through captive brands, designer – Through captive brands, designer exclusives, partnerships with other retailers, trendy P.L. exclusives, partnerships with other retailers, trendy P.L. merchandise, celebrity endorsements and “Buzz Marketing”merchandise, celebrity endorsements and “Buzz Marketing”
Emotional Connection with its customersEmotional Connection with its customers – “My Target” – “My Target”
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So what is Target doing to achieve such So what is Target doing to achieve such exceptional results, cont’d?exceptional results, cont’d?
Heavy advertisingHeavy advertising – Over $1B in 2004 – to heighten awareness, – Over $1B in 2004 – to heighten awareness, sell promotions and build equity for the Target namesell promotions and build equity for the Target name
Quick response segmented merchandisingQuick response segmented merchandising – To capitalize on – To capitalize on the latest generational and lifestyle shifts – expanded the latest generational and lifestyle shifts – expanded pharmacies (seniors), Hispanic advertising and Merchandising, pharmacies (seniors), Hispanic advertising and Merchandising, “One Spot” (dollar sections), always on-trend merchandise (soft “One Spot” (dollar sections), always on-trend merchandise (soft goods, apparel and housewares) and seasonal promotionsgoods, apparel and housewares) and seasonal promotions
Rapidly adding everyday “need” consumables to drive trips and Rapidly adding everyday “need” consumables to drive trips and increase trafficincrease traffic – significantly expanded food sections in all – significantly expanded food sections in all stores. Recently added extensive wine section.stores. Recently added extensive wine section.
Target’s “Expect More/Pay Less” Positioning has enabled Target to place Target’s “Expect More/Pay Less” Positioning has enabled Target to place itself squarely between commodity discounters and traditional department itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:stores and avoid competing with either on their terms:
Target’s Positioning vs. Discount and Department StoresTarget’s Positioning vs. Discount and Department Stores
Discount StoresDiscount Stores
Low Margins (23%)Low Margins (23%)
Follow TrendsFollow Trends
Price SensitivePrice Sensitive
Price/ConveniencePrice/Convenience
Department StoresDepartment Stores
High Margins (50%)High Margins (50%)
Early AdoptersEarly Adopters
Quality SensitiveQuality Sensitive
Fashion/SelectionFashion/Selection
Drive Value FocusDrive Value Focus Drive Trend FocusDrive Trend Focus
This positioning has become a major asset:This positioning has become a major asset:
Enables Target to attract a wealthier shopper than traditional discount Enables Target to attract a wealthier shopper than traditional discount stores.stores.
Improves sales per store, transaction size and gross margins (Target’s are Improves sales per store, transaction size and gross margins (Target’s are highest in the channel at 32.8%).highest in the channel at 32.8%).
Trend PlanningTrend Planning – Crucial to “Expect More”: – Crucial to “Expect More”:• Trend merchandisers travel to seek-out latest colors, fashions and Trend merchandisers travel to seek-out latest colors, fashions and
designsdesigns• Research coordinated across departmentsResearch coordinated across departments• All items, color schemes, etc. are tested ahead of the seasonAll items, color schemes, etc. are tested ahead of the season
CustomizationCustomization – Pressure on suppliers to co-brand or custom-pack – Pressure on suppliers to co-brand or custom-pack merchandise to reinforce Target’s differentiation objectivesmerchandise to reinforce Target’s differentiation objectives
Competitive Line ReviewsCompetitive Line Reviews – Basically auctions consisting of – Basically auctions consisting of competitive bidding for line distribution or promotion support:competitive bidding for line distribution or promotion support:
• Target even calls these “shoot outs”Target even calls these “shoot outs”• Series of elimination roundsSeries of elimination rounds• Contracts can be up to one yearContracts can be up to one year
Reverse AuctionsReverse Auctions – Online competition to provide lowest cost for – Online competition to provide lowest cost for commodity items or private label consumablescommodity items or private label consumables
Global Sourcing/Direct Imports Global Sourcing/Direct Imports – Target is doing as much as it can to – Target is doing as much as it can to buy direct from lowest cost producers willing to meet product specsbuy direct from lowest cost producers willing to meet product specs
Target Supply Chain/Logistics Initiatives – Target Supply Chain/Logistics Initiatives – 2005 and Beyond:2005 and Beyond:
SKU ReductionSKU Reduction – To facilitate focus on fewer, more important items – To facilitate focus on fewer, more important items and be “more important to fewer vendors”and be “more important to fewer vendors”
Automated Receiving TechnologyAutomated Receiving Technology – Electronic labeling system that – Electronic labeling system that utilizes real-time information about where product is needed:utilizes real-time information about where product is needed:
• Automatically labels each cartonAutomatically labels each carton
• Significantly accelerates the flow of goodsSignificantly accelerates the flow of goods
• Converts indirect imports (no middlemen) to directConverts indirect imports (no middlemen) to direct
• Have suppliers pack store-specific and store ready pallets, Have suppliers pack store-specific and store ready pallets, reducing DC workloads and storage spacereducing DC workloads and storage space
• Have suppliers combine multiple items in cartons to reduce the Have suppliers combine multiple items in cartons to reduce the number of cartons sent to DCs in storesnumber of cartons sent to DCs in stores
• Estimated savings of Estimated savings of $71MM$71MM in 2005 in 2005
RFIDRFID – Mandatory for pallets and cases by spring, 2007 – Mandatory for pallets and cases by spring, 2007
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Target From The Supplier’s Standpoint:Target From The Supplier’s Standpoint:
Multiple opportunities to tie-in with Target’s marketing and Multiple opportunities to tie-in with Target’s marketing and merchandising initiativesmerchandising initiatives
• Target community giving/cause-related sponsorshipsTarget community giving/cause-related sponsorships
• Co-Marketing to build upon each other’s equityCo-Marketing to build upon each other’s equity
• Current, intense emphasis on “Pay Less”Current, intense emphasis on “Pay Less”
Multiple vehicles – Target TV and print advertising, circulars and Multiple vehicles – Target TV and print advertising, circulars and website, etc.website, etc.
Supplier Aids:Supplier Aids:
• Partners On Line (POL) – provides suppliers with same data that Partners On Line (POL) – provides suppliers with same data that buyer has (like Wal-Mart’s Retail Link)buyer has (like Wal-Mart’s Retail Link)
• InfoRetriever – Available to Category Captains and top vendors – InfoRetriever – Available to Category Captains and top vendors – provides a deeper level of information on a more current basis + 2 provides a deeper level of information on a more current basis + 2 years of back datayears of back data
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Net on Target: Net on Target: EMOTIONAL CONNECTION!EMOTIONAL CONNECTION!
Non-price differentiationNon-price differentiation – no attempt to compete with Wal-Mart on its – no attempt to compete with Wal-Mart on its own termsown terms
Willing to settle for a piece of the pieWilling to settle for a piece of the pie rather than going after the whole rather than going after the whole enchilada:enchilada:
• Consumer target is not the universe but primarily women and Consumer target is not the universe but primarily women and young singlesyoung singles
Clear, precise, consistent positioningClear, precise, consistent positioning that enables Target to fill the that enables Target to fill the void between commodity discounters and traditional department void between commodity discounters and traditional department storesstores
Unique understanding of the needs, wants and aspirations of its target Unique understanding of the needs, wants and aspirations of its target shopper:shopper:
• Designer clothes, soft goods and housewares at great pricesDesigner clothes, soft goods and housewares at great prices
• Clean, uncluttered stores with contemporary colors and thematic Clean, uncluttered stores with contemporary colors and thematic consistencyconsistency
• Ancillary services that cater to Target shoppers lifestyles, needs Ancillary services that cater to Target shoppers lifestyles, needs and shopping proclivities (pharmacies, Minute Clinics, photo, and shopping proclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)Starbucks and Pizza Hut, etc.)
37ALA2005R3.ppt
Net on Target: Net on Target: EMOTIONAL CONNECTIONEMOTIONAL CONNECTION (cont’d)(cont’d)
Product assortments that cannot be purchased anywhere elseProduct assortments that cannot be purchased anywhere else – – designer exclusives and captive brands, etc.designer exclusives and captive brands, etc.
Strong, centralized controlStrong, centralized control to ensure uniformity and thematic to ensure uniformity and thematic consistency throughout all store presentations and activitiesconsistency throughout all store presentations and activities
A conscious policy of transferring as many costs as possible to the A conscious policy of transferring as many costs as possible to the supplier communitysupplier community while, at the same time, offering suppliers a strong while, at the same time, offering suppliers a strong upside through Target’s aggressive advertising, merchandising and upside through Target’s aggressive advertising, merchandising and product exclusivity policiesproduct exclusivity policies
Awareness of and willingness to react quickly to current issuesAwareness of and willingness to react quickly to current issues – for – for example, Target’s current campaign to significantly increase its example, Target’s current campaign to significantly increase its consumables representation to increase traffic and trip frequenciesconsumables representation to increase traffic and trip frequencies
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While Target and Wal-Mart have each chosen to walk different paths on route to their While Target and Wal-Mart have each chosen to walk different paths on route to their success, there are certain factors common to both of these retailers that make them success, there are certain factors common to both of these retailers that make them leading edge vs. most others in the retail community.leading edge vs. most others in the retail community.
Ten factors, as follows:Ten factors, as follows:
1.1. DifferentiationDifferentiation – Through constant juggling of the following elements: – Through constant juggling of the following elements:
• National Brand Supplier CustomizationNational Brand Supplier Customization
2.2. Use of ConsumablesUse of Consumables – To build traffic and increase trip frequencies. – To build traffic and increase trip frequencies.
3.3. Ancillary DepartmentsAncillary Departments – To increase convenience and share of wallet. – To increase convenience and share of wallet.
4.4. Fluid Merchandising (rapid ins and outs)Fluid Merchandising (rapid ins and outs) – To create excitement, build – To create excitement, build trip frequency and reinforce differentiation objectivestrip frequency and reinforce differentiation objectives
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Ten factors that separate the most successful from the rest, cont’dTen factors that separate the most successful from the rest, cont’d
5.5. “OPP/Good/Better/Best” Merchandise Ladders“OPP/Good/Better/Best” Merchandise Ladders – To trade shoppers – To trade shoppers up in almost every category.up in almost every category.
6.6. Speed to MarketSpeed to Market – Now more important than “Bigness” – Now more important than “Bigness”
7.7. Relentless Pressure on Costs and ProductivityRelentless Pressure on Costs and Productivity – Both in general and – Both in general and store-specificstore-specific
8.8. Willingness to ExperimentWillingness to Experiment – New formats, ancillary businesses, – New formats, ancillary businesses, stores within stores, partnerships, adjacencies, retail-tainment, etc.stores within stores, partnerships, adjacencies, retail-tainment, etc.
9.9. Global SourcingGlobal Sourcing – Now direct from the lowest cost producer – no – Now direct from the lowest cost producer – no middle men.middle men.
10.10. Technological InnovationTechnological Innovation – RFID, etc. to reduce costs/increase – RFID, etc. to reduce costs/increase speedspeed
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Moral of story:Moral of story:
It’s not just price; it’s a combination of It’s not just price; it’s a combination of factors, carefully blended and balanced to factors, carefully blended and balanced to
satisfy a particular consumer need or satisfy a particular consumer need or aspiration. Each retailer has to search aspiration. Each retailer has to search
within its own strengths to find the right within its own strengths to find the right formula. There are no easy answers.formula. There are no easy answers.
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A Special Thanks to Sylvia Harris and Cathy Ely A Special Thanks to Sylvia Harris and Cathy Ely of Luke AFB for their time and hospitality . . .of Luke AFB for their time and hospitality . . .
We Appreciate The Time and Attention You Have We Appreciate The Time and Attention You Have Given Us TodayGiven Us Today
Specifically, we want to thank Frank Jepson and the American Specifically, we want to thank Frank Jepson and the American Logistics Association for inviting us and P&G for sponsoring us Logistics Association for inviting us and P&G for sponsoring us
and trust that this has been both fun and helpful.and trust that this has been both fun and helpful.
Wal-Mart Corporation Wal-Mart US Target Corporation Kmart
$19.4B
$59.5B
$309.4B
$382.1B
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By mid 2004, Wal-Mart U.S. had achieved 86% household By mid 2004, Wal-Mart U.S. had achieved 86% household penetration – almost 25 points more than its next largest competitor penetration – almost 25 points more than its next largest competitor – which translates to over 130MM shoppers per month– which translates to over 130MM shoppers per month
Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004
62%
84%
55%
74%
15%
35%
60%
49%
13%
34%
60%
34%
17%
66%60%59%
86%
62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Wal-MartTrad.
Wal-MartTotal
Wal-MartSC
TargetTotal
KmartTotal
Costco SAM'sClub
2001 2002 2003
Source: IRI Panel Data (all shoppers - Total US)
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Not content with this, Wal-Mart plans an additional 500 new store Not content with this, Wal-Mart plans an additional 500 new store openings plus remodels in 2005, driven primarily by new openings plus remodels in 2005, driven primarily by new Supercenters:Supercenters:
Wal-Mart Domestic Expansion Plans For 2005 – Total U.S.Wal-Mart Domestic Expansion Plans For 2005 – Total U.S.
Supercenters
Discount Stores
SAM’s Clubs
Neighborhood Markets
Total New Stores
Remodels/Relocations
Grand Totals
+240 - 250
+40 - 45
+30 - 40
+25 - 30
335 - 365
160
500+
Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/2004 + 10/18/2004
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Wal-Mart’s store expansion strategy is carefully calculated to Wal-Mart’s store expansion strategy is carefully calculated to capture new consumers at all levels of the income spectrum and to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:provide shoppers with easy accessibility:
Wal-Mart Format Expansion Strategy: Wal-Mart Format Expansion Strategy: Capturing Consumers at All Income LevelsCapturing Consumers at All Income Levels
Different formats:Different formats:
• Target the same consumer for different tripsTarget the same consumer for different trips
• Target new consumersTarget new consumers
FormatConsumer by
HH income
A
BCDE
75K+
60-75K
45-60K
25-45K
<25K
DiscountSupercenter
N. MktSAM’S
walmart.com
Source: MVI 10/28/2004
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Wal-Mart’s latest and greatestWal-Mart’s latest and greatest Stores within stores:Stores within stores:
• Personal Business Centers Personal Business Centers
• Dollar Stores – plastic bunnies, etc.Dollar Stores – plastic bunnies, etc. Increased focus on soft goodsIncreased focus on soft goods::
• Coordinated lifestylesCoordinated lifestyles
• Heavy focus on Wal-Mart brandsHeavy focus on Wal-Mart brands
• Integrated merchandising – e.g., not just towels but everything for Integrated merchandising – e.g., not just towels but everything for the bathroomthe bathroom
• In-store TV support for “How to decorate your home”In-store TV support for “How to decorate your home” Apparel:Apparel:
• Mary Kate and Ashley exclusives – in-store and onlineMary Kate and Ashley exclusives – in-store and online
• Levi Strauss – 2003Levi Strauss – 2003
• The Wal-Mart “George” line – men, women and children – big push!The Wal-Mart “George” line – men, women and children – big push!
• Carter’s line in infantsCarter’s line in infants
• Trend alert – partnership with Seventeen Magazine to offer teens Trend alert – partnership with Seventeen Magazine to offer teens “cool picks” in clothing and electronics“cool picks” in clothing and electronics
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Target SuperTarget Growth vs. Wal-Mart Target SuperTarget Growth vs. Wal-Mart Supercenters – Not exactly NASCAR competitiveSupercenters – Not exactly NASCAR competitive
721888
10661258
1471
1706
1951
21812391
16 30 6219617315013611893
0
500
1000
1500
2000
2500
3000
1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E
Wal-Mart Target
# o
f S
up
erc
en
ters
Source: MVI, Selling Target, 12/9/2004
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Target Super Target Issues:Target Super Target Issues:
Traditional Targets are Hi/Lo; Super Targets are EDLP:Traditional Targets are Hi/Lo; Super Targets are EDLP:
• Target dependent on supplier allowances to grow operating profitsTarget dependent on supplier allowances to grow operating profits
• Every time Target converts a traditional discount format to a Super Every time Target converts a traditional discount format to a Super Target, it loses the benefit of the allowance (which is thereby Target, it loses the benefit of the allowance (which is thereby driven into price and not op. profits)driven into price and not op. profits)
• Building too many super centers too fast would severely impact Building too many super centers too fast would severely impact Target’s financialsTarget’s financials
Super Target trip frequencies do not support format productivitySuper Target trip frequencies do not support format productivity
Super Target layouts do not allow easy transition to the consumables Super Target layouts do not allow easy transition to the consumables section and cross-over shoppingsection and cross-over shopping
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Expect More – Implementation is all about non-Expect More – Implementation is all about non-replicable differentiationreplicable differentiation
Department store-like destination departmentsDepartment store-like destination departments: :
• ApparelApparel
• HousewaresHousewares
• ShoesShoes
Captive Brands:Captive Brands:
• MossimoMossimo
• DanskinDanskin
• Philippe StarckPhilippe Starck
Exclusive PartnershipsExclusive Partnerships – Fieldcrest, Boots (HBA and Cosmetics) and – Fieldcrest, Boots (HBA and Cosmetics) and Amazon.com (powers the Target website)Amazon.com (powers the Target website)
Private LabelsPrivate Labels::
• 50% of the store50% of the store
• Reinforce Target’s brand equity – Reinforce Target’s brand equity – allall have either “Wave” or “Bulls Eye” have either “Wave” or “Bulls Eye”
• Key contributor to Target’s 32% gross marginKey contributor to Target’s 32% gross margin
Synergistic, complementary spin between stores and websiteSynergistic, complementary spin between stores and website::• Bridal registry, “Target to a T – custom made clothes”Bridal registry, “Target to a T – custom made clothes”• Red hot shop – hot trendy items – new every weekRed hot shop – hot trendy items – new every week
• Greeting cardsGreeting cards
• Infants and toddlersInfants and toddlers
• Seasonal itemsSeasonal items
• Waverly Garden RoomWaverly Garden Room
• Liz Lange MaternityLiz Lange Maternity
• Hello KittyHello Kitty
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Pay Less – Implementation is all about driving Pay Less – Implementation is all about driving trips and traffic:trips and traffic:
Price compingPrice comping – 2002 - Target pledges to match Wal-Mart on price item – 2002 - Target pledges to match Wal-Mart on price item for item throughout storesfor item throughout stores
Significant expansion of consumablesSignificant expansion of consumables and commodity items starting in and commodity items starting in Q3, 2003:Q3, 2003:
• Based on new P2004 formatBased on new P2004 format
• 50% greater space devoted to food, beverages and snacks50% greater space devoted to food, beverages and snacks
• ““Consumables World” department placed in front of storeConsumables World” department placed in front of store
• 70 remodels in 2004 – all remodels and new stores starting in 200570 remodels in 2004 – all remodels and new stores starting in 2005
““Savings Spot”Savings Spot” – In front of store, near registers, introduced 2004: – In front of store, near registers, introduced 2004:
• Club-like pack sizesClub-like pack sizes
• Paper, household cleaning supplies and pet foodsPaper, household cleaning supplies and pet foods
““One-Spot” (Dollar departments) now expanding beyond test:One-Spot” (Dollar departments) now expanding beyond test:
• Kitchen, storage containers, toys, baby products and stationeryKitchen, storage containers, toys, baby products and stationery
• Exceptional value and “Treasure Hunt” itemsExceptional value and “Treasure Hunt” items
• Managed by separate buying groupManaged by separate buying group
• Does not cannibalize other itemsDoes not cannibalize other items
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Target Ancillary Departments – Return Trip and Target Ancillary Departments – Return Trip and Transaction Size Drivers:Transaction Size Drivers:
PharmaciesPharmacies::
• 71% of stores by YE 200371% of stores by YE 2003
• Extended hoursExtended hours
• Pharmacy rewards program tied to use of Target Visa cardPharmacy rewards program tied to use of Target Visa card
““Minute Clinics”:Minute Clinics”:
• 135 sq. ft., staffed by a nurse practitioner135 sq. ft., staffed by a nurse practitioner
• Treats about a dozen common health problemsTreats about a dozen common health problems
• Menu-priced – most services $40 - $45, covered by insurance + co-payMenu-priced – most services $40 - $45, covered by insurance + co-pay
• Now testing in 8 stores (BM) with plans to expand in metro areasNow testing in 8 stores (BM) with plans to expand in metro areas
• 95% of MC patients get prescriptions filled at Target95% of MC patients get prescriptions filled at Target
• Bridal and baby gift registriesBridal and baby gift registries
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Target aggressively advertises its benefits through multiple Target aggressively advertises its benefits through multiple vehicles and is, in fact, the largest advertiser of the Big 3vehicles and is, in fact, the largest advertiser of the Big 3
Media Strategy:Media Strategy:
TV is strongly seasonal/holiday orientedTV is strongly seasonal/holiday oriented
Heavy print budget is targeted to women and young adultsHeavy print budget is targeted to women and young adults
““Unmeasured” is circulars and ROPUnmeasured” is circulars and ROP
85% of buyer compensation: 85% of buyer compensation:
• Sales Sales
• Contribution DollarsContribution Dollars
• Contribution %Contribution %
• Inventory TurnsInventory Turns
In-Stock % (10%) and personal objectives (5%) round out In-Stock % (10%) and personal objectives (5%) round out compensationcompensation
Senior Buyers are also eligible for a bonus plan that can represent up Senior Buyers are also eligible for a bonus plan that can represent up to 100% of their base compensation.to 100% of their base compensation.
Goals are set every 6 months, not annually.Goals are set every 6 months, not annually.