Target enjoys strong brand value in the U.S. With a brand value of $17.1 million in 2009, Target is ranked fourth among the top twenty US retail brands. The Bullseye Design is a valuable, registered trademark of Target Brands Inc.; it conducted a study, concluding that 96% of Americans recognize the Bullseye Design (www.target.com). Target spends roughly $1 billion a year on advertising, well above that of its biggest competitor, Wal-Mart. Target has positioned itself as a provider of quality products at competitive prices-which is reflected in its slogan of “Expect More. Pay Less.”
By virtue of its strong brand value, Target has a loyal and satisfied shopper base and scores high on the American Customer Satisfaction Index. The company has harnessed its brand potential to attract more customers, thereby strengthening its bargaining power. Target has a balanced brand mix, comprising national and licensed brands as well as private-label brands. While a significant portion of the company’s sales is from national brand merchandise, it also sells merchandise under private-label brands including. A balanced mix of brands provides various revenue streams for the company and also enables it to attract a wide customer base.
2. Global Sourcing Capabilities
Target has participated in worldwide trading practices for about 90 years. The Associated Merchandising Corporation (AMC), which became a part of Target in 1998, was established the US to provide American retailers assistance in buying, policymaking, and planning. This partnership gave way to international markets for Target. Target sources merchandise without involving wholesalers or trading companies-a strategy, which has substantially reduced operating costs for Target. Target’s international sourcing operations have 34 office locations in 24 countries. The company brings products into the US from more than 80 countries around the world. Strong supply chain capabilities have enabled Target to manage its operations efficiently, thereby maximizing profitability.
3. Leading Market Position
Target is the one of the leading retailers in the US. In 2009, the company was ranked 28 among Fortune 500 and the Standard and Poor’s 500 companies. A strong market position enhances Target’s market penetration and adds to its bargaining power.
Weaknesses: 1. Frequent Product Recalls in 2009
Target recently recalled several products, reflecting a weakness in the company’s product management operations. Most of the products recalled in the past year were children’s items. Target voluntarily recalled a hooded pink jacket (for girls), identifying flawed zipper pulls that could potentially cause ingestion hazard. The company also recalled 100,000 units of Safety 1st SmartLight Stair Gates, discovering that the hinges holding the stair gate in place could break. The company also recalled about 200,000 units of Rainforest Portable Play Yards andmore than 500,000 Stork Craft Baby Cribs.
2. Involvement in Civil and Environmental Lawsuits
Target was subject to a civil lawsuit (filed in October 2008) alleging that the company had sold certain products that contained volatile organic compounds in excess of regulated limits (windshield washer fluid and air fresheners) and other products that were not approved for sale in California (gas cans and gas generators). In addition, Target is also one of many defendants in a lawsuit (filed in February 2008) involving environmental matters that may involve potential monetary sanctions in excess of $100,000. Should the outcome of these legal proceedings go against Target, it will be detrimental to the company’s credibility.
3. Geographic Concentration Target derives substantially almost all of its revenues from the U.S., and it does not have strong retail presence in any international market. This makes the company vulnerable to adverse market conditions in the country and puts it at a competitive disadvantage over global retail giants. Opportunities: One great opportunity for target would be to start a club card kind of like what grocery stores do. This way people would shop more to get more points on their cards and would not worry so much about the high prices. This would take away from the fact that it is more expensive than Wal-Mart.
1. Positive financial results amidst difficult economic conditions
Target recorded positive results in its core business of retail sale in the first quarter of 2009. The results were in line with the company’s expectations, reflecting disciplined execution of its strategy in a difficult environment. In the retail segment, the company experienced positive comparable store sales results in its traffic-driving food and commodity categories. In the first quarter ending May 2009, sales increased by 0.4% to $14.4 billion in 2009 from $14.3 billion in 2008, due to the contribution from new store expansion. Its profitability in the quarter was also higher than expected due to strong gross margin and expense rate performance. The segment’s operating income was $962 million in the quarter, a 0.3% increase from the previous year. Stable financial results reflect the company’s resilience in spite of difficult economic times, especially when a majority of retail companies are financially weak.
2. Growth through Target.com
Target.com, offering a wide assortment of general merchandise including many items found in its stores and a complementary assortment, such as extended sizes and colors, sold only online. Recent online retail sales figures suggest that amidst the economic recession, interactive online shopping is increasingly being preferred over traditional shopping. The US e-commerce sector recorded sales of $10.87 billion in January 2009; this represented an unexpected rise of 2% over the previous year. The increase in online retail sales was mainly driven by the middle-income consumers, looking for ways to reduce expenses. Based on these trends, the online retail sales are forecast to grow at 11% in 2009. The positive outlook for online retail spending in the US is expected to further drive the company’s sales.
Threats: 1. Competition from Wal-Mart
While Target has achieved comparatively stable financial results, it is struggling to retain its customers against the world’s largest retailer, Wal-Mart. Wal-Mart’s low-price message and emphasis on necessities are helping it grab new customers worldwide in a recession, while Target with greater emphasis on trendy merchandise has been struggling to hold on to its shoppers and is now turning to groceries for growth (about 37% of Target’s revenue comes from basic necessities while for Wal-Mart, that figure is about 60%).
Furthermore, Wal-Mart is expanding its selection of non-essentials such as home furnishings, while improving the quality of its store-brand food. Amidst the financial downturn, declining income and increasing unemployment, price is the shopper’s primary concern. Therefore, consumers are increasingly opting to shop at Wal-Mart for just about everything (as indicated by recent survey results). If the economy continues to recede, competition from Wal-Mart could put pressure on the company’s sales and erode its market share.