Target Corporation International Expansion Report



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Target Corporation International Expansion Report

December 13

2012


Prepared For:

MBA 735: International Business

Dr. Alexander Nill
Prepared By:

Andrew Dunifer

Tony Fleming

Lyndsay Gensler

Joseph Porter
This report will address a situational analysis of Target Corporation and apply the strengths of the organization to a new international market that is best suited for additional company expansion accompanied with strategy suggestions and financial forecasts.

Analysis and Recommendations


EXECUTIVE SUMMARY


Potential Growth

The proposed plan demonstrates how Target Corporation’s current position with 10.7% domestic market share will be further expanded by expanding internationally into Singapore. Singapore was chosen after careful filtering of several international regions while analyzing the potential growth for such markets, economic and political stability as well as many cultural and benchmarking industry performance considerations. Although Hong Kong and Singapore were close final contenders, the ease of doing business made Singapore the prime choice for the first venture into overseas expansion. Within the 1st year, it is expected that each store will achieve a profitable cash balance of $13.9 (Singapore millions) and $81.5 (Singapore millions) closing cash balance within five years of operations. These figures take into consideration 3.3% industry growth rate while factoring in inflation of 4% and 17% corporate tax rate. Within 5 years, Capital real estate investments are anticipated to be recouped.



Key Successes and Considerations

Target Corporation is already one of the local industry leaders for the variety retail market in second place behind Wal-Mart. However, Target has already begun international expansion as of 2012 into Canada. Target is now better positioned to address international business concerns such as currency exchange, international marketing and analysis of international industry and economic performances. Furthermore, the company is highly successful with cross branding strategies including international fashion designers and pop stars which will help Target prove successful in the Singapore market that will recognize such international brands as well as the fact that this region embraces Western Culture especially when it can be attained at an affordable price. Target has been successful at adapting location size and product offerings to various metropolitan hubs as well as suburban areas and will be able to adapt these store models to similar international locations.



Overall Strategy

Target is going to apply many of the same core principles of differentiation that the company finds successful in the US market. The fundamental practice of offering higher quality and trendy household items and fashion apparel at very competitive pricing has been the key to the company’s success. Specific product offerings may be adapted to suit local consumer needs, however. The plan is to enter into the main retail hub in the heart of Singapore first and expand locations from there. This area will not only be more in line to adopt such a Western company, but consumers will be expecting a little higher pricing and progressive styling for their urban living.


CORPORATE BACKGROUND


1962 marked the opening of the first Target store in Roseville, MN started by the Dayton Dry Goods and its founder George Dayton. With the bull’s-eye logo created shortly before opening, the concept of Target was to hit right in the center of this bull’s-eye; metaphorically meet the center of every customer’s needs. Since then Target’s has championed their differentiation strategy of bring a high quality shopping experience with trendy fashion apparel and household items while remaining a relatively low cost retail leader. By the year 2000 Target had officially changed their parent company name from Dayton Dry Goods to Target Corporation.(1)(2)(3)

Currently Target exceeds over $69 Billion in revenues and has opened their first international chains in Canada. The company’s President, Chairman, and CEO is Gregg Steinhafel who runs the publicly traded company with over 654 (mill) outstanding shares of which 84% are owned by institutions, .14% owned by insiders of the company and the remainder owned by public investors. Today, as America’s second largest discount retailer, Target operates nearly 1,800 stores in 49 states, and is still growing. Catering to the price conscious, yet fashionable consumer, Target has engrained its motto “Expect More Pay Less,” into the minds of shoppers across the country. (1)(2)(3)(4) With a market share of close to 11%, from over $67 billion in total sales in 2011, Target Corporations is the second largest discount retailer in the United States, right behind Wal-Mart whose market share is 67%. (15) Over the past 5 years, Target has experienced financial growth and stability in their earnings, which has served well for their investor relations in increased dividends paid. (4)(5)(Appendix A.1) Their company size, market share, quality of product selection and bullseye logo has made the company recognizable throughout the globe.



Strengths

Target has focused on their brand image since the beginning of their store operations. The company has proven that in order to compete in the world of big discount retailers such as Kmart and Wal-Mart that they need to set their brand identity as something more than a cheap place to shop. Targets skillful differentiation has helped keep their stores very attractive in the public eye.(3) Customers perceive Target as a higher-end, stylish discount retailer, as is indicative of their pseudonym “Tar-Zhay”. Their brand image is well known and widely popular. Their typical shopper is a college educated, 40-year old with kids, whose household makes twice as much as the typical American family (at $64K vs. the $31K median US household).(3)(6) Target excels on in store rankings compared to top competitors such as Wal-Mart on store cleanliness, shopping atmosphere and a fun place to shop.(Appendix A.2) (7)

The brand has achieved highly successful cross-branding strategies with high end apparel designers such as Isaac Mizrahi and more currently brands like Harajuku Mini a spin-off of Harajuku Girls designed by famed pop star and fashion icon, Gwen Stefani. These derivatives of their high end more expensive cousins still offer really trendy clothing styles at a much more affordable price point.(7) (8) (9) The company’s marketing strategy has been very successful by differentiating themselves as a strong pricing competitor that offers a wide variety of products that are hip and stylish. Target plans to continue with this core competency, but also plans to redefine this image with store remodels and introducing the P-Fresh grocery line to capture more of the one stop shopper.(10)

Target operates over 1763 stores in all of the US except for Vermont, and has recently moved operations into a licensing agreement to replace “Zellers” for 125 initial stores in Canada.(10) Target operates many subsidiaries including Target National Bank which offers the Target Red and Target Visa, Target Financial and Retail Services monitoring their Target gift card services, Target.com handling their online shopping and e-commerce activities, Target Sourcing Services for their value chain management activities, Target Commercial Interiors for office space needs, and Target Brands that manages the private label functions of the company.(11)

The company offers several different types of Target stores to fit the regional needs of customers. These include Target Greatland and SuperTarget which carry a much greater selection of merchandise than their standard stores to compete more with bigger chains like Wal-Mart. The company has also introduced City and Urban target stores that cater to more urban and modern designs and can be found in larger cities such as Los Angeles and New York.(10) (11) The company is evolving from a department store-type retailer to more of a hypermarket, offering a one-stop-shopping experience for everything from household goods to electronics, apparel, pharmacy, groceries, and more. (12) Part of their competitive advantage comes from quality goods which are sourced from over 3000 different factories worldwide.(14)

Target is well known for their sustainability initiatives as well as their emphasis on charity placing them in the #1 spot for such donations. (Appendix B) (13) Furthermore, Target is ranked #38 on the Standard and Poor’s Fortune 500 Index. Remodeling stores and introduction of their P-fresh grocery items has helped Target attract more commodities based shoppers and pull some consumers away from competitors in these item areas. (15)



Weaknesses

Target has come under fire for issues such as lacking involvement in labor unions, low employee wages and contribution to urban sprawl. (16) The company had also been involved in several discrimination law suits and much higher penalties associated with environmental problems such as selling aerosol canned items banned by the Environmental Protection Agency as well as a $22.5 million settlement in California for mishandling of hazardous disposed materials. These lawsuits distracted Target away from some of their branding and marketing activities. (16)

Target stores have been known to be discounted, but generally not as cheap as stores like Wal-Mart. Although this has been a weakness in their brand, Target has been trying to compete on this issue and according to a Bloomberg report they have successfully edged out Wal-Mart in the pricing war. This title seems to be flip flopping between both companies and Target has yet to solidify their brand as the price leader. (19)

Opportunities

Target’s international activity could be expanded into many other markets which have great potential. Top countries for doing business such as Singapore, China, Australia, and several European countries may be an option for Target to expand into new market share. (Appendix D) The “P-Fresh” concept of introducing more grocery related items into Target stores could help them gain a new loyalty to their stores as more consumers begin to shop there for more commodities based items that customers are used to internationally. While in store these customers may still be drawn to the trendy apparel items which carry the largest profit margins amongst most items in the store. (21) Target could also gain more profitability by introducing more of their own private label thus reducing costs of goods sold via outside manufacturers. They are currently introducing more products of their own line each year and now venturing from grocery items into their own “Threshold” label with focus on Home décor. (22) Target could see more opportunity for growth in e-commerce now that the company is allowing the use of their gift cards in stores as well as for online and mobile purchases as online shopping is not as common in some international countries. (23)

Although Target Corporation has only concentrated in Global efforts thus far in Canada, the company does have Information Technology operations in Bangalore, India and according to CEO, Greg Steinhafel “Target India is a long-term strategic asset for the company and is an extension of our corporate headquarters. It allows us to holistically look at enterprise-level opportunities and how best we could engage in it.” Thus, Target will have opportunity to become closer to expansion into new foreign markets. (24) This emerging source supply markets are great opportunities within their fastest growing segment including pharmacy, over-the-counter and beauty products. Target plans on incorporating their own in-house development of pharmacy products which is also aided by some roots connected to India’s market which manufactures and supplies a lot of the world’s medications. (25)

The US industry, typically defined as department stores, though merchandise lines and grocery stores are not included in this grouping, is growing at a slower pace than the economy itself. 5 companies account for almost 82% of the entire industry, resulting in high competition (which is further increasing), and with 1700+ stores nationwide, focused around the major cities, Target is faced with a saturated US market. Expansion beyond the borders is inevitable, and will be key in continuing to excel in this industry. (26)




Threats

Target’s biggest threats for brick and mortar retail chains are Kmart and especially Wal-Mart. Wal-Mart gained new market share during the recession period and they are looking to retain those customers as the economy bounces back by adding nicer stores, diversifying their product line and having a much larger marketing budget than Target. (1) Online competitors such as Amazon.com pose a huge threat to many retailers like Target as prices are generally much lower than what is found at Target stores especially for electronics and with online delivery trying to achieve same day delivery in the near future, it will be hard to compete on such services. (27)

As US inflation continues to average around 2%, additional importing and devaluation of the currency coinciding with slow economic growth and a stagnant or declining wages has changed the consumer’s priorities in recent years to become more price conscious. Target cannot rely only on strong marketing differentiation but must take note of this new trend. It is difficult, however, for Target to market the brand as being the higher quality competitor and be the price contender as well. (Appendix C) (28)

Increased corporate taxes and rising healthcare costs have also impacted Target’s operating expenses and with such changes the company has downgraded many fulltime employees to part-time status so that they do not need to cover these expenses. This could hurt the image of the company which relies significantly on their brand. (29)


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