Target Corporation Consulting Project - Growth through acquisition. Interim report. University of Michigan, Ross School of Business, MO 470, Winter 2015.

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

2.  Company Background
 Guiding Questions
 Situational Analysis
 Industry Analysis
 Internal Analysis
 Issue Tree
 Initial Recommendations
 Data Collection Strategy

3. ● 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

5. How can Target be the leading omni-channel retailer?

6. 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

7. 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

8. 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

9. ● 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

10. In 2013, Target ranked #10 in internet retailing.
There is a lot of room to improve and gain
market share.

11. ● 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

12. ● 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

13. ● 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

14. ● 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%

16. 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/
Online
41%
In Store
38%
Online
8%
Other
13%
Pharmacy Sales

17. 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

18. ● 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.

19. ● 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

21. ● 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

22. ● 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

23. ● 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

24. ● 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

25. ● 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

26. ● 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

28. ● 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

29. ● 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.

30. Growth in
Furniture Market
Between 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

31. 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.

32. 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

33. ● 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

34. 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

37. 1. Pet food and supplies
a) 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. Toys
a) 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 Aggregator
a) 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)

38. Secondary Research
●Databases
IBIS World
Mintel Reports
OneSource
ThompsonONE
Euromonitor Passport
●Web Resources
Forbes.com
Target.com

39. 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