Target's Strategy and Growth Potential

Target
The purpose of this project was as a exhibition of my ideation,
analysis, and insights about Target and the retail industry for a
competitive insights and strategy role at Target

2
Target Review: 4.10.2019
 Target’s Strategy:
Target’s strategy of increasing its investments in guest service, digital fulfillment, store
remodels, supply chain, and owned-brands are all well considered and funded.
Management’s objective of building a durable business model with durable growth is well
targeted for improving the value for all of Target’s stakeholders.
 Medium-term Considerations:
Going through 2025, competition for store traffic will intensify, demographics will not be a
tailwind, and technology and societal change will be highly disruptive.
Our SWOT review shows resolvable weaknesses and an abundance of opportunity.
 Strategic Recommendations:
We have identified five strategies* that should enhance Target’s growth and durability that
are new or reinforcing to the current strategies.
 Amazon & Walmart Considerations:
Amazon’s growth is transitioning from new wallets to growth from wallet share. Amazon is
likely “tightening up” and seeking out substantial new consumption areas.
Walmart’s strategy is to appeal to more affluent HHs (Target HHs) through convenience and
higher quality owned-brands.
 Target 2025 & TGT:
Target is likely to have materially expanded its consumer offering by 2025; its current
financial model (rate & returns) should remain undisrupted
Should investors perceptions not change about Target’s durability, the stock is likely to
return 11% annually (plus dividends). Should investors believe that Target has a durable
business model with durable growth, 16% is possible.
* These are recommendations for evaluation, not implementation.

Review of Target’s Strategy & Objectives
The Key Components Are:
 Invest to elevate the store experience and offering to gain share from competitors that do not
have sufficient resources.
 Starting wages to $15/hr. Improve engagement and selling, reduce tasking and X-over.
 Store remodels, including store pick-up. Reimagined stores. More fresh. Make Target the
Easiest Place To Shop.
 Shipt and re-make the supply chain for 1-D and 2-D
 Raise in-stocks and re-position inventory (Stores As Hubs & Regional DCs)
 Add new brands that demonstrate Target as a unique destination and that produce
more margin dollars to reinvest in the consumables’ value and digital fulfillment
 Industry-leading retailer for years to come
 Improve personalization and engagement via. digital, REDcard, and Target circle.
 Store remodels and making the store more relevant to consumers (BOPIS & fresh).
 Stores as Connections to Our Guests.
 One of the World’s Most Innovative companies.
3
Objective: Build a durable Target
Target defines “durable” as:
 Growth and improving ROIC,
 Faster growth than the market and nominal GDP,
 5.5% margin rate and 10 bps of annual expansion

Key Considerations for the Medium-Term (2025)
Customer Loyalty & Traffic
1) Traffic is now the most important KPI for retailers to
demonstrate relevance with the consumer. If traffic
consistently falls, investor confidence will crumble as will the
fundamentals. Sustained traffic gains strongly suggests long-
term durability and that is rewarded with a high valuation
multiple (ex. COST). Retailer strategies need to center
around how sustained traffic gains can be achieved.
2) The battleground in retailer competition for customer
loyalty and store traffic in centered on grocery, perishables
in particular. The price and value investments by Walmart,
Costco, Target, etc. are pressing traditional grocers from
one side, Aldi and other hard-discount from the other.
Negative gross margin pressure needs to be offset by more
store brands and a sweeter sale mix.
3) National food brands have struggled to create new
products and equities desired by consumers. Moreover,
retailer-brands are winning share-of-stomach by offering
substantially more value. National brands have extremely
limited pricing power and so business pressures are offset
by cuts to marketing. These trends are undermining the
efficacy of promotions and high-low retail strategies.
Societal Change
Societal change will likely to become more extreme and
divisive as is the trend in most developed countries. The
“healthy middle” will continue to narrow. In the US, this is likely
to be further fueled by the generational imbalance of fewer
workers relative to more retirees and entitlements. Moreover,
societal shared-purpose continues to be frayed by wealth and
income bifurcation which shows no sign of moderation. What
both of these mean for the 2024 Presidential election period
are foreboding. Relatedly, a recession is likely by 2025 and that
will likely heighten these frictions.
Demographics
1) In the year-2015 to ‘25 window, the US population under
65-years of age will hardly grow on a compounded basis.
In contrast, the population over 65 will grow at a 3%
annual rate. This demographic change will affect store
accessibility (+ digital fulfillment), categories, & demand
for more service offerings (meal planning & meal kits?).
2) Income bifurcation should continue to direct the
substantial portion of national income growth towards
consumption segments that Target does not participate
in and into asset accumulation.
3) US birth rates continue to moderate. However, the 25-44
female age cohort will increase 1% annually within the
time window, which is a tailwind.
Technology Change
1) 5G from the consumer-side offers both opportunity and risk
for Target. On the opportunity-side, there will be new wireless
form factors such as eyewear and “content factors” such as
AR/VR. 5G offers Target the opportunity to construct and staff
5G kiosks/geek-desks within stores to help sample and explain
new technologies. 5G also allows Target to ramp-up its app-
based in-store assistance.
On the risk-side, 5G’s acceleration of internet speeds,
response, and visualization (AR) likely results in less e-
commerce purchase friction which further pushes market
share towards the leading e-commerce platforms.
2) Voice search is a platform change that has the potential to
disrupt retail similarly as mobile. Combined with the benefits
of 5G, consumption opportunities will increase through the
connected-car and the ubiquity of smart speakers in the
home. Moreover, these voice search platforms will be highly
undemocratic (worse than mobile) in terms of choice and in
favor of the platforms’ partners.
3) Advertising will continue to splinter and network audiences
will continue to decline due to social network segmentation
and ad-free OTT video. Mass-reach & mass-brand campaigns
will become increasingly expensive. The historical parallel for
Target is the demise of the Sunday circular.
4
Allrightsreserved,InflectionCapitalManagement,LLC

5All rights reserved, Inflection Capital Management, LLC
Food at Home Wholesale Inflation Not Passed On
Grocery Gross Margin Index
Food at Home CPI – Grocery PPI
Food at Home CPI
Work from our past

Strengths
1) Target’s brand is inclusive and “more for less” is a message
allowing agility. As the consumer becomes more willing to treat
themselves, Target can adjust and sweeten its sales mix. When
the consumer moves the other way, Target can lean into “less”
and acquire more customers from higher-price operators.
2) Target has the financial resources and scale to invest and move
with consumer change. Others such as Sears, Shopko, JC Penny,
etc. do not have the ability and are shuttering. While e-
commerce has been a pressure on Target over the past, Target
has been able to grow its sales and customer relationships, the
higher table stakes resulting from e-commerce and digital
fulfillment have forced many to leave the table.
3) Higher wage rates and more selling hours are also thinning the
completive field as less advantaged retailers can not meet
raised consumer expectations and are forced to remove
customer-facing hours. Target is partially an instigator of this with
its $15/hr by 2020.
4) Target has an impassioned and proud work force.
“Recommend to a friend” scores are relatively high for store
managers and HQ/central functions.
Threats
Opportunities
1) Amazon has a lot of enemies. Google, Apple, eBay, etc. and
more each day (ex. Disney from customer to competitor). In
the spirit of “the enemy of my enemy is my friend,” Target has a
lot of potential friends, or partners. 5G creates even more
friendship opportunity.
 Google is highly unlikely to build its on fulfillment capacity. Google’s
voice search and smart home systems are naturally aligned to
Target’s capabilities and assets.
 eBay’s business growth is stuck and it is under activist pressure to
“think big”. This is a very advantageous time to build bridges with
eBay and its entrepreneurial sellers.
2) City Targets are a brilliant move to attach younger consumers
to Target and its brands. However, the pace of these openings
and the total # (100) appear to be more moderate than ideal.
3) Treasure-hunt has proven to have strong consumer appeal
(Costco, Ross, TJX); however, Target has yet to create a
consumer offering or connection to this.
Weaknesses
1) Target is not a destination for grocery; it’s largest traditional
competitors (Walmart & Costco) are. These competitors are
driving substantial traffic gains via enhancing the value of
their fresh offering and store-brands.
2) There isn’t an “ownership” mentality on Target’s store floors.
Sales associates don’t act like it’s their “family’s store.”
Retailers need to create this mindset to reach their full
potential. Best Buy does this well. Whole Foods used to.
3) Target’s digital sales scale is still small and sub-scale. Target’s
2018 digital GMV growth was $1.4B vs. AMZN’s $57B, WMT’s
$4.5B, & BBY’s $700m (1-category). In addition to rendering
Target relatively less productive in fulfillment and shipping,
this also leaves Target with less information to increase its
personalization, engagement, and loyalty.
4) No marketplace on Target.com due the absence of a
supply chain for taking returns of 3P product.
 Kohls is the return point for Amazon (despite the ubiquity of UPS
stores) and enjoying a material lift in sales from the traffic.
 Limits Target.com ability to surprise and delight though an Etsy or
the Amazon Launchpad. Also limits trend discovery.
6
1) Voice search is a platform change that has the potential to
disrupt retail similarly as mobile. Combined with the benefits
of 5G, consumption opportunities will increase through the
connected-car and the ubiquity of smart speakers in the
home. Moreover, these voice search platforms will be highly
undemocratic (worse than mobile) in terms of choice and in
favor of the platforms’ partners.
2) 66% of online sales purchases start directly on Amazon (see
slide-8). Given that Amazon has ~34% of adjusted US e-
commerce, this suggests that Amazon can further squeeze-
out consideration to other retailers as it broadens its offerings
and as Prime membership increases.
3) Demographic trends and income bifurcation (slide-3) will be
continued neutrals-to-headwinds to worse. Additionally, a
recession is likely by 2025.
4) Lidl is still coming. Kroger may re-base again.
SWOT of Target

Source: Feedvisor, “The 2019 Amazon Consumer Behavior Report”
Amazon:
o Squeezing off consideration of other retailers
o Capturing the sales-funnel
8

Recommendation*-1
Lean into Style & Fun
Insight: The Target brand equity includes both “style” and “fun”. The consumer expects Target to
provide both and is receptive to Target increasing these attributes.
Strategies:
1) Style: Target has launched multiple new brands that have had strong success with the
consumer over the past few years. Given the consumer receptiveness, there is
opportunity to further elevate the mix and introduce more surprise and delight.
 More vignettes, merchandising, and merchandise romancing
 More treasure hunt. More limited-time and –release product.
 More “Etsy and Amazon Launchpad” on Target.com, at store pick-up, and in stores.
Allow more special selections for “deal alerts.”
2) Fun: Target’s traditional core customer is a younger mother, but as the composition of
the consumer changes (age, marital status, urban) and shopping behavior changes,
Target has the opportunity to make a store visit fun, social, and entertaining.
 More toy touching and playground elements in toy section
 Weekend and evening pop-up DJs within CE/media and at City Targets
 Gaming experts (Fortnight, Apex, etc.) holding multi-console teach-ins & competitions
 More pop-up sampling. Move into the hole left by changes at Whole Foods
9*By recommendation, I mean recommending to explore and evaluate, not to implement yet All rights reserved, Inflection Capital Management, LLC

Lean into Style & Fun
10
Why not more romance? Like stringed lighting,
artificial turf under, flatware, plates, LED flickering
candles, and iced wine on the tables?
Let me touch
Let me slide
Here we are
Can’t Target get one of these along with a
Google sales person selling installations
and subscriptions?
opportunity

Recommendation-2
Recharge REDcard
Insight: REDcard penetration fell to 23.8% last year, with sales declines (adjusted) and vs. double-
digit gains prior to ‘16. Moreover, assuming that REDcard members spend is 4X the
average, the penetration is only 6% of Target’s shoppers. During the same time period,
Costco and Prime membership have maintained their momentum.
Membership models work when there is substantial membership value. For Costco
members, this is the value of its fresh offering, Kirkland Signature, and low gasoline prices.
Executive rewards is now 66% of sales and total membership is around 40m US HHs. For
Prime, this is convenience and Prime Video.
Membership models are more prone to work if they are paid as the member increases
their loyalty because they want the benefits that were paid for.
Strategies:
1) Fuel Benefit: Borrowing from Costco, create a higher REDcard tier that has a ~$100
annual fee, fuel points for Target purchases, and a 5-10c/gallon benefit at gas chain
partners (CITCO, BP, etc.) that are battling against Costco.
2) Shipt Included: Ideally, Shipt and REDcard would be merged within the higher fuel-
benefit tier along with Shipt being added to the Target apps options. Unifying different
options removes friction and increases conversion rate.

Average HHs Spending on Gas $1,968
Assumed Avg. Price/gl $2.75
Gallons Purchased 716
REDCard Penetration 50%
REDCard Gallons 358
10c rebate cost/HH $36
Points Spend @ Target $3,000
1c points cost $30
Fuel Rebate Benefit Costs $66
Program Revenue/HH $100
25% incremental sales @ 25% IM $125
on the $2K in Target retail spend
Net Revenue/HH $159
Shipt Benefit Costs ?
Marketing Costs ?
Technology Costs ?
Admin Costs ?
Recharge REDcard
Analysis of premium-tier
fuel benefit
12Bureau of Labor Statistics: Consumer Expenditures-2017
Costco Executive
Members spend
~$4300/yr ex. fuel
Assuming that the
benefits incent $2K
in incremental
spend per HH
New HHs and
non-loyal HHs
that become
members would
deliver an entire
$3K incremental

Recommendation-3
Lean into Simply Balanced, Archer Farms, & Market Pantry
Insight: Kroger, Walmart, Amazon, Costco, and others are increasing the value of their store brands
(quality, not price) and their merchandising to grow customer loyalty and new customers and to
create more competitive separation. This shift is also generating more gross profit dollars that
allows for reinvestment into digital fulfillment.
National packaged food brands in aggregate are not growing as the consumer doesn’t
perceives less value vs. retailer brands and as it seeks qualities/equities not offered by national
brands. Kirkland Signature can offer 3X more value*. The consumer has caught on. Costco’s and
Walmart’s grocery brands grew around double-digits in ‘18.
In recent times, Target has highlighted its house brand efforts more in softlines and hardlines than
its grocery brands. As Target is at scale in the private label grocery business, it too can push
harder using these brands to grow loyalty, new customers, and more competitive separation.
Our grocery basket of Market Pantry (and produce) at Target cost $45.27 which was impressively
below Costco at $46.91 (quality attributes aside). Both were substantially below Cub at $57.67,
but concerningly high vs. Aldi at $38.08.
Strategies:
1) More value, more categories: Target can upweight the value/quality of its offering; It
also appears to have category holes that it could occupy with more investment. This is
also a visible way to demonstrate Target as an innovative company.
2) More head-to-head merchandising highlighting the value: Target does less head-to-
head merchandising and shelf sets than Walmart; separately, adding customer review
points to Target’s brands (like online ratings) should increase shopper curiosity. Here
again, this would demonstrate Target as an innovative company.
13
* As a hypothetical example, a $10 item at Costco is $8.50 in value for the consumer and supplier and $1.50 for Costco. $10
for a General Mills brand at Target is $2.80 for the consumer and Mills manufacturing and commodities. $8.50 vs. $2.80, is 3X.

Lean into Simply Balanced, Archer Farms, & Market Pantry
14
Where’s the Simply Balanced lasagna and
baked mac & cheese?
What’s with the out-of-stocks?
Text #451, Enter #567
For reviews
Text #451, Enter
#577 For reviews
Consumers are now used to online reviews and
ratings points to dictate which item goes into the
shopping cart. This can be emulated at the store
to increase trial of Target’s brands.
Moreover, texting to get product reviews texted
back would add confidence to selections.
Alternatively, codes could be entered into app.

Lean into Referrals
15
Text #451, Enter #567
For reviews
Quite Tasty
(would recommend)
4 out of 5 stars
Omaya—2 years ago
I found this product to be tasty, you can add
garlic and black pepper to enhance the flavor.
Processed correctly for health benefits with cider
vinegar
5 out of 5 stars
Carla—2 years ago
This bone broth for health purposes has been
prepared properly and has cider vinegar and it's

Recommendation-4
Lean into Fresh and Adult Beverages
Insight: Target is making strong strides in its fresh offering and adult beverages. However, it’s
important to mash-up these categories together and to infuse social engagement to
give consumer an emotional benefit when visiting the store; this also fosters interacting
and making relationships with staff and other guests. These also serve the strategy of
using Stores as Connections to Our Guests.
Strategies:
1) Mash-up: Wine and beer tastings are increasingly popular, especially with the large
variety of local and craft offerings. These are also natural occasions to introduce
Target’s fresh and artisan grocery offerings to entice trial and enhance style.
2) Fun: Creating more social involvement and connection to the stores also supports the
long-term purpose of the store as our society ages and consumption shifts to services.
16
Can adult beverages be mashed-up w/
Fresh and Local and Social?Target’s Remodel is “Fresh”What’s to learn from Hema
All rights reserved, Inflection Capital Management, LLC

Recommendation-5
Store Associates to Store Owners
Insight: One of the best indicators that a retailer is onto a stronger trend is improving staff and
store manager engagement and increasing customer NPS scores. An established
strategy to foster this is compensating the store teams for store-level NPS improvements.
This has been most strongly seen at Best Buy and Home Depot. Additionally, many other
customer service companies have grasped NPS as a key metric.
In the case of Best Buy, the focus on consistently improving store-NPS has lead to a
repositioned and more durable company, substantial market share gains, and positive
physical comp sales gains. The NPS focus incentivizes store staff to act like store owners
vs. hourly workers.
Strategies:
1) NPS: Best Buy rewarded points through its loyalty program whenever members shared
about their experiences with Best Buy. These measures, and likely others, were the basis
for store ad team compensation, in addition to other metrics.
2) Store managers: Best Buy also pruned its poor store managers and ramped store
training on products. Managers were expected to act like the “owner of the store,”
manage the details, and motivate the team to care deeply about the customer
experience and feedback.

Store Associates to Store Owners
18
Circa Feb ‘13
Best Buy
NPS Gains
2013
+300 bps
2014
+XXX bps
2015
+300 bps
2016
+350 bps
2017
+XXX bps 2018
+300 bps
Substantially
inferior in 2012

Amazon Considerations
US Ecommerce & Amazon
1) The retail industry and Wall Street historically
underappreciated the magnitude of the channel shift to
e-commerce and the market share gains by Amazon
due to misunderstanding of the statistics, Amazon’s
limited disclosure, and how the analysis was/is framed. As
is relevant to Target, e-Commerce will be 27% of
addressable retail in 2019 and Amazon will have a 36%
share of that. Both figures will increase >200 bps YoY.
2) Comparisons and analysis should really focus on dollar
volume growth and not growth rates because the bases
are not comparable. During 2018, Target’s 2018 digital
GMV growth was $1.4B, Walmart’s was $4.5B, and
Amazon’s was $57B. Even as Amazon’s GMV growth
slows, the base is so large that it will exceed the
aggregate businesses of Costco, Walmart (non grocery),
and Target in 2020.
Likely Strategic Moves
1) Amazon’s next big strategic move should be acquiring
Expedia. Amazon has yet to exploit travel; it’s a massive
gross profit pool; it offers many synergies with Amazon’s
business.
2) Travel has never been holistically mashed-up with retail;
that’s been a huge miss for consumers.
3) The current Online Travel Agency (OTA) offerings are sub-
optimal. Search advertising has become the basis for
competition for travel bookings and is a huge toll-taker.
The OTA industry structure is ripe for significant disruption.
4) Expedia has the right geographic footprint, asset mix,
and synergy potential. The acquisition at $24B (a 30%
premium) would boost Amazon’s organic revenue
growth from 17% to 18%, produce +mid-single-digit EPS
accretion in 2023 (excluding goodwill), and yield an IRR
of 13%.
5) No regulatory abjections from the US are envisioned.
Building competitive pressures from Google and Bookings
likely incent Expedia’s BOD to accept the acquisition.
Operating Limitations
1) Operations and headcount growth are underappreciated
challenges and risks to Amazon. Most analysts project
Amazon’s growth based upon consumer demand and
Prime membership growth. However, there are practical
operating limitations to deliver on this growth in terms of
how many new employees Amazon can recruit for AWS,
merchants, FCs, etc. HQ-2 was a strong affirmation of this
challenge; Seattle was squeezed dry.
2) While Kiva robotics and other processes can take pressure
off the need for more workers. As the base grows, there is a
absolute number of gross additions challenge in the face
of normal attrition. Two years ago, we estimated that
Amazon would need +300k gross hires and +150K net in ‘18
to fuel its growth. Eventual ‘18 net hires were only 81.5K;
revenue growth unexpectedly slowed in ‘18.
3) In addition to flattering their resume and the experience,
Amazon professionals expect large financial rewards and
that is primarily through equity grants. Should Wall Street
significantly question the durability of Amazon, the stock
will crater and talent retention will become a crises.
Implications of Prime Slowing
1) With Prime membership penetration now slowing due to it
nearing 50% of HHs (> addressable HHs) and ~80m
participants, Amazon’s GMV growth is transitioning from
gaining new wallets to growing wallet share.
2) Our 18 years of experience as an investor in retail has
taught us that growth from wallet share is significantly more
difficult than growth from new wallets. Success is extremely
dependent upon execution.
3) We believe that Amazon’s management is intentionally
slowing growth (measured in FCs, inventory, & hiring) in
order to “tighten-up” the existing business to improve
execution for driving wallet share and to set-up for their
next significant strategic move.
19

20
Adjusted US
E-Commerce Sales
US E-Commerce Model
$ Billions Unless Noted 2017 2018 2019
(A) Adjusted US Retail Sales non-SA # $2,152 $2,210 $2,276
ex. vehicles, grocery, non-store retail 2.6% 2.7% 3.0%
gas stations, fuel dealers and eat & drink
(D) US Online Sales (US Census, non-SA) # $450 $533 $621
YoY Growth 15% 19% 17%
Minus
Amazon 3P Fees $22 $31 $41
Plus
(J) Est. Amazon NA 3P GMV $110 $156 $204
Minus
Est. eBay US Mkt Place Fees $3 $3 $3
Plus
eBay.com GMV ex. Auto $34 $37 $40
(E) Total GMV Adjustment $120 $159 $200
(F) D + E GMV Adjusted US eCommerce Sales $570 $692 $821
(I) A + F GMV Adjusted Retail -ex Food, etc. $2,722 $2,902 $3,097
F / I % eCom of Adjusted Retail 20.94% 23.8% 26.5%
YoY Sh Ch 217 bps 290 bps 266 bps
Estimated Total Amazon NA GMV $178 $235 $296
YoY Growth 30% 32% 26%
J / F Amazon GMV / Adj US eCommerce 31.3% 34.0% 36.1%
YoY Sh Ch 309 bps 274 bps 210 bps
The Census Bureaus’ estimates do
not include marketplace sales
volume, only the commission, the
numerator needs to be
substantially increased for
marketplace GMV.
When considering the impact of
Amazon and e-Commerce on
traditional retail we do not want
to consider gas stations,
restaurants, grocery, etc.

All rights reserved, Inflection Capital Management, LLC 21
Billions
2017 Revenue
11
Amazon’s Projected North American GMV
Work from our past

The Headcount Model:
• We use our gross profit dollar projections to drive the employee count projection.
• We estimate that the average employee stays at AMZN for 4 years based upon conversations with other retailers and AMZN’s
stock based comp disclosures.
• Can AMZN get the same amount of growth from the projected 393K hires in 2020, as it did from the 115K hires in 2015?
• Few others have done it: WMT had over 500K gross hires in the late 2000s.
• Note, the above analysis does not include an update for the WFM transaction.
The Headcount Scale Risk
2015 2016 2017E 2018E 2019E 2020E
Employees 230,800 341,000 477,400 624,298 809,401 1,000,383
YoY Ch 76,700 110,200 136,400 146,898 185,103 190,982
50% 48% 40% 31% 30% 24%
Net Hires 76,700 110,200 136,400 146,898 185,103 190,982
Estimated Turnover Rate 32% 30% 31% 30% 30% 29%
Employee Churn 48,805 70,145 104,457 143,923 184,659 233,330
Estimated Gross Hires 125,505 180,345 240,857 290,822 369,761 424,312
Gross Profit Dollars $35,356,000 $47,925,000 $63,348,905 $79,409,495 $96,939,714 $115,547,922
Gross Profit per Employee (avg.) $183,715 $167,629 $154,812 $144,158 $135,230 $127,693
-6% -9% -8% -7% -6% -6%
Fulfillment Centers (FC) 123 188 264 344 432 523
Est. FC FTE per FC 1,300 1,286 1,221 1,160 1,102 1,047
Est. Total FC FTEs 159,900 241,714 322,957 398,659 476,333 547,340
Net Hires 45,000 81,814 81,242 75,702 77,674 71,007
Employee Churn 41,965 55,965 84,600 113,035 139,531 166,717
Est. Other Employees 70,900 99,286 154,443 225,639 333,068 453,043
Net Hires 31,700 28,386 55,158 71,196 107,429 119,975
Employee Churn 6,840 14,180 19,857 30,889 45,128 66,614
Work from our past

23
Lower Friction
Low Prices
One-Click
Low(er) Shipping Costs
Prime
Expand Selection
New Categories
New Vendors & House Brands
New Services
3rd Party Sellers
DTC Relationship Allows for
Algorithmically Optimizing
Each Level of Sales Funnel
Funds More
Prime Benefits
Content
Speed of Delivery
Whole Foods Discount
More Traffic
More Volume
Faster then the Norm Delivery
Alexa Ordering
Channel Shift
& Growth
More Prime
Members
More
Margin
Dollars
Increased Route Density
=
Cost Advantage
Where to get more velocity and more mass?
Work from our past

Flywheel Momentum Accelerators
Travel Market
+ More Velocity
+ More Mass
 Scale & network-effect business model
 Synergies with the retail business
 Synergies with the content business
 Broader view of member consumption patterns
 Significant gross profit dollars
 Funding mechanism for enhancing Prime benefits
 Tourism market is notably separate from Amazon’s current TAMs.
 Impactful strategy to build Prime member trust, loyalty, and consumer-
license to expand into other services
 Current OTA offerings sub-optimal for the consumer and sub-optimal
business models
 Opportunity for significant disruption to the OTA and travel markets
Work from our past

Amazon + Expedia Mock-up: Amazon.com
Vacation Travel
Work from our past

26
Mock-up
of redirect to
Expedia’s site
Vacation Travel
An Amazon company
Welcome, Thomas remember that Prime Members get an extra 10% on all hotels and packages (excluding airfare)

27
Mock-up of a visit back to Amazon.com
Vacation Travel
Yea, you’re headed to Vegas
next week. Good Luck!
Expect Hot days at the pool
and Hot nights at the casino
Next week’s Vegas forecast is
100° days and 70° nights. No
rain. Hot sun all day long.
Yea, you’re headed to Vegas
next week. Good Luck!
Expect Hot days at the pool
and Hot nights at the casino
Next week’s Vegas forecast is
100° days and 70° nights. No
rain. Hot sun all day long.
Download these movies from
Prime Video before you go.
o Casino
o Rain Man
o Viva Las-Vegas
o Burt Wonderstone
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Elvish Costello: My Aim is True.
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Try Amazon Wardrobe
You Don’t Need to Pack for Vegas
Let Prime do it for you. We’ll curate selections
based upon your tastes and fit for the pool,
casino, dinner, and club into a tote that will
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occasions and Prime will assort. Keep the
outfits you want and leave those that didn’t
in the tote.
Amazon will charge for the kept outfits and $5/item for dry
cleaning those that didn’t.

Walmart Considerations
E-Commerce & Investment Intensity
1) Despite Walmart.com having around $16B in sales, the
business segment is still loss-making. Before the 2018
increased investment in grocery BOPIS, segment losses
exceeded $2.5B. The loss rate increased by over $500m
in ‘18 and will step-up similarly in ‘19.
2) Investor and Wall Street pressure is a governor on
Walmart’s e-commerce investment intensity. However,
management will press back when it sees the long-term
strategic imperative, as was the case with Flipkart and the
US in 2017, ‘18, & ‘19.
3) Profitability pressures stem from a mis-match between the
basket margin mix and the picking and service costs.
Stemming the losses is to come from increasing the
discretionary mix, automation, and sales leverage on the
demand fulfillment expense/investments.
4) Walmart management has not committed to 2019 being
the “peak year” of investment intensity. Moreover,
reducing disclosure in ‘19 and beyond are likely to
obfuscate the results, i.e. the goal posts will be removed.
Building a Marketplace to Obtain Prestige
1) Walmart’s strategy with Bonobos, Bare Necessities, and
other digitally native brands is to control such a significant
number of such brands that it has sufficient scale in
“premium consumer demand” that when it turns these
brands live on Walmart.com, that it compels other brands,
that would have previously declined, to list themselves on
Walmart’s marketplace. Walmart is also hoping that these
brands strongly desire an alternative to Amazon.
2) Walmart intends this to create a self-reinforcing cycle, or
flywheel, that brings additional highly desirable brands onto
the marketplace and more affluent HHs to Walmart.com.
That in turn is to allow Walmart and its stores to reach more
HHs and a bigger portion of their consumption.
Chasing Affluence w/ Convenience
1) Management recognizes that demographic and income
distribution headwinds pose material risk to Walmart’s
growth aspirations. Its strategy to overcome these is to win
a more affluent consumer. Walmart seeks to win this
consumer with more convenience and an elevated
store-brand and national brand assortment.
2) Walmart stated that they have made substantial gains
with more affluent HHs with Grocery Pickup and strongly
competitive NPS scores. Walmart’s 40%/+$4.5B e-
commerce growth in ‘18, was driven by more than $2.3B
in growth of Grocery Pickup. That’s represents about 1.4%
of Walmart’s total grocery sales; a similar increase is
expected for ‘19. Logically, these sales were to HHs with a
higher than average Walmart HH income level.
Grocery
1) Walmart is making a concerted effort to add high quality
store-brands to its offering and increase the quality of its
produce. Additionally, Walmart is investing in price.
Grocery comps were ~5% in Q4 with SNAP and Pickup as
tailwinds and prices a headwind. Fresh and store-brands
grew at a ~HSD rate in the 2H.
2) Walmart’s strategy with the higher quality store-brands is
to increase the basket size and win more consideration
by more affluent HHs, as well as to leverage the overall
improving economy and discretionary spending. Walmart
also needs to have this offering so that it supports the
convenience and Pickup strategy of winning over more
affluent HHs.
3) While Walmart and Target have always been substantial
national competitors, this is the first time that we can
recall of Walmart making such a concerted effort to
extend its offerings higher and onto Target. Given that
Walmart is leaning into grocery to do so, Target will need
to reinforce and extend its grocery offering.
28

Target in 2025
Financials
1) Target’s financial plan is realistic and prudent; however,
its sales growth objective is perhaps a bit too aggressive
given its current addressable market. Should Target find
ways to serve new areas of consumer consumption and
significantly expand its grocery offering, growth may be
able to exceed nominal GDP.
2) While there is substantial inflation pressure on freight and
wages, new digital fulfillment costs, and downward
pressure on grocery pressure, all of Target’s primary
competitors are promising profit growth in their core
business to Wall Street. As such, we don’t expect a
disruptive action in the near-term (Aldi & Lidt excluded);
Kroger is a risk in the medium-term.
3) Stability in the competitive front and in the economy
would render Target a ~5-6% EBIT and a +10-11% EPS
grower with expanding margins and improving ROIC
(from the high-teens level).
4) Stability in the EBIT growth rate, margin rate, and
improving returns demonstrate to investors that a
company is “owning its destiny,” that the business and
growth are durable, and that the moats are strong.
Stock Price
1) In two slides, we show that TGT can reach $156/sh (+11%
annual return + dividends), should it execute on its financial
growth algorithm and maintain a 14X NTM. However, a
recession is likely to disrupt the growth and so the likely price
is below that level.
2) However, should Target succed in building investor
confidence that Target has a durable business with durable
growth, 18X NTM is more likely which would produce $200/sh
(+16% annually) under the existing growth algorithm. While a
recession is likely to dampen the growth, in the economic
recover, investors would now more likely look at the long
term and the NTM could be more than 18X.
Investment Case
1) Successfully reaching the objectives noted above will
demonstrate to investors and Wall Street that Target has a durable
business and growth. That in turn will drive higher confidence in
TGT’s terminal value. Reinforcing moats also helps.
2) As indicated earlier, producing consistent store comp traffic gains
is the most important indicator that a retailer has continued
relevance with consumers. Exhibited credible strategies for
continued store traffic gains will yield a durable growth story.
3) TGT can deliver 50% more investor return by 2026 than the status-
que case if Target is rewarded with an 18X NTM P/E (vs. its current
13.7X) because it becomes recognized as a durable growth
business with moats. Walmart, Ross, TJX, and Home Depot, are all
perceived as having durable growth businesses and they average
20X. COST trades at 30X given stronger views of durability.
4) Prior to 2016, WMT traded at 14X when it was seen as less of a
durable business; it now trades at 20.6X. Credibility on its strategy
for the stores and .com were the catalyst, along with the
perception that Walmart “owned its destiny.” The indicators for
investors were store traffic and relative margin stability.
Customers & Target’s Offering
1) As indicated earlier, Target’s customer base in 2025 will be
materially older and more urban. Target’s offering will need to
incorporate more grocery, more services, and more social
engagement. We expect Target to be successful in doing so.
2) Target will need to have substantially more and significant
partnerships with Google, Apple, and others to share in and
become part of their ecosystems. Voice, 5G, etc. will foster
material change and its critical that Target leverages that
change to strengthen its competitive position and consumer
offering. Failing to do so will be devastating to its stakeholders.
3) Grocery store-brands, fresh, and prepared foods are large
opportunities to build loyalty, traffic, and basket. We expect
Target to get there given its resources and talent.
4) REDCard+Shipt paid membership model will likely happen. That
in turn will given Target more consumer license and insights.
29

30
The Nominal GDP Hurdle

31
Financial & Stock Price Outcomes
CY 2018 2019 .…..............2025 2026 CAGR
Sales $74.5 $77.3 $96.4 $100.0 3.8%
(billions)
EBIT $4.1 $4.3 $6.0 $6.3 5.5%
Rate 5.5% 5.6% 6.2% 6.3%
Interest $0.5 $0.5 $0.5
PMT $3.9 $5.5 $5.9
Taxes $0.9 $1.3 $1.4
Rate 23.5% 23.5% 23.5%
Net Income $3.0 $4.2 $4.5
CFO $5.2 $6.4 $6.7
Cap Ex $3.5 $2.2 $2.2
FCF $1.7 $4.2 $4.5
Dividends $1.4 $1.4 $1.4
Buyback $0.3 $2.9 $3.1
Stock Price $80 $158 $177
Shares Retired 4 18 18
Diluted Shares 524 520 419 402
EPS $5.70 $10.09 $11.15 10.0%
Potential Stock Values
Current YE-2025 CAGR
14X NTM P/E $81 $156 11%
16X NTM P/E $178 13%
18X NTM P/E $201 16%
Simple Financial Model of Target

32
Durable Growth Gets > a 20X NTM P/E

33
Durable Growth Gets > a 20X NTM P/E
Walmart Did It

Target's Strategy and Growth Potential

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