Target Corporation Persuasive

The general merchandise store sector is made up of sales that are generated through general merchandise establishments of retail goods.  The majority of the global value of the sector is generated with sales form the within the United States.  The most lucrative segment of the industry is that of apparel and footwear which has generated 22.7% of the sector’s value.  With international trade lieberalization in Europe has led to more low-costs imports from Asia-Pacific to developed economy markets.  As these imports increase, sales volumes will increase which in turn will increase revenues for general merchandise stores.  (Datamonitor, p8)

SWOT Analysis:  Target Corporation

In developing a business strategy, an organization must look at its internal strengths and weaknesses.  The corporation must also look to the external factors that include opportunities and threats in order to gain competitive advantage and market share.

Target Corporation has a few strengths which will help it gain market share in the consumer product industry.  These strengths are a strong market presence, an operating cash flow that continues to increase, a brand image that is well balanced, and strong financial position.  Target has approximately 1,500 stores that include 1,239 general merchandise stores and 158 SuperTarget stores.  These stores are located throughout the 47 contiguous states.  During the fiscal year that ended January 2006, Target Corporation saw revenues that increased by 12.3% and reached $52,620 million as a result of the market presence.  This large size has allowed the company to see cost reductions through economies of scale.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Another strength that Target has is that of an operating cash flow that continues to increase.  This strong operating cash flow has given the company the opportunity to further invest in new stores and expansions of existing ones.  As a result of the strong cash flow, Target has paid regular dividends during the last three years as well as repurchasing shares worth $1197 million the fiscal year 2006.  Target has been able to strengthen its balance sheet and offer rewards to its investors as a result of the strong operating financials.  Moving forward, as long as Target sees strong cash flows, the company will continue to gain market share. (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Target has a strong brand image and offers a well balanced mix of their brands.  These brands consist of private labels and external brands such as Market Pantry, Archer Farms, Merona, Zhilaration, and Target Limited Edition.  The company also sells merchandise throughout their stores under licensed brands that include Cherokee, Isaac Mizrahi, Fieldcrest, Thomas O’Brien, and Smith & Hawken.  This mix of brands offers the customer a greater choice in products and helps improve the profit margin for the organization.  In a competitive landscape such as the merchandise department store, customer loyalty is crucial in gaining market share.  By offering the customer a diverse choice of products and brand names, Target will gain the loyalty of its customers and continue to see profits.

Target Corporation also maintains a strong financial position.  In 2006, the total revenues for the company were $59,490 million which resulted in an increase of 13.1% for the fiscal year 2005.  The growth in revenue was as a result of opening new stores throughout the country.  Over the past five year period, Target has continued to see increases in total revenues respectfully.  From the fiscal year 2001 to the fiscal year 2006, Target has increased the company’s total revenue by 80% from $33,021 million to $59,490 million.  With the company increasing its presence in the marketplace, the organization will continue to see improved growth in total revenues and will continue to gain competitive advantage.  (http://media.corporateir.net/media_files/irol/65/65828/reports/New_TargetAR06.pdf)

In developing a business strategy, an organization must also be aware of the internal weaknesses and develop ways in which to improve the weaknesses.  Target has a few weaknesses that they must be aware of.  One of the weaknesses is that of geographic concentration.  As the company only has operations in the United States, it is extremely vulnerable to market conditions within the geographic area.  Wal-Mart on the other hand, operates on a global level which makes them less vulnerable to market conditions in one particular area.  In order for Target to become more competitive, the company should invest in global operations so as to reduce the risk of market downturns.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Another weakness of Target Corporation is that of a low return on investments.  Compared to the industry, Target has seen low return on investments.  During the last five years of 2002 to 2006, Target’s return on investment (ROI) was 8.3% as compared to an industry average of 10.5%.  This indicates that the company is not utilizing its resources as effectively as its competitors.  In order to gain competitive advantage, the company must develop a strategy in using its resources more effectively to increase the ROI.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

In addition to the internal strengths and weaknesses that an organization must take into consideration while developing a business strategy, the company must also be keenly aware of the external forces that can impact the business.  These external factors are opportunities and threats that are present within the industry.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

One opportunity that Target has is that of store expansions throughout its network.  The company plans to open approximately 115 new stores within the marketplace.  Target also plans on revamping some 60 stores, of which some will be expanded during 2006.  With the plan to not only open new stores, but to expand and remodel existing stores, Target is well positioned to achieve further supply chain efficiencies and have the ability to deliver greater value to its customers.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Another opportunity that has presented itself to Target is that of increasing the online retail spending of its customers.  The company has forecasted that from 2004 to 2007, the online retail spending will increase from $136.6 billion to $227.7 billion.  It is expected that the increase in spending will occur in all major sales departments including furniture, electronics, sports goods, toys and entertainment.  The book and music and video business is extremely well suited for the ecommerce sector as the online store has unlimited shelf space and offers the ability to browse throughout a large product database.  By utilizing the company’s online portal, Target.com, the company has the opportunity to gain competitive advantage of the online retail sector.

(http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Another opportunity that Target has the ability to take advantage of is that of its growth in private label products.  Consumer spending on private label products is on the rise.  In 2005, the consumer spending on private label food items and personal care items in the US rose to $108 billion.  The strongest growth was seen in the food sectors in which it reached a value of $85 billion during 2005.  This was an increase of 60% from 2004.  According to the Datamonitor and its research, store brands now account for one of every five items that are sold in supermarkets, drug stores and mass merchandisers in the United States.  As it is estimated that grocery shoppers in the US derive approximately $15.8 billion in annual savings by buying private label products.  The private label brands also help the retailer by providing higher margins than other externally branded products.  By a continuing acceptance by the consumer of private label products will have a favorable impact on the company’s margins.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Target must be aware of the threats that are present in the marketplace and must try to develop ways in which to turn these threats into strengths or opportunities.  One major threat that is present is that of a slowdown in consumer spending.  The GDP growth is expected to fall 2.5% in 2007.  With increases in interest rates, consumers begin to reduce the spending of their disposable income.  The trend of federal-fund rates increasing, consumers will see their mortgage balances and variable-rate credit card balances begin to increase.  These increases will also reduce consumer spending on non-essential items.  Target must develop a strategy in which to reduce the effect of this reduction in spending.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Another threat that is present within the industry is that of consolidation.  Throughout the last few years, the industry has seen retail giants such as Sears, Roebuck and Company and Federated Department Stores consolidate.  With the consolidation of major retail corporations, the retail sector will see intensified price competition which will lower the operating margins of smaller companies that are unable to find costs savings.  Target should continue to expand its operations on a global level so that as consolidations occur, their operating margins are not affected on a large scale if they continue to only do business within the United States.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Target also must be acutely aware of the high oil prices throughout the world.  The price of WTI crude oil is expected to average $64.7 per barrel in 2006.  This higher fuel price will have a direct impact on companies that operate on a large distribution network.  Target distributes its products through 23 regional distribution centers and three import warehouses.  With the increase in oil, an increase in transportation costs will surely be seen.  Although the company will see increases in its operating expenses, it will not be able to pass on all of these expenses to its customers as a result of the high competition in the marketplace.  (http://ezproxy.strose.edu:2058/ehost/delivery?vid==20&hid=20&sid=8926f744-14a2-4a05…)

Work Cited

Annual Report. Target Corporation. 16 April 2007. http://media.corporate-ir.net/media_files/irol/65/65828/reports/New_TargetAR06.pdf

Datamonitor. Industry Profile. Global General Merchandise Stores. April 2006.  www.datamonitor.com.

Target Corporatiion SWOT Analysis. SWOT Analysis. 1 June 2006. p.5.  http://ezproxy.strose.edu:2058/ehost/deliver?vid=20&hid=20&sid=8926f744-14a2-4a05-

Target Corporation Site. 16 April 2007. http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-000482