Target

TARGET

INTRODUCTION

The purpose of this industry analysis paper is to analyze the Target Corporation in the retail industry. The Target Corporation operates under several industry identification codes including SIC 5331 (variety stores), 5311 (department store), 5651 (family clothing store), 5411 (grocery store), 5399 (miscellaneous general merchandise stores) (Company Profile. Target Corp), and several others, However, the researcher will focus only on the industry codes listed. Department stores originally began as stores that offered an assortment of general merchandise back in the 1920s. Everyone went to these stores for exceptional customer service, large assortments, and glamour and bright lights. Department stores offered a wide array of merchandise such as name brand clothing, major appliances, perfumes, cosmetics, toys, fine linens, sporting goods, furniture, and much more. (Asaeda, 2005e, par.4) The department store era began to shift in the 1960's and department stores started to be known more in the retail industry as full line discount stores. This occurred due to the large volume merchandise company's would purchase at discount prices, therefore, passing the savings on its customers. The large discount stores did not stop at having monster size stores, and under-pricing all the local "mom and pop" stores; In 1988, Wal-Mart opened its first supercenter in which a grocery store was included in the massive discount store. Not long after, Kmart and Target followed Wal-Mart's lead in embarking on this new type of discount all-in-one type store.

According to Asaeda (2005e),

In 2004, the three largest discounter chains in the United States were Wal-Mart Stores Inc. (with $285.2 billion in net sales from discount, supercenter, and warehouse club stores for the fiscal year ended January 31, 2005), Target Corp. ($46.8 billion for the fiscal year ended January 29, 2005; discount and supercenter stores), and Kmart Holding Corp. ($19.7 billion for the fiscal year ended January 26, 2005; discount and supercenters). (par. 19)

With consumers concerned with things like the labor market, energy costs, and rising interest rates, department stores and mega discount stores should be on the lookout for slowing sales for the remaindered of 2005. (Asaeda, 2005d, par. 2) Although there may not be much the retail industry can do about its external environment, it can focus on important consumer issues such as, product assortments, pricing, and service levels. Asaeda (2005c) notes, that the two items most important for large assortments is apparel and food items, because apparel is how this generation feels it can "express" itself, and healthy eating has swept the nation in this several years, so it is important to give many choices for food items (par. 16). Pricing is a huge part of the retail industry during lower economic times and careful consideration should be taken when pricing merchandise. Wal-Mart is helping reduce confusion by its everyday low pricing and many companies are participating in direct sourcing and purchasing close-out buys to reduce pricing and improve profit margins. (Asaeda 2005f par. 15) According to Asaeda (2005c), customer service is something else retail stores are working on (par. 1). It is doing this by using anything from visual aids, hiring more sales associates, and offering PIN based debit/check card. JC Penny and Sears have gone as far as building self standing stores closer to it customer's residence for convenience.

Other important strategies stores in the retail industry use to position themselves in the market and increase profits, are competitive advertising, and stocked shelves. Kmart and Target advertising has become more "hip" by incorporating some hip-hop music into its ads and websites. The VP of Kmart Jon Gieselman was said TV spots requires, "Music that speaks to kids." (Paoletta, Kmart and Target) Target advertises under the, "Expect More. Pay Less." brand promise. (Asaeda, 2005g, par. 4) Wal-Mart has also spiced up its ads by doing away with the roll-back man, and smiling associates in the frumpy blue smocks. (Frazier, 2005, par. 1) Frazier (2005) pointed out the similarities in the new Wal-Mart ads to the Target ads, but Wal-Mart insists it is not trying to duplicate Target's ads (par. 4). Having stocked shelves is imperative for a large retail store to survive. Kris Hudson noted in her Wall Street Journal article that, Wal-Mart has began putting in place a new distribution system that will help them keep high demand items on the shelf rather than out of stock. Companies should focus on keeping high demand items stocked so it does not lose sells or customers.

Another strategy, that companies within the retail industry are using, is merger and acquisitions. Mergers take place for several reasons such as: to capture more of the market, better purchase prices because the company is buying larger bulks, improve "scale and operating efficiencies as well as expansion opportunities and cross selling." (Asaeda, 2005c, par. 2) In recent news there have been several merger in the retail industry including the most talked about Sears-Kmart merger. According Asaeda (2005c) the new Sears Holdings plans on converting some of the old off-mall Kmart stores into the Sears nameplate (par. 3). "Kmart and Sears expect annualized revenue to reach $500 million by the end of 2007 through economies of scale, improved supply chain management, and administrative and other operational efficiencies." (Asaeda, 2005c, par. 3)

Other recent mergers include Jones Apparel Group Inc. acquired Barneys New York Inc. for $400 million, Federated and May merged into a $31 billion retailer with approximately one thousand department stores and seven hundred bridal and formalwear stores, and Neiman Marcus agreed to be acquired by private equity firm Texas Pacific Group and Warburg Pincus LLC for $5.1 billion, which is expected to close November 1, 2005. (Asaeda, 2005, par. 2)

Some companies may choose to participate in a buy-out instead of mergers. This is something rumors suggest the cash-rich JC Penny Co., Inc. recently considered. JC Penny reported operation cash flow of $1.13 billion for fiscal year 2005 and had $4.69 billion in cash and short-term securities on it balance sheet on January 29,2005. Target Corp. decided to sell its entire Marshall Fields Stores including 3 distribution centers and $600 million of credit card receivables to May Department Stores Co. and nine of its Mervyns store locations and after fiscal year ended January 2004 showed revenues declined 6.9% at Mervyn's