Target Corporation's strategic management and competitive positioning

Strategic Management

Target: Strategic Management

Target, formerly known as Dayton Stores, launched the Target name; bull's eye logo and a new era in discount retailing through its trendy merchandise at affordable prices in 1962 (Target, 2010). Target now operates over 1,750 stores in 49 states and India, including 240 Super Target stores that include an upscale grocery section. In addition to the photo processing centers, pharmacies and food aisles found in almost every Target, Super Target stores include in-store bakery, deli, meat, and produce sections (Target, 2010). With the company ranking 28th in Fortune 500, its diversity in products, its innovation, and its reputation, the company's management needs to have a full understanding of the organization's strengths, weaknesses, opportunities, threats, and trends to make the necessary decisions to maintain the good reputation it has achieved, as well as stay in competition in the leading discount retailing industry.

Situation Defined

Target Corporation competes directly against other discount retailers, mainly Wal-Mart and Kmart. Since its founding, it has intended to differentiate its stores from its competitors by offering what it believes is more upscale, trend-forward merchandise at lower costs, rather than the traditional concept of focusing on low-priced goods. In October 2008, Target announced plans to fight the perception that its products are more expensive than those of other discount retailers. It planned to add perishables to its inventory, cut back on discretionary items, and spend three-quarters of its marketing budget on advertising that emphasizes value and includes actual prices of items featured in ads. Target also planned to slow its expansion from about 100 stores a year down to 70 stores a year. Additionally, practices that cause some concern include lack of a living wage policy and lack of labor unions. Unless Target moves to improve its wages and benefits, it is only a matter of time before it is seen as just another big-box retailer.

General Issues

Strengths

Target's strengths are very much aligned with its mission statement, which is "to make Target the preferred shopping destination for its guests by delivering outstanding value, continuous innovation and an exceptional guest experience by consistently fulfilling its Expect More Pay Less® brand promise" (Target, 2010, para. 1). The brand promise focuses on quality products, excellent service, and commitment to community giving and offering its guests great value. Target stores are designed to make it an easy and enjoyable shopping experience for its guests. They also acquired partnership with designers such as Rachel Ashwell, home decor designer, Sean Conway, designs lawn and garden furniture, Jean Paul Gaultier, a legendary Parisian clothes designer, Giada DeLaurentis has her own brand of cookware and many uprising designers who designs exclusively for Target stores. The company employs a diverse, culturally mixed workforce and many of them volunteers within the community.

Its commitment to the community is impressive. According to a Moyer (2005), he purports that Target ranked as the highest cash-giving company in America with 2.1% of its income given to philanthropic efforts. Additionally, the company donates five percent of its income, which totals more than three million dollars every week. The company is involved in many community outreach programs, it strives on being environmentally conscious by offering eco-friendly products and influence vendors and suppliers to encompass sustainable practices (Target, 2010). These commitments and practices have won the organization many awards and recognition, such as Business Week ranked Target among the "Most Innovative Companies" in 2008. Diversity Incorporated named Target one of its "25 Noteworthy Companies for Diversity." In 2009, Forbes ranked Target 41st on its list of "America's Most Reputable Companies." In 2009, Fortune Magazine ranked Target 19th of 363 companies on its list of the "World's Most Admired Companies" in 2009 (Target, 2010). Target Corporation is consistently ranked as one of the most philanthropic companies in the U.S. Furthermore, it ranked No.22 in Fortune Magazine's "World's Most Admired Companies" for 2010, largely in part to the donation efforts of the company as a whole.

Weaknesses

Unemployment rates are high, national income is low, rate of growth is on the move, and inflation is steadily on the rise. Consumers are fiscally responsible more these days to make a living, and passing up the big-ticket items. Economics are giving consumers less disposable income, while facilitating the need to purchase the best quality items for the lowest price. Lax quality control can lead to recalls, which is costly, and lead to bad press. The image Target presents to the public is "Expect More Pay Less" (Target, 2010); however, recalls are not presenting this image to the consumer. "Frequent product recalls are indicative of lax quality controls. They harm the company's brand image by reducing customer confidence" (House, 2008, p. 7).

Target is committed to locations being accessible to current and potential guests, yet it is not established in most rural areas. Focus is currently on establishing the urban areas, and rural areas are left behind. Shoppers do not want to drive into the city to pick a few items when there is a store right down the street. Expansion into rural areas would give Target a broader playing field. Consumers spend more money and money weekly shopping at the neighborhood store to pick up fewer items at a time, then they do when going to the store to buy a large bill of groceries. On a larger scale Target is not a global competitor, it is mainly in the U.S. market and has just expanded into India. This makes them dependent on the American market, whereas a company such as Wal-Mart can profit from international markets. For example, if the United States market is not profitable at the time but the market in China is booming, it can leverage the profit from one market to make up for the loss in another. Target is currently working toward expanding the market in India, which will lead to international markets opportunities. Current economic condition in the United States is creating more of a challenge for Target to become a global retailer.

Threats

The retail industry can be quite unstable for many businesses, as people's tastes and financial status are constantly changing. The Target Corporation is a relatively stable company, which has been in business for many years. One of the major threats this organization faces during the course of its business is the United States economy. The Target team prides themselves on offering higher quality goods than its closest competitors. Of course, with the higher quality comes a higher price to the consumers. During tough economic times, consumers are forced to find ways to save money and cut back on its spending. Though the customer may prefer the higher quality goods, they may chose to go with the lower prices offered by other stores to save money. This in turn affects the profits of Target. Target cannot rely on foreign markets to keep up its profits as Target operates mainly in the United States. Therefore, when the U.S. economy is down, Target profits are likely to go down in response.

Problem

The main strategic problem is low employee wages, which has altered public perceptions. The retail industry is very unstable and some of the competition Target faces ebbs and flows quickly. The main competitors Target faces are Wal-Mart, K-Mart and Sears. Most cities have other smaller stores and department stores, which all compete with Target for the same customers. Wal-Mart has more locations than Target, which makes Wal-Mart more accessible to customers. In addition, Wal-Mart has tapped into the foreign market places. This competitor is well-known for its low prices and discounted prices. The goods Wal-Mart offers is not of as high a quality as Target, but most of the consumers who patronize this store is looking for the money savings. The competitors Target faces are a constant threat to the profit margin of the organization.

Currently, Target stores tend to attract younger and more educated and affluent customers than Wal-Mart, among other competitors. The median Target shopper is 41 years old, the youngest of all major discount retailers that Target competes directly against. The median household income of Target's customer base is roughly $63,000 U.S.$. Roughly, 76% of Target customers are female, and more than 45% have children at home. Lastly, about 80% have attended college and 48% have completed college (Target, 2012).

Causes

A direct correlation between profit margins and service levels exist. Causes for low wages include the need to increase profit margins, to stay competitive, and to eliminate unions. Already, Target is beginning to get some unwanted attention from labor groups that have been struggling to reform Wal-Mart's workplace practices for nearly two decades. Entry-level hourly workers in Target stores earn roughly the same pay and have more difficulty qualifying for health care coverage than its peers at Wal-Mart. Both retailers oppose unions and have taken steps to prevent organizing efforts in stores. Moreover, both have outsourced jobs overseas to save costs (Wall Street Journal, 2012).

Target does not disclose details about its compensation and benefits, but labor groups and former and current employees of Target in the Twin Cities say the retailer sometimes pays less than Wal-Mart. Target pays between $6.25 an hour to $8 an hour for entry-level, hourly positions in its Twin Cities stores, according to a recent survey of local Target workers by the UFCW. Comparatively, this is in line with what Wal-Mart pays in this market, although some starting-level Wal-Mart workers can earn $9 to $10 an hour, the UFCW said.

Alternative Solutions

Overall, the Minneapolis-based retailer sales grew 5.1% to $4.61 billion for the four weeks that ended Jan. 28, which was better than expected (Stych, 2012). Hence, Target could afford to increase its compensation and benefits for its employees. Three potential solutions include for the customers and/or employees:

Conduct a quarterly Employee Survey to obtain feedback for specific areas of improvement and obtain an average of 90% or above satisfaction rate based on four quarterly Associate Surveys conducted annually.

Conduct a quarterly Customer Survey to obtain feedback for areas of improvement and obtain an average of 90% or above satisfaction rate based on four quarterly Customer Surveys conducted annually.

Conduct monthly Employee & Customer Surveys to obtain feedback for areas of improvement.

Decision

It is prudent to conduct a quarterly Employee Survey to obtain feedback for specific areas of improvement, which is not as costly as monthly surveys. Employees are the background of any organization. Therefore, it is imperative to ensure its needs are met. Without employees, a business will not sustain without any customers. With feedback from the focus groups, Target must be willing to implement suggestions and changes, even if there are financial implications. Profit margins have increased beyond expectations (Associated Press, 2012). By increasing compensation packages, profit margins will decrease in the short-term. However, with happy employees, productivity and morale will have a positive effect for the employee and customer experience.

Action Plan

Establish employee-led focus groups to engage and solicit genuine feedback. Annually, implement two viable suggestions from focus groups. Additionally, Target should host an annual employee appreciation event. To implement this action plan will require key managers to dedicate time to the process, which is lost opportunity cost in other arenas, such as sales. This may be met with some resistance from stakeholders, such as the investors. However, investing in the employees has indirect costs that yield future dividends.

Conclusion

Management needs to have a full understanding of the organization's strengths, weaknesses, opportunities, threats, and trends to make the necessary decisions to maintain the good reputation it has achieved, as well as stay in competition in the leading discount retailing industry. Throughout the years, the Target Corporation has shown to be a stable and dependable company. Each day, the company's management face many challenges, resulting from customers, economy, competitors, and from its own decisions. Without the foresight and good decision-making, Target would not thrive as it is today. Insomuch, Target has proven that its management team is doing well on planning, organizing, and implementing strategic plans to keep up with the changing times in the retail industry. However, a shift in employee-focus is warranted for sustainability.