presentation on target expansion in canada

7/30/2019 Presentation on Target Expansion in Canada

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Target International

Expansion in Canada


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Target: The Retailer

2nd Largest retailer in US.

First Minneapolis Target Store in 1962.

1,742 Stores with $63 Billion in Sales.

Stores added at pace of 21% per annum since 1962.

Gross Margins 31% to 33%. Net Profit 3.5% to 5%.


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Target: Strategy

Implements Best Cost Strategy.

Slightly higher priced stylish products than Wal-

Mart.

The wealth and size of U.S. market gave Target

strong incentive to develop unique upbeat charmingretailing concept Echoes Raymond VernonsProduct Life-Cycles theory

Competes successfully against Wal-Mart.


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Target: Growth Secret

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2004 2005 2006 2007 2008 2009

Target Sales (in Millions) Trend With Relative to Store Size

Total Revenues Gross Profit

Net Profit Retail Square Feet (0,000s)

Revenues Growth of 6.89%.

Total Retail Square Footage Growth 7.05%.


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Target Key Financial Figures


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Key Findings

Revenues Growth Rate has slowed down 12% to 7% from

2005 to 2009.

Net Profit Growth Rate declined from 28% to 6% in sameperiod.

Becoming more difficult to grow in U.S..

Factors:

Increasing Retail Saturation in U.S.

The ongoing recession, which started in 2008.


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Current Status: Slower Growth

-5%

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009

GrowthRatePercentages%

Target Key Financial Figures Growth Rate Change

Sales

Total Revenues

Gross Profit

Net Profit

Revenues per square foot


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Solution

Extract further efficiencies from value chain.

Grow More by adding More Stores.

Expand at the rate of 8% to have a growth rate of 7%.

Where? U.S.? Difficult in U.S.

Go International. Where?

Canada first and other countries later.


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Why? More American Corporations earning bigger shares of profits

internationally.

Knickerbocker: Firms will use overseas profits to competeagainst Target within U.S..

Wal-Mart Canada has $15 billion of revenues from 317 stores.

Not to lag behind competition.

Obtain valuable International Experience and economies ofscale.


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Why Canada? Canada Close to Existing Target Stores and Distribution Centers.

Canada Closest to U.S.: As per Cage Theory.

Closest as per Country Portfolio Analysis.

Toronto suburbs 12th largest market in world of 22 Million people valued $550 Billions


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Canada & U.S. Comparisons


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Ethos match

Canada is one of the world leaders in social welfare program.

Matter of immense pride for Canadians.

Target has policy of donating its 5% profits.

Such policy resonates well with Canadian national ethos.


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Country Specific Advantages

Lowest Corporate and Payroll taxes among G7 countries.

Lowest debt-to-GDP ratio in the G7 and fastest economicgrowth in the G7 (2.6% for 2010 and 3.6% for 2011).

11thlargest economy with worlds soundest banking system.

Canada allows full repatriation of investment earnings.


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Country Specific Advantages

The highest proportion of post-secondary graduates in theOECD.

High quality of life with a commitment to the rule of law and astrong justice system.

Canadian Real Estate Prices most competitive in the world.

Canada leads the G7 in low business costs, with an overall costadvantage of 5.0% over the U.S..


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Rich History of FDI:

Canada ranks on top in FDI as percentage of GDP (30%) in G-7.

U.S. is the top investor with $288 billion dollars of FDI.

20.9% of Retail industrys ownership is through FDI.


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Retail Market in Canada

The retail sector is a vital part of Canada's economy andsociety.

The direct contribution of retail trade to the economy was

$74.2B in 2009 (6.2 % of GDP)

Employs 2.0 million people, or 11.9 percent of the totalworking population in 2009.


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The Canadian retail market has beenevolving rapidly since last decade

o Emergence of big box stores

o Everyday low pricing

o Greater Concentration in the retail market


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Customer Reaction

o Liked Everyday Low Prices

o Liked One-stop Shopping

o Older Customers Responded Negatively


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Impact of Economic Downturn


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Canadas Workforce

o Canadas Workforce is highly educated

o Ranked 2nd in the G7 for its universitycompletion rate

o More than half of all Canadians between the agesof 25 and 35 have received postsecondaryeducation


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o Canadas Workforce is Multi-cultural


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Mode of Entry

Establish a wholly owned subsidiary byacquiring an existing enterprise inCanadian market

o Target can rapidly build its presence in the market

o Less riskier than Greenfield investment

o Gets immediate access to logistics, and managers localknowledge of the business environment


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Mode of Entry

Acquire Zellers


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Mode of Entry

Acquire Zellers

o Established in 1931 by Walter P. Zeller

o Second largest retailer in Canada with about 280 stores

o Zellers stores carry a variety of items, from apparel to

groceries and furniture.

o $6 Billion in revenues, with a Growth rate of 9%


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Mode of Entry

Why Zellers?

o Zellers introduced better quality merchandise and

different customer service concepts.

o Zellers strategy is similar to Target's

o New and remodeled Zellers stores are often compared tothose of Target Corporation in the United States.


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Mode of Entry

Potential Issues

o Financial Resources

o Hidden Surprises

o Cultural Clash


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Political Risk

Tradition of Democracy

Sovereignty of Quebec

NAFTA


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Business Risk

Exposure to loss of capital

Vast distances between major cities

Bi-lingual labeling and marketing

Scale of Entry

Wal-Mart has been here for 15 years!

Distribution center locationsExchange rate flux


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Risk Mitigation

Use CAGE Theory

Look to acquire Zellers infrastructure in

place for seamless operational startup

Possible Joint Venture due to M&A fail

rates

Proper Screening and auditing


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Implementation

Launch either small scale Greenfield or

Zellers M&A

Renovate while you wait

Build 10 new stores in US

Gain approval from The Foreign

Investment Review of 1973


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Non Financial Investments

Update stores to perform as LEAD

certified

Employee Motivation Team Building

Customer Satisfaction


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Financial Investments

Initial Screening and Research

legal fees and permitting

Cost of acquisition or build

Geocentric Staffing

Localized Marketing campaigns

Integrating IT


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Control Systems

Implement Data miningvia reward cards andTarget Visa

Incentivize mangers

based on performancemetrics

Code of Ethics rewardsocial responsibility and

sanction the rest


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Milestones

Greenfield

Launch 5-6 stores mid

decade

90 Day (Lean MFG)

2 year review of

financials

3 year plan to fully

integrate Target Culture

Zellers Acquisition

90 Day Lean

18 month alignment

to integrate culture Anticipating 5 years

to fully integrate

culture 10 years look to

surpass $8 Billion insales


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Performance Metrics

US population = 301 Million

Per Capita Income = $43,730

Target Sales = $63 Billion

Per Capita Target Sale = $ 209.30Canadian Population = 32.6 Million

Per Capita Income = $39,010

Potential Per Capita Sale= $186.71

Potential Target Canada sale= $6.1 BillionImproving the per capita Target sale by 50% would

generate approximately $9 Billion in sales


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Exit Strategy

Exit based on the following criteria:

Insufficient Demand

Political and Economic instability

Fixed costs > Revenue

Stopgap with best practices

Divest stores to clean up financials

Fully divest stores and distribution centers


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Any Questions?

presentation on target expansion in canada

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