Strategy Final Assignment

Shai ZamirDan Saguy

VS.

The Discount Retail Arena

• Founded 1902• Over 1800 stores• 49 States, now expanding into Canada

• Founded 1916• Over 1000 stores• 50 U.S. states, Puerto Rico

Competition

Rivalry/competitionCompetition is intense. Many rivals with similar products and services.

Threat of new EntrantsLarge capital is necessary for operating (big workforce, chain of stores, etc.). Difficulty of creating reliable suppliers and distribution channels. Threat of new entrants is rather low.

SubstitutesShopping in brand name stores for a certain item, rather than going into a huge store with everything. Relatively low threatShopping online. Both Kmart and Target have an online store.

Porter’s 5 Forces analysis

Power of buyersBuyer power is high. Many competitors available, stores as well as online. For Kmart, bargaining power is high, since the Kmart brand is going through difficulties for the last decade.For Target: target market is perceived to be more sophisticated- also high.

Power of SuppliersThe companies rely on suppliers to deliver quality products. But both companies sell nationwide and offer store locations in prime shopping locations. Suppliers are abundant. The power of the suppliers in the industry is fair. Kmart’s supplier power will be higher because of payment problems in the relatively near past.

Porter’s 5 Forces analysis

Summary• Same market • Similar products.Similar performance.Differences exist, mainly due to Kmart’s difficulties and struggles to develop its brand, which is reflected in the higher bargaining power of both suppliers and buyers.

Porter’s 5 Forces analysis

Analysis

Valuable• Just in time inventories• Intelligent IT spendingRarity: Competence in information technology is also an asset of other competitors (Wal-mart, Amazon.com, Costco, to name some), The resource is not rare.

Key Resource 1: IT competence

Rare• Also an asset of other competitors• The resource is not rare.

ValuableBoth brands operate in an arena that requires a nationwide and diversified net of suppliers. The resource of a distribution network is absolutely essential to thrive for both companies. Valuable.

Key Resource 2: Distribution Channels

RareThe distribution network, selling so many different products to millions of different customers throughout the country, is a vast network, and one of the key resources in the discount retail industry. There are other nationwide brands like Gap, Barns&Noble, Stop’n’Shop, etc. but they sell a smaller line of products, and not necessarily discounted. Therefore we consider it as being rare.

OrganizationThe corporation has the organizational capability to exploit the resource that they developed, capture more share of the market and grow. Kmart, on the contrary, had some difficulties with supplier relations, along it’s history of financial disorders.

Key Resource 2: Distribution Channels

Inimitable Very difficult to imitate due to the cost disadvantage that competitors will face in acquiring or substituting this resource

Competitive advantagePerformance Above normal

ValuableTarget: Known as providing quality products for low price, brand is related to a positive, even fun experience: result of Target's intensive investment in the shopping experience. Their mission statement focuses great guest service, clean stores and speedy checkouts.

Kmart’s brand name is related to the lowest prices. It is highly popular with minorities groups, especially afro-Americans and Hispanics. Both brand names are valuable.

Key Resource 3: Brand Name

RareTarget's brand represents quality and low prices, along with an enjoyable shopping experience. The slogan is "expect more, pay less", and they live up to it. The combination is rare. In Kmart's case for example, the brand represents very low prices, but of lesser quality. Kmart strategy focuses mostly on pricing, and has not differentiated itself from Walmart's strategy. Kmart's brand is not rare.

OrganizationTarget has successfully incorporated the resource into their organization. Target's brand recognition is hugely important to success. The firm identified that this resource is a competitive advantage. .

Inimitable Target's brand name is hard to imitate. A significant cost disadvantage in acquiring/substituting the resource (advertising, customer service, product diversification, etc).

Competitive advantagePerformance Above normal

Key Resource 3: Brand Name

ValuableTarget understands that low wages never equal a satisfied employee which can reflect negatively on the company. While Kmart also invests in human capital, its payrolls are usually smaller and the workforce is not as qualified, shorter training program. Kmart's resource is not valuable.

Key Resource 4: Human Capital

RareMany companies recognise the importance of human capital, and this resource is not rare for Target.

ValuableTarget Corporation operates 1,750 stores in 49 U.S. states and the District of Columbia. Further, it offers general merchandise products through its Website, Target.com. Kmart, operates a total of 1,205 stores (as of December 2011). Kmart stores are across 49 states, Guam, Puerto Rico, and the U.S. Virgin Islands, and through its e-commerce shopping site, www.kmart.com. Both companies are operating on a nationwide level- valuable resource.

Key Resource 5: Location

RareUnlike any of Target's competition, many stores have been placed in accordance with trendy malls. This gives and advantage of convenience. Kmart stores are located in easily accessible areas, especially in urban areas where they are able to get a large multi-cultural consumer group. We conclude that the resource is rare for both companies.

Inimitable Many big players in the arena (like Walmart, Costco) can shift their stores from one location to another. It may generate costs but this will not create a great cost disadvantage. Resource is imitable.

Key Resource 5: Location

Imitation• Size economies: Both companies operate on a nationwide

level and reaching customers with products that appeal to

different needs.

•Management of inventory and distribution channels

requires knowhow (private information).

• Inventory management and trend predicting is constantly

being upgraded.

Competitive Advantage 1: Diversity of Products

SubstitutionThe substitutes are the brand name stores that sell specific items (like buying a toy in Toys R' Us). Target and Kmart are not responding to the threat - it's not a risking the value that the diversity of products generates for Target and Kmart.

HoldupThe large scale of products has allowed the companies’ to contract a wide range of suppliers, giving high bargaining power, creating stable, trustful relationships with long term contracts, and a holdup advantage.

Competitive Advantage 1: Diversity of Products

SlackTarget is doing a better job in exploiting this valuable advantage. It is utilizing technology and implementing it into its information systems, to control inventory stock, checkout systems, etc. One of its strength is its ability to anticipate the demands of the customers ahead of time. Target is exploiting and maximizing fully its’ competitive advantage and continue to show growing sales.

Competitive Advantage 1: Diversity of Products

Competitive Advantage:Quality in Retail Discount

Imitation• Size economies• Private information- Target is doing an excellent job with technology and improving the inventory system, as well as analyzing their clients preferences • Switching costs, the quality products at low prices policy makes it difficult for competitors to compete..

SubstitutionBuying in regular brand name stores: normally price will be higher. Target is defending by offering its clients upscale trendy innovative products which keeps their customers returning. It is also recombining: Top designers have signed agreements with Target to sell their items at affordable prices, for example: Victoria's Secret

Competitive Advantage:Quality in Retail Discount

SlackTarget has been depicted as "the discount store with attitude – where department store customers feel very comfortable shopping". This has created loyal returning customers, and continually makes the business become a tough competitor among its rival. Very limited slack.

HoldupTarget's large scale has allowed it to contract with a great range of suppliers, with extraordinary bargaining power. It has built mutual dependence with long term suppliers who offer quality products, developed trust to create stable cooperative relationships, giving it a holdup advantage.

SlackAmazon is investing many efforts in penetrating new markets and adopting new products and processes, allowing a wide range of products and lowering the price for each. Also, Amazon sells used products that make the price even lower. Thus, Amazon has limited slack in terms of discount retailing.

Competitive Advantage:Pricing

SlackAmazon is investing many efforts in penetrating new markets and adopting new products and processes, allowing a wide range of products and lowering the price for each. Also, Amazon sells used products that make the price even lower. Thus, Amazon has limited slack in terms of discount retailing.

Competitive Advantage:Pricing

Competitive Advantage : Distribution Network

Imitation• Private information- analyzing the retail process: how orders

are made, packaging, shipping, inventory management etc.• Switching Costs- the delivery costs and service of other

companies will be higher• Size Economy- Amazon is a gorilla in the online selling market

Substitution• Not responding- the reasonable substitution: going to a

physical store.`

Competitive Advantage : Distribution Network

HoldupAmazon has contracts with numerous suppliers, and has extraordinary bargaining power. It has built mutual dependence with the suppliers, developed trust to create stable cooperative relationships with long term contracts, giving it a holdup advantage.

SlackLimited slack. Amazon exploits its distribution potential by sending millions of products to millions of customers all over the globe, and pooling resources (a customer buying a book, can also add other products to his shipment).

Competitive Advantage :Customer Service

Imitation• Private information- understanding the needs of its

customers, investing resources and effort in ongoing improvement of its customer service (ranked one of the top companies in this field). • High switching costs- customers don’t not want to switch to a

different company. • Upgrading and constantly Improving

Substitution Customer service does not have an efficient substitute (maybe sophisticated software) Amazon is not responding to this threat.

Competitive Advantage :Customer Service

HoldupConstantly improving customer service, to build mutual dependence of clients, develop trust and cooperation. Its long term relations and contracting with suppliers, allows it to efficiently address customer service issues regarding a specific supplier or product.

SlackAmazon uses online surveys to improve and monitor its customer service. limited slack. Amazon also has an outstanding return policy.

Summary

The discount retailing industry in the U.S is mainly controlled by three "gorillas": Wall-Mart, Target and Kmart. The market characteristics leave no room for strategic mistakes. In terms of external threats, the buyers & suppliers power among with the rivalry is the main threats to pay attention to and while Target made significant moves in order to differentiate itself from the rivals and lowering the bargaining power of suppliers and buyers, Kmart experienced stagnation in terms of business development, focusing mainly on pricing and target market.

Summary

Internal analysis: Target develops its resources and capabilities, primarily focusing on its brand name and collaborations, as well as innovative technology to control store management that gave it competitive advantagesKmart had poor performance according to the VRIO analysis. The company did not respond or defend itself from other threats and lost the advantages that it had. This is a death sentence for Kmart in the long run if it will not change its strategy.