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Running head: TARGET CORPORATION 1

An Environmental and Industrial Analysis of Target Corporation

Texas A&M University – Commerce

TARGET CORPORATION 2

An Environmental and Industrial Analysis of Target Corporation

Cherry red shopping carts, bright inviting lightings, well-organized merchandise, wide,

clutter free isles, and a bull terrier mascot named Bulls-eye; everything that Target offers

reminds its competitors what they are missing: a plethora of on-trend goods that are of

extraordinary quality while still being reasonably priced; a shopping experience that’s personal

and enjoyable, and a company culture that’s geared towards customers (Rowley, 2012). Results

from the March 2013 Forrester Customer Experience Index show that Target is one of the only

13 companies (out of 154) to receive the top rating of “Excellent” with an overall score of 86,

surpassing Costco and Wal-Mart in the retail segment (Target Corporation, 2013). According to

Fortune Magazine (World's most admired companies, 2013), Target is ranked Number 22 of

“World’s Most Admired Companies” with a score of 7.22 among 1,500 companies globally,

while Costco Wholesale is ranked 23rd with a score of 6.95, and Wal-Mart scored 6.88 with a

trailing ranking of 27th.

From its risky entrance into mass-market discount stores in 1960, Target has evolved

from a family-run business into one of the nation’s largest discount-store chains (Target

Corporation, 2013). Target now offers a variety of general merchandise and full line of food

items comparable to other supermarkets and at discounted prices. As of February 2, 2013, Target

has 1,778 stores in 49 states and the District of Columbia, as well as Canada, staffed with

361,000 team members (Target Corporation, 2013). Five smaller CityTargets were open to

satisfy the needs of a growing population, the city dwellers, with each store measuring 60,000 to

100,000 square feet, while its Super Target stores are between 125,000 and 180,000 square feet

(Clark, 2011).


Facing the slumping economy, Target insists on lowering grocery prices and introducing

new price match and return policy to offer even more savings to shoppers (Target Corporation,

2013). To offer shoppers “a seamless, relevant, personalized experience” (2012 Annual Report,

2013), Target heavily invested in its digital channels and started to integrate their digital and

traditional shopping experience. Gregg Steinhafel, chairman, president and chief executive

officer of Target, is confident that the discounter is “moving quickly to position the business to

succeed in this rapidly changing retail environment” (“Target joins the pack in cutting outlook,”

2013) and expects a revenue increase from $72 billion to $100 billion by 2017 (Beth, 2013).

Company History

George D. Dayton founded The Dayton Dry Goods Company in Minnesota in 1902 and

the store was immediately famous for “dependable merchandise, fair business practices, and a

generous spirit of giving” under his management (Target Corporation, n.d.). Business grew so

quickly that later the name has to be changed to The Dayton Company to reflect the variety of

goods and services it offers. In 1956, The Dayton Company opened the nation’s first fully

enclosed shopping center, Southdale Mall, to accommodate the growing needs of busy suburban

families. In the next 20 years, three more shopping malls were opened within the Minneapolis/St.

Paul metropolitan area to service their loyal shoppers (Target Corporation, n.d.).

After several decades of running high-end department stores, The Dayton Company saw

an opportunity in upscale discount retailing. On May 9, 1961, the Minneapolis Tribune reported

that The Dayton Company was planning on a new kind of mass-market store. Douglas, J.

Dayton, the new president of The Dayton Company, announced that the new store will “combine

the best of the fashion world with the best of the discount world” (Target Corporation, n.d.) and


promised a new kind of shopping experience that is “fun, delightful and welcoming to the entire

family” (n.d.). After brainstorming with his staff, Stewart K. Widdess, Dayton's Director of

Publicity, came up with the iconic red-and-white Bulls-eye logo (Target Corporation, n.d.), and

the name “Target” was chosen to show the commitment of offering the community high quality

merchandises and a pleasant shopping at a reasonable price.

Today, Target operates three segments including: U.S. Retail, U.S. Credit Card and

Canadian (Form 10-K, 2013). In 2012, total sales reached a new high of $73 billion and U.S.

Retail sales accounted for $71.9 billion (2012 Annual Report, 2013). In 2012, approximately one

third of the retail sales were related to Target’s owned and exclusive brands, and household

essentials and food and pet supplies each weighed in for 25 and 20 percent of the total sales

(2012 Annual Report, 2013). Target’s founder George Dayton once defined success as “making

ourselves useful in the world, valuable to society, and helping in lifting in the level of humanity”

(Target Corporation, 2013). To follow founder George Dayton’s footsteps, each year Target

gives 5 percent of its profit as well as encouraging employees to volunteer in communities; such

gestures have earned Target a place on the list of “World’s Most Ethical Companies” in 2012

(Target Corporation, 2013).

Industry Overview

In the discount store market, value and service is always the first thing that shoppers are

looking for. The slow economy and the increasing unemployment rate have pressured consumers

to be even more conscious about how much they spend on groceries and other essentials.

According to a recent Gallup Poll on U.S. workforce participation rate, the August result was

66.4%, a decline from 67.7% in July, and down from 68.1% in August 2012 (Marlar, 2013).


Gallup’s Payroll to Population rate which estimates the percentage of the U.S. adult population

aged 18 and older who are employed full time shows a drop from 44.6% in July to 43.7% in

August, and is down from 45.3% in August 2012 (Marlar, 2013). Another poll in June showing

American’s self-reported daily spending is stagnant, and upper-income spending slightly drops

from May’s $150 to June’s $143, suggesting consumers are experiencing the result of the high

unemployment rate (Jacobe, 2013). While lowering costs to gain a competitive advantage,

discount stores need to be very careful not to cut corners on customer service and product

quality, thus leaving the shoppers unsatisfied with their experience.

Online shopping has become even more popular since internet users have access to

product information and read product reviews with the touch of a button at anytime, anywhere.

According to a study conducted by Forrester, as cited in Rigby (2010), e-commerce in the United

States accounts for 9% of total retail sales, up from 5% in 2005. Amazon’s five-year average

return on investment is 17%, whereas brick and mortar discount and department stores average

6.5% (Rigby, 2010). Some websites such as www.ebates.com and www.fatwallet.com offer

users a certain percent of cash back when shopping through their websites after browsing

promotions. The convenience of shopping online, cash rebate, and good customer service

combined will help keep some shoppers at home, saving them time while reducing the consumer

flow in physical stores. This in turn decreases checkout times and improves shoppers’ overall

shopping experience. The use of various mobile shopping apps also pave discounters a way to

deliver weekly ads and special discount items to shoppers in an instantaneous fashion. According

to the UK retailer Tesco, as cited in Rigby (2010), shoppers took advantage of its cell phone app

and online sales increased 130% in the first three months.

http://www.fatwallet.com/

http://www.ebates.com/


Traditionally big box stores found it difficult to open their super centers in urban cities

where real estate is costly and scarce. Yet, according to a recent Census Bureau data, as cited in

Clark (2011) college-educated people in the 25- to 34- year-old bracket have been moving to

center cities. The number of young college graduate rose 26% in city centers in the nation’s 51

largest metropolitan area (Clark, 2011). Recently JC Penny, Wal-Mart, and Target have opened

smaller stores in several big cities that are famous for its dense population, namely Chicago, San

Francisco, and Los Angeles, to appeal to this group of consumers by offering a smaller but

choice selection of goods and a more intimate shopping experience (“Discount Store Concept

Evolves”, 2013). Such downsized stores allow big box companies to reach a younger, trendier,

and high-income consumer while the dense population in cities results in high shopper flows and

rising revenues.

The pressure from the concerned shoppers, media, and government have made discount

chain stores aware of the importance of corporate responsibility and its impact on their business

(Chida & Ling, 2011). Issues such as sustainability, waste management, environmental impact,

and community involvement are getting more attentions than ever before. To show their support

to waste management, several discount stores such as Wal-Mart, Target, and Safeway have

developed initiative to commit to the reduction of plastic shopping bags (Chida & Ling, 2011).

And to show its determination to protect the environmental, Wal-Mart’s logistics network has

achieved a 25% improvement in fuel efficiency, representing a reduction of 400,000 tons of

carbon dioxide emissions per year (Lai, Cheng, & Tang, 2010).

In the following section of this paper, we will identify the variables which impact Target

Corporation from external environment and the industry. A STEEP analysis and industry


analysis of discount chain store industry are provided to help us better understand how those

variables interact with Target’s daily operations.

Environmental Scan/STEEP Analysis

Target Corporation offers discounted, higher-end merchandise to consumers in the

United States and Canada. Target stores sell a variety of merchandise ranging from everyday

essentials, to fashionable clothing and home goods, to food items. The following environmental

scan will outline the primary external factors influencing Target Corporation. Environmental

scans are critical to corporate management in order to make strategic decisions for their

companies within the current market (Chrusciel, 2011). A scan of sociocultural, technological,

economic, and political-legal variables will allow management to determine opportunities and

effectively allocate resources as a way to increase market share and profit margins.

Sociocultural

Within the past ten years, sociocultural variables have made an impact in the retail

industry. Many of these trends are anticipated to continue to affect the industry in the future as

well. Some of the sociocultural trends that Target particularly monitors on a regular basis

include: lifestyle changes, changing consumer preferences, workforce expectations, and

demographics. Target stores have been in business since the early 1900’s, and the company has

been able to adapt and adjust to the various sociocultural factors that have influenced the

discount retail industry (Anonymous, Target Corporation 2012 Annual Report, 2013).

Lifestyle changes including the ways one shops have been dramatic over the last century

(Liebmann, 2000). Consumers are spending more money on what were once wants but have


now become perceived needs. However, consumers continue to be interested in discounts

(Freeman, Spenner, & Bird, 2012). In a survey reported by CBS Detroit (2011), 21% of

Americans take advantage of the fall back-to-school season to buy items for themselves at

discounted prices, with or without children heading back to school. Target has found a niche in

the discount retail industry by focusing on upscale discounting that is proven to be attractive to

the modern consumer. Target has intentions of capitalizing on the various lifestyle changes that

occur in their consumers’ and potential consumers’ lives. Researchers Reed and Strugnell

(2008) have concluded that, “it is imperative that contemporary retailers have a comprehensive

understanding of consumer trends, needs, wants and decision making processes, all of which will

have a direct impact on the success of their business” (p. 238). Lifestyle changes such as moving

away to college, getting married, the birth of a child, and retirement all have an impact on

individual consumer spending (Meneely, Burns, & Strugnell, 2009). In its marketing efforts,

Target aims to obtain and retain loyal customers who are seeking quality products at a

discounted price.

Target has the capacity to track consumer spending habits and is especially interested in

how those habits persist or alter during a lifestyle change (Duhigg, 2012). The ability to

successfully identify and target those consumer habits has benefited Target tremendously over

the past few years. Because expectant mothers are very likely to be in the business of shopping

for a variety of new products, Target has focused their marketing efforts towards those women

even before they have announced their pregnancy through a baby registry or otherwise. In the

last eight years since social media use has increased by nearly 800% (8% users to 72% users

since 2005) among U.S. adults (Olenski, 2013), and online consumer tracking has gained

traction, Target has increased their total revenues by over $8 million (5-year CAGR 3%)


(Steinhafel, 2013). In large, much of this increase in revenue is due to the company’s ability to

intimately know their customers, their wants and their needs, often before the customers know

themselves.

There are hundreds of websites catering to expectant and new parents informing them

about what they need when a new baby arrives. Andrews (2010) calculates that the number of

baby registries has doubled since 1996 and Target specifically has seen an increase from 13% to

34% of new customers setting up baby registries. The number of registries has increased despite

the drop in birthrate. According to the Centers for Disease Control, the number of live births

decreased from 69.3 births per 1,000 women in 2007 to 63.2 births per 1,000 women in 2012.

The dip in birth rate has made the baby goods industry even more competitive (Chicago Tribune

Business, 2013). New parents continue to want quality items for their children but at discounted

prices. This trend has provided a promising opportunity for Target as the household essentials

category, which includes baby items, has been steadily increasing by about 1% each year since

2008 (Anonymous, Target Corporation 2012 Annual Report, 2013). This increase is in-line with

the steady increases of new baby registries.

Modern job seekers are demanding more from employers, potential employees who have

recently graduated from college want employers who will pay well, treat their employees with

respect, offer a career path and potential to grow, and possibly provide further educational

opportunities (Hall, 2008). Recent graduates are also seeking jobs with companies that will

provide them opportunities to learn, grow, and innovate. In turn organizations, including Target,

are aware that obtaining and maintaining a talented and competent workforce is critical in

sustaining and growing market share and profits (Barney, 1991).


In 2008, Target implemented a program that encourages college graduates to become

educated about the opportunities and culture at Target Corporation, and then motivate them to

seek career opportunities within the company. The program was successful as many qualified

college graduates obtained executive level positions and internships at Target (Tworoger &

Greenwood, 2008). Target has declared that their employees are their most competitive

advantage. In 2012, Target offered its employees quality healthcare coverage and one of the top

401(k) plans in the retail industry (Anonymous, Target Corporation 2012 Annual Report, 2013).

Recent data shows that businesses in general around the world spend about $3,300 per hire and

that this budget has increased by nearly 6% just in the last year (Bersin, 2013). It is unknown

exactly how much Target spends on recruiting employees or how much it costs to offer the

benefits mentioned above, but it is proven that high-performing employees lead to high-

performing organizations (Greening & Turban, 2000).

With the impending exit of the baby-boomer generation from the workplace, many

organizations are looking for talented and motivated employees to replace them. It is not

anticipated that replacement employees will be difficult to find, except possibly in states with

large and growing immigrant populations (Neumark, Johnson, & Mejia, 2013). American

workers are anticipated to be older and more ethnically diverse than ever before in the coming

years with minority populations reaching 40% by 2020 (Pearlman, 2010).. According to a recent

report by the University of Georgia, minority buying power in America will increase from $1.6

trillion in 2010 to more than $2 trillion by 2015 (Klein, 2010). Target, and other retailers are

aware of these trends, and sales will benefit from catering to the products and services that are in

high demand by minority populations.


Another significant external environmental factor contributing to the decision-making

process of Target executives is demographics. The typical Target guest is median age of 40,

43% have children at home, the median household income is $64k, and 57% have completed

college (Anonymous, Target Corp. Corporate Overview). Until this year, Target has focused its

efforts solely in the United States, capitalizing on domestic opportunities to turn a profit.

Executives realize the population growth is slowing, family units are changing, and those who

were once the minority are rapidly becoming the majority (Zmuda, 2012). Many consumers are

moving from suburban shopping to urban settings forcing companies like Target to adapt and

adjust to changing demographics and consumer preferences. Target has been compelled to build

stores in city centers and enter the international market or risk becoming insignificant in the

industry. Target is now operating at least six urban-center stores (only 0.5% of total stores)

compared with 1,172 suburban stores (Anonymous, Target Corporation 2012 Annual Report,

2013). Data on how successful this endeavor has been will be available in early 2014, but it is

estimated that these urban-center stores will allow Target to reach out to more urban customers.

Many U.S. companies are beginning to branch out into the Canadian markets, as has

Target (www.reuters.com, 2011). CEO Gregg Steinhafel projects 124 new stores, in all ten

provinces, will be open in Canada by the end of 2013 (Steinhafel, 2013). Cross-border shopping

has been popular for many Canadians and thus, in the last few years to meet demand, American

stores have decided to take advantage of the increasing market share that is available among

Canadian consumers and produce stores in Canada (Senger, 2011). Canada provides a new arena

for Target as the recent recession proved milder in Canada and retail rent space is more

affordable, these and other factors make Canada an attractive location for expansion

(www.reuters.com, 2011).


The financial statements for 2013 have yet to be released and exact conclusions on how

this venture has fared as far as market share and profits are concerned cannot be drawn.

However, executives are extremely optimistic that this increase in stores overall will

substantially elevate profits. It has been projected that Target will gain $300 or more per square

foot, compared to the U.S. average of $280 per square foot (Hood, 2012). It must be noted that

in 2011 and 2012 the company incurred debt from startup costs of around $346 million and $145

million in depreciation as a result of entering the Canadian market (Steinhafel, 2013). The fact

that 70% of Canadians are already familiar with the Target brand and 10% were willing to cross

the border to shop at Target stores is a promising indicator of success and opportunity for

executives (Senger, 2011).

One of the more pertinent threats to Target’s well being within the retail industry is its

ability to adapt to changing consumer preferences. In a study done in 2006, researchers found

that of the typical Target shoppers 87.7% bought health and beauty care products while shopping

at the store (Blackwelder, 2006). Housewares, food items, and clothing produced similar

numbers. However, the key attribute of regular guests (as Target refers to their customers) is

attraction to the trendiness of product selection. Nine in every ten Target guests surveyed agreed

that Target’s products are fashionable, affordable, and in tune with the latest trends

(Blackwelder, 2006).

Technological

Advanced technology has played a major role in the way that retailers do business in the

21st century. Technological variables that have impacted or will impact Target Corporation


include the increase of online spending, investment in multi-channel distribution, and the

concern over e-commerce security. A closer look at these variables will provide Target decision

makers a clear view of the threats and opportunities that face the organization.

More and more consumers are interested in purchasing goods online than ever before.

Many of these modern consumers are younger, wealthier, better educated, and more computer

savvy than consumers of the past (Swinyard & Smith, 2003). Electronic commerce is up 13%

from 2012, and Target executives are aware that maintaining their position in the market requires

them to keep up with advances in technology. By 2017, that growth is projected to increase from

8% to 10% of total retail sales in the United States (Babej, 2013). In a 2010 survey, business

marketers and executives indicated that they expected the majority of their customers would

discover new products online, and a third of their customers would actually purchase

merchandise online (McKinsey Global Survey, 2010).

Convenience has been one of the major draws for Target customers as they can purchase

anything from food items to household goods to clothing all in one stop. Electronic commerce is

also grounded not only in convenience but also availability of a wide selection of products and

value. Many shoppers choose to shop online simply for the convenience factor (Ling, Yang, &

Jun, 2013). It has now become both a challenge and an opportunity for retailers like Target to

explore multichannel marketing and distribution of their products. Target’s initiative to increase

technology and its multichannel investments only added 0.2% to its selling, general, and

administrative expenses in 2012 (Anonymous, Target Corporation 2012 Annual Report, 2013).

Jim Boulton, deputy managing director of Story Worldwide, stated, "What many retailers don't

recognize is the investment in an e-commerce site needs to be maintained, content updated,

customers looked after, stock merchandised in new and refreshing ways, and so on”


(Anonymous, 2008).

In 2012, Target focused much of their attention and financial investments in increasing

the power and influence of their digital channels. Not only does Target offer a website where

their merchandise can be purchased and then shipped to the customer’s home, but all stores are

now equipped with free Wi-Fi that allows guests to access the Target app and the store’s QR

code program (Anonymous, Target Corporation 2012 Annual Report, 2013). Target’s capability

to integrate their brick-and-mortar channels with their digital channels is critical in maintaining

leverage within the retail industry.

According to a study performed by the United Parcel Service in February 2013, 70% of

consumers surveyed said they prefer to shop at their favorite retailers online. Half of the 3,000

participants in the survey claimed that they use smartphones to make purchases, and nearly 60%

indicated they use tablets for online shopping. In 2012, e-commerce grew approximately 15%

raking in over $186 billion. In the fourth quarter last year, e-commerce reached 10% of all

discretionary spending in the U.S. (Morris, 2013). These findings come from the second annual

Pulse of the Online Shopper Survey conducted by the data analysis firm comScore. This data set

provides clear indicators to Target decision makers that e-commerce efforts are absolutely

necessary to maintain a loyal customer base (Demangeot & Broderick, 2006).

In August 2013, Target financial representatives reported that its digital sales have grown

by double-digit percentages over the last year. Although Target claims that its online sales make

up only approximately 2% of its overall sales, the push to further increase their online presence

is still weighed heavily by executives (Banjo & Ziobro, 2013). Few online retailers, including

Target, have been able to keep pace with Amazon, which reached Internet sales of $61 billion in

2012.


Another external environmental factor affecting Target and its competitors is e-commerce

security. More and more retail consumers are concerned with how their personal information is

stored and used. According to Hashemzadeh and Khosravi, noteworthy concerns of e-commerce

consumers are trust and overall security in using e-services (Hashemzadeh & Khosravi, 2013).

The overall security of a website depends heavily on both the internal systems security and the

external networks’ security (Guynes, Wu, & Windsor, 2011). Consumer confidence in Target

can be easily tarnished if guests’ personal information is compromised. One of the most

important aspects of Target’s business is maintaining their reputation for quality, diversity, and

differentiation. If security of their customer’s information is misused, profits and market share

could take a detrimental hit (Anonymous, Target Corporation 2012 Annual Report, 2013).

By 2010, corporate firms had increased IT security spending by 42% since 2007. The

average monetary losses as a result of cybercrimes has decreased by nearly 10% due to increases

in IT security (Brenner, 2010). These statistics are most likely to be similar to the numbers

reported by Target executives concerning costs associated with e-commerce security.

Economic

Economic environments play a vital role in the success of retail businesses (Stewart,

2010). When economies are stable and the general population feels comfortable financially,

more spending ensues. Discretionary income is necessary for the purchasing of many items that

Target sells. Changes in consumers’ disposable and discretionary income can influence the

bottom line of retailers. According to Target’s annual report for 2012, executives specify that

U.S. consumer confidence is a primary concern. In 2004, consumers were spending their

discretionary income confidently. At that time, resilient household demand accounted for 60%

of the United States’ gross domestic product (GDP) (Harchaoui & Tarkhani, 2004). According


to the table below, disposable personal income rose by $9,848 between 1975 and 2009 (Stewart,

2010). However, household debt has increased from 62% to 123% of disposable personal

income. This trend has impacted the ways consumers spend their discretionary income.

About 19% of Target’s annual revenue in 2012 came from fashion apparel and

accessories (Anonymous, Target Corporation 2012 Annual Report, 2013). The fashion industry

plays a substantial role in the U.S. economy (Abubaker, Richards, & Nwanna, 2010). Target

recognizes this opportunity and markets to consumers who are seeking after fashionable clothing

and accessories as well as reasonable prices. Fashion and apparel are not the only retail category

that Target is in constant competition for market share. The battle for market share among food

retailers has been extremely competitive in the past five years. The market share of the top 10

food retailers in the U.S. grew from 53% in 2005 to 59% in 2010

(Pearlman, 2010). During the recent economic recession many retailers

have been focusing on slashing their prices in order to lure consumers in.

This has been a problem for discount retailers like Target because it makes

their prices less competitive. Consumer confidence continues to be an

underlying factor in how the American consumer spends discretionary

income.


The past few years have seen some improvement from the recent economic recession,

however, retail sales grew only 0.2% last month (House, 2013). Many retailers are accusing

consumers of being cautious spenders primarily as a result of poor income growth and low

consumer confidence. Retailers are resorting to offering discounts and deals in order to lure

customers into their stores and onto their websites and apps (House, 2013). Towards the end of

2012, many consumers slowed their spending as a result of high unemployment rates and the risk

of increased taxes in 2013 (Casselman, 2012). Trends that showed consumer confidence was on

the rise suddenly plummeted near the end of 2012, as shown by the image to the right.

One of the measures used by the media to monitor consumer confidence is the Consumer

Confidence Index (CCI) that uses responses from survey participants about the past, present, and

future economic outlook to determine how confident the average consumer feels about spending.

Between 1967 and today, the CCI has averaged roughly 93. In January 2000 the CCI reached an

all-time high of 114.7, then dropped to as low as 25.3 in 2009. In September 2012, that number

rose to 70.3 (Schadelbauer, 2012). The CCI has been comparable to the status of the economy

and has provided valuable information to retailers about the trends and habits of their customers.

States typically respond to oil price fluctuations differently (Kang, Penn, & Zietz, 2011).

Some states may have a more difficult time adjusting to changes in availability of oil and/or

prices than others. This affects Target because it ships products to all the states and Canadian

provinces. The price and availability of oil affects the shipping prices associated with online

purchases in addition to moving merchandise from manufacturers, to suppliers, to customers.

There was once a period of time each year known as the “shipping season,” this phase has passed

as now all year long can be considered “shipping season” with the dramatic increase of online

shopping (Blanchard, 2013).


With gas and oil prices dropping in recent months, costs incurred by Target and other

retailers will be relieved at least while

those prices remain low. Oil prices from

the late 1980’s through 2001 were

relatively stable at around $20 per barrel.

Those prices spiked at around $134 per

barrel around the time the recession began.

However, the good news for retailers who

are spending more on shipping is that oil

prices are expected to remain below $80 per barrel during the next few years (Conerly, 2013).

According to an article in Economics Week, the average American family will spend around

$700 this year on holiday gifts, and many of those gifts will be purchased online requiring

shipping (American made matters; American made matters day: A call-to-action for American

consumers, 2013). Target will be one of the retailers that will benefit from the decline in fuel

costs.

The price of oil has a direct affect on the price of consumer goods. This fact impacts all

players in the retail industry. Typically 15.7 terajoules of energy are consumed for every $1

million of product output. This means that the more products produced the more energy is

required. If energy is more expensive, merchandise will also be more expensive. As mentioned

in the previous paragraph, oil prices are anticipated to drop in the next few years, if this proves to

be true, retailers will be able to continue to sell their products at discounted prices that appeal to

consumers. Notice from the table below that energy consumption in transporting goods to retail


stores is on average 23% (Fitpatrick, 2012).

Unemployment rates are also related to the issue of consumer confidence (Schadelbauer,

2012). Consumers are less likely to buy a new 50-inch HDTV or a $600 camera if they are

unemployed. In December 2009, at the height of the economic recession total revenues totaled

$65,357 million and the unemployment rate was 9.9% (United States Department of Labor,

2013). At the end of 2012 total revenues totaled $73,301 and the unemployment rate was 7.3%

(Anonymous, Target Corporation 2012 Annual Report, 2013). These statistics support the claim

that more consumers were willing to spend their discretionary money when they were gainfully

employed. When consumers are unemployed they do not spend their income on wants like

televisions and other electronics. This is a major threat to Target’s profit margin as nearly 20%

of annual sales come from electronic items (Anonymous, Target Corporation 2012 Annual

Report, 2013).

One of the most critical external environmental factors affecting Target is the nature of

industry competition. Target competes with several large firms that focus on many of the same

segments. The most obvious competitor is Wal-Mart. In 2003, Wal-Mart had 2,932 stores


operating in the United States, whereas Target had only 1,260; as of 2013 both of those numbers

have grown (Zhu & Singh, 2009). Other competitors such as Kmart, Costco, and Amazon have

also posed threats to Target’s market share. This will be discussed in more detail in the

following sections.

Ecological

Companies that recognize the importance of being accountable to its customers and the

environment have been able to retain footholds in their respective industries (Hartman, Apoalaza,

& Sainz, 2005). In the past year, Target has focused extensively on its initiative to remain

environmentally friendly. By the end of 2012, 631 of Target’s buildings had received the U.S.

Department of Energy’s ENERGY STAR rating. The initiative continues as the company’s goal

is for 75 percent of all facilities to receive this rating by 2015 (Anonymous, Target Corporation

2012 Annual Report, 2013). A similar enterprise is being pursued to ensure the environmental

efficiency of facilities in Canada.

Target puts out several television commercials each year promoting a variety of products

at different times of the year. These commercials can be very costly to the environment. Three

15-second spots could accumulate hundreds of pounds of commercial-production waste. During

one such shoot in Pasadena, CA in December 2010 a mass of waste was gathered up and prepped

to be recycled or composted (Zmuda & Hampp, When it comes to commercials, Target, others

keep it green, 2011). Target executives have been moving towards environmentally sustainable

processes during the last three decades in part due to their partnership with EcoSet Consulting.

EcoSet Consulting aims to make production more sustainable rather than relying on carbon

offsets. EcoSet is now working with Target on approximately 90% of the retailer’s commercials.


Creating “green” sets for shooting commercials can be overwhelming and costly. EcoSet

provides information to companies advising them on recycle stations, the use of biodiesel

generators, and reusable water bottles. In order to alleviate some of the costs, companies use

EcoSet’s expertise to implement the use of products that are inexpensive and environmentally

friendly such as silverware made from cornstarch and talc, as were used during the previously

mentioned Target shoot. Vice President of Brand Marketing at Target, Shawn Gensch, declared

that the efforts were not invasive or costly (Zmuda & Hampp, When it comes to commercials,

Target, others keep it green, 2011). Unfortunately, the financial statistics are not available on

how much Target has invested in this initiative.

Legal-Political

According to Ethisphere Institute, one of the world’s leading authorities on corporate

social responsibility rated Target as one of the “World’s Most Ethical Companies” in 2012

(Anonymous, Target Corporation 2012 Annual Report, 2013). In order to be grouped in this

prestigious collection of companies a company must show ethical behavior in their practices not

just in their words or declarations. These companies are recognized for their ability to exceed

legal compliance minimums (Ethisphere Institute, 2013).

Abiding ethically by the laws and regulations set forth by the operating countries is

critically important for any company trying to increase profits and market share within its

industry. Up until recently, Target has focused its efforts primarily in the United States, and has

been able to dedicate its legal resources to abiding by laws and regulations in this country. Now

that Target has branched into Canada there are more laws and regulations that must be followed

in order to operate legally in that country (Anonymous, Target Corporation 2012 Annual Report,

2013).


Publicly-traded corporations in the United States are required by law to follow the

rigorous reporting guidelines set forth by the U.S. Securities and Exchange Commission (SEC).

Target, just as all other publicly traded companies in the U.S., is required to report relevant

business financial statements in order to inform investors of the current state of the company.

The SEC is able to use this publicly reported information to regulate and enforce guidelines and

penalties related to legal practices in the U.S (U.S. Securities and Exchange Commission, 2013).

From 2011 to 2012, Target’s tax rate increased from 34.3% to 34.9%. This was primarily

due to some unfavorable losses in Canada, which are taxed at a different rate than in U.S.

earnings (Anonymous, Target Corporation 2012 Annual Report, 2013). The company’s tax rate

decreased from 2010 to 2011. Changing tax rates can have both positive and adverse affects on

overall profit margin and market share.

Industry Analysis

When Michael Porter released his groundbreaking work, “How competitive forces shape

strategy,” through the Harvard Business Review in 1979, there were immediate reverberations

throughout the business community that continue to this day on a global scale. Porter and many

other authors have continued to write about the Five Forces that he defined and explored in this

seminal essay and some authors have either challenged Porter’s work or added a sixth force,

other stakeholders from Wheelen & Hunger (2012) and complementors from Brandenburger and

Nalebuff (1996) along with former Intel Corporation CEO Andrew Grove (1996).

Target’s executives, managers, and corporate planners are undoubtedly quite familiar

with Michael Porter’s life-work and, in their 10-k report for 2012, make explicit mention of:


rivalries/competition; risks & threats; the power and the relationship it has with buyers and

suppliers; the threat of substitute products, and the importance of satisfying key stakeholders

(Target 10-k, 2012). Furthermore, Target’s management is particularly conscious on how

dependent their business is on the positive perceptions the public has in regards to Target and the

experiences “guests” have while shopping there. This focus is very clear to at least two of the

authors here who have had over 40 years of combined experience visiting and buying through

Target. Additionally, Target has taken pains to not only rank high among the Fortune 500

companies (most recently at 36 in 2013) but also to prominence in terms of public admiration

and reputation for its philanthropy (not just its own from corporate coffers but in totality),

competitive business practices, and corporate ethics among other qualities (CNN Money, 2010 &

2013). It should be noted specifically that for all of the nine key attributes identified in this

survey by CNN Money, Target ranked either first or second inn 2010 for its industry whereas its

primary competitor, Wal-Mart, ranked first overall but was damaged in two critical areas that

Target excels in: people management and quality of products/services (CNN Money, 2010).

Furthermore, as of 2013, Target ranks higher than Wal-Mart overall, ranks first or second in all

nine critical areas, and is second overall only to an indirect competitor, Nordstrom’s (CNN

Money, 2013).

In the following discussion, we will explore all five areas identified as forces contributing

to “the ultimate intensity of competition” within an industry along with a treatment of the sixth

force theory (Porter, 1979, p. 144). Additionally, as we discuss and rank each competitive force

present in Target’s industry, we will offer evaluations which take into account each factor that

Michael Porter has identified as bearing influence on a force’s strength.


Threat of New Entrants

The discount retailing industry to which Target belongs grew out of the general

merchandising industry and is a representative of a mature industry that still has some room for

growth. In theory, virtually anyone with sufficient capital and business acumen can set up a

general store or small retail outlet. A great deal of the exact cost here would depend on your

location, scale, and what products you intend to offer. For example, if a business wanted to

establish a small scale (1600 square feet) consignment store at a strip mall in North Austin,

Texas, your initial rent/operating costs might total just under $5000, improvements could total

around $7500 plus another $1500 for miscellaneous expenses, $11000 for marketing and PR and

$6000 for IT ((Dahl, 2011, p. 1). Inventory would be held on consignment at no cost to the

business, thus keeping startup costs around $30,000. Likewise, beginning business using an e-

commerce model would have lower upfront costs that primarily include the cost of a website, or

a professional store through another online retailer like Amazon, the cost of initial inventory,

some IT, and a budget for marketing under $1000. However, to compete at the scale of Target,

Walmart, Sears/Kmart, Costco, Sam’s Club, Amazon, and eBay, a company would at least have

to possess deep resources, powerful and interested investors, and some innovative or disruptive

way to edge in on their business, e.g. establishing an online grocery and deep discount retail

within several major metropolitan U.S. cities (Wessel & Christensen, 2012, p. 61). Considering

financial resources alone, a competitor like ShopKo, which is on the smaller end of discount

retailer chains with 360 stores in 2005, had total expenses of $3.1 billion, compared to 3.17

billion in revenue, with SG&A expenses alone equaling 20.5% of revenue. Furthermore, they

only managed a net income of $43.3 million, a mere 1.36% of gross revenue (Shopko). Stepping

up to a larger company like Target, their net profit margin was much higher at 6.8% for that


same year (2005) and Wal-Mart’s was 3.6% (Target; Wal-Mart). Those last two figures give the

prospecting retail contender a more realistic idea of the low profit margins and high expenses to

expect in this industry, something that may ward off those with a stronger appetite for the kind of

profits seen in the tech or pharmaceuticals industries.

According to Michael Porter (1991), new entrants can come from a number of different

areas, including from the suppliers of an industry, a threat that also contributes to the bargaining

power of certain suppliers. Likewise, rivals can cross over from other industries (e.g. Groupon

and eBay) after they have the economies of scale, capital investments, distribution, and product

lines in place to compete. Generally speaking, new entrants are often able to initially challenge

dominant players by relying on “lower overhead costs, new technologies, alternative distribution

channels, and the active targeting of profitable customers” (Clemons, Croson, & Weber, 1996, p.

59). Back in the mid 90’s, Amazon was a new entrant into the e-commerce scene and primarily

focused on books but didn’t become a profitable online retailer until 2001 (Dignan, 2002).

However, once executives at Amazon figured out how to create the world’s largest marketplace

for books and make it into a successful business, they then set their sights fully on the kinds of

hard goods, clothing, and electronics which comprise a large portion of discount retailers’

business (Gosal, 2011). Net profit margins didn’t exactly soar after that first profitable year but

sales growth has been tremendous, from $3.93 billion in 2002 to $61.09 Billion in 2012

(Marketwatch, 2013; Wikinvest, 2013). Target and Wal-Mart both have learned lessons from

their fight with Amazon over the last decade and that’s ideally what occurs to leaders when new

challengers enter an industry’s main fight ring: the reigning champs evolve their tactics and

revamp strategy to compete with and eventually overcome the disruptive rookie. Although

Target and Wal-Mart have not been able to beat Amazon at the e-commerce end of retailing,


their model of business is not heavily reliant on web customers like Amazon’s is and they have

avoided the profit-crushing growth strategy that Amazon has pursued for years (Wohlsen, 2013).

Even taking into account the success Amazon has had in competing in the discount

retailing industry, it is difficult to imagine another company accomplishing that level of success

against the industry leaders in the immediate future. Firstly, Target and Wal-Mart now have

fully-featured websites, both of which rank in the top 100 websites in the United States by total

traffic (Alexa, 2013). Likewise, Target is now more aware of how mobile, intelligent, and

flexible customers are with new technology and have taken steps to adapt to this, such as

strengthening their exclusive brands, working more closely with key suppliers, and developing

an integrated mobile app that emphasizes their key product offerings and high competitive value

(Target 10-k, 2012). Second, Amazon succeeded largely in part by creating a powerful and swift

supply chain, something which Wal-Mart and Target have been working to match in conjunction

with their retail expansion and product line upgrades (Wohlsen, 2013; Target 10-k, 2012).

Lastly, Amazon investors have stayed quite loyal to the company despite souring and even

negative profit reports and an extraordinarily high PE ratio (274 in October of 2012), perhaps in

the hope that other lines of Amazon’s business (e.g. cloud computing and business technology

services) will diversify the company and lead to better avenues for profit than losing online

ventures like its Living Social business (Wohlsen, 2013; Yglesias, 2012). This is highly unusual

optimism from investors and is not currently present in even far more profitable and prestigious

companies like Apple who has seen its stock hit even at times when it’s profit soared in the last

year (Wohlsen, 2013).

With this background discussion now behind us, we will get to the science of ranking this

force by assigning a value ranging from low to high in each of Porter’s six major barriers to


entry: economies of scale, product differentiation, capital requirements, cost disadvantages

independent of size, access to distribution channels, and government policy.

Economies of Scale

o As discovered by Amazon, in order to truly challenge the big dogs, you need

huge economies of scale in the discount retailer industry. For instance, Amazon

has spent around $13.9 billion since 2010 to build 50 new warehouses, an

amount that eclipses total spending on storage facilities for the 15 years prior to

2010 (Kucera, 2013). Furthermore, inventory management, shipping, and

delivery costs have skyrocketed to become Amazon’s biggest set of expenses

and contribute to the souring profits mentioned earlier (Kucera, 2013). It should

be noted that Michael Porter (1979) considers this factor to encompass much

more than just meeting high consumer demand through proper production and

distribution (p. 138). It also means generating this demand through marketing;

researching and consistently executing both the simple and the complex when it

comes to tactics, operations and strategy; having the working capital and

financing in place to fuel operations; properly utilizing a large sales force and

other employees, and virtually every other aspect of business involving scale and

execution (Porter, 1979, p. 138; Porter & Siggelkow, 2008).

o In this scenario where new entrants are forced to compete against large,

entrenched, and well-financed competitors, an approach that asks “what job or

jobs can I perform better for customers than ‘xyz’ competitors given my core

strengths & weaknesses” would be advisable (Wessel & Christensen, 2012, p.

64). Entrants who cannot hope to steal market share away from the industry


leaders through a proper disruptive or differentiating strategy, while being able

to fulfill this new demand with sufficient supply levels, will likely be dissuaded

by this high hurdle among others.

o Ranking: High

Product differentiation

o In his original work, Michael Porter (1979) detailed this as a point of “brand

identification which creates a barrier by forcing entrants to spend heavily to

overcome customer loyalty” (p. 138). This category can be seen as a “non-price”

point of rivalry between companies and, if repeated over time, can lead to one

rival upending the market share of another and discourage collusions which “are

prone to be less complete and less effective in dealing with nonprice than price

competition” (Sakakibara & Porter, 2001).

o Target has made it a point to own certain household/food brands like Archer

Farms and Chefmate along with fashion-forward exclusive labels like Mossimo,

Cherokee, Converse, and Liz Lange which helps set them apart from other the

competition (Target 10-k, 2012). Although Target takes product differentiation

seriously, the same cannot necessarily be said for Walmart, Sears, Amazon, or

eBay. Costco, however, can claim a prominent 1st party brand, Kirkland, that is

very elastic and encompasses high quality products made by everyone from

Bumble Bee Co. to Macallan Whisky and Martha Stewart (Brandculture, 2013).

Because of the discounted price nature of the industry, the bigger barrier to entry

here lies in the ability to offer a desirable, wide range of products at prices lower


than the competition or to undermine certain segments of the industry. New

entrants can certainly use the lower-middle barrier here to their advantage.

o Ranking: Low to Medium

Capital Requirements

o As Amazon has learned the hard way in building its supply chain infrastructure

largely from scratch over the last 20 years, getting into this business is not cheap

and comes at a sacrifice of profits in some cases, i.e. Amazon didn’t generate a

profit for the first six years of its existence (Malone, 2002). Porter (1979) lists

unrecoverable expenditures in the form of marketing (a must here) as well as the

“fixed facilities…customer credit, inventories, and absorbing start-up losses” (p.

138). This might be referred to as the “very short list,” especially given the

industry that we are dealing with. Many entrants simply would not have the

capital necessary to compete directly with the leaders in this industry and would

have to adopt a smaller scale, more disruptive and innovative approach that in

some cases takes years if not decades (Wessel & Christensen, 2012, p. 58). New

entrants could certainly take the Amazon model if they had the proper financial

backing and strategic vision, but it is more likely that new entrants would view

the daunting capital requirements as a high hurdle and find a smaller scale means

of competing until they can find a way to extend their core strengths against top-

tier companies like Target.

o One simple example of capital requirements relates to the holiday rush scenario,

the big 4th quarter that retail companies salivate over all year long. This

Thanksgiving to Christmas time period requires major working capital in order


to create sufficient levels of inventory of major gift items for customers to draw

from and the accompanying seasonal staff and other resources needed to make

this extravaganza a success. Target is able to get all of its working capital here

from its operational cash flow and short-term borrowings that it can pay off with

the sales it earns during the holiday rush (Target 10-k, 2012). Having superb

inventory management skills and top-notch purchasing agents is also critical to

avoid major markdowns and clearance.

o Timing can also make a difference when it comes to having sufficient working

capital. For example, if a new entrant was able to begin business at beginning of

the calendar year, they might be able to build up sufficient working capital and

free cash flow to address the higher expenses of the 4 th quarter without having to

rely heavily on debt financing. New entrants might find the challenges here

daunting but success or failure in a given year can come down to how well you

finance, manage, and market under these high pressures which are omnipresent

in the discount retailing industry.

o Ranking: High

Cost Disadvantages Independent of Size

o What Michael Porter (1979) means here is that certain cost advantages simply

aren’t derived from being an industry giant with enormous economies of scale.

Rather, “experience in the industry, proprietary technology, access to the best

raw material sources, assets purchased at pre-inflation prices” and other non-size

factors can result in even well-financed and equipped entrants arriving on an

uneven playing field (Porter, 1979, p. 139). For this industry, experience and


triumphing over the learning curve can help separate a company like Target from

Kmart or Nordstrom’s from Macy’s. Strategic alliances with suppliers, licensors

of merchandise and even rivals (e.g. eBay and Best Buy) has an impact on

success. Additionally, companies like Target and Costco have exclusive control

over certain brands that they derive much higher profit margins from and which

inflict a cost disadvantage on competitors who must rely on lower margin

products from 3rd party suppliers (Target 10-k, 2012).

o Ranking: Medium to High

Access to Distribution Channels

o Distribution, as per Michael Porter’s presentation, is largely about getting your

goods to the consumer and then engaging in the appropriate marketing and sales

efforts necessary to bring about a purchase (Porter, 1979; Porter, 1980). New

entrants in the discount retail industry would likely seek to have either a smaller

scale distribution through lower cost facilities or, if they have sufficient means,

buy out another discount retailer who has seen better days. For example, when

Kmart went bankrupt back in 2002 (the biggest bankruptcy of a U.S. retailer up

till that point), it was not another retailer who purchased them but rather a hedge

fund by the name of ESL Investments (Hays, 2003). Likewise, on the electronics

end of the discount retailing industry, Circuit City and CompUSA had many of

their key assets purchased by an outside investor called Systemax and then

reorganized as e-commerce only discount retailers (Mick, 2009). Provided a new

entrant can take this approach, they may be able to reestablish the failed

retailer’s business and product distribution, albeit hopefully using an approach


that rectifies the retailer’s past failings. However, if a new entrant was forced to

start from the ground up, they would be advised to take the e-commerce route, at

least initially, and avoid the heavier start-up and growth costs that come with

being a major brick-and-mortar retailer.

o One final consideration here is that rival retailers may attempt to specifically

block a new entrant from having business relationships with their suppliers.

Particularly in Wal-Mart’s case where they can compose a huge share of any

single supplier’s total market (e.g. 26% for Rayovac or 24% for Dial), a small

word from a Wal-Mart executive or purchasing manager could torpedo hopes of

a new entrant getting a foot in the door of that supplier’s office (Hopkins, 2003).

On the flip side, suppliers may be willing to take a risk with a new entrant if they

feel they can market different products or achieve better margins than with a

company like Wal-Mart or Target (Huang, Nijs, Hansen, & Anderson, 2012).

o Ranking: Medium

Government Policies

o Although the retail industry is not nearly as regulated in the United States as the

telecommunications or financial banking industries, there are still some relevant

governmental policies new entrants must take into account. For instance, truth in

advertising laws, consumer protection laws, laws against misleading prices, and

various state and local laws related to building and safety codes, zoning etc.

should all be understood by new entrants prior to doing business (Lister, 2013).

Other than following the relevant laws governing the retail industry, there are

not any particular governmental barriers in the United States that should


dissuade new entrants under most circumstances. One of the exceptions to this

would be in the case of investors with foreign interests whom the U.S.

government is opposed to (e.g. Iran, North Korea, or individuals with ties to

groups like Al-Qaeda) and also those whom the government believes are seeking

a monopoly, though in the latter scenario those companies would likely be

established owners of other retailers.

o Rank: Low

Overall Ranking: Medium

Rivalry among Existing Firms

Rivalries among existing firms gets to the core of Michael Porter’s argument for a set of

well-defined forces that have the biggest influence on an industry and, by extension, the

strategies a company must pursue to achieve and maintain one or more competitive advantages

(Porter, 1979, p. 142). In fact, if we look at Porter’s original diagram illustrating the Five Forces,

we see that this force is at the center of the action and influences all the other forces around it

and is likewise influenced by them (Porter, 1979, p. 141). Porter cites several factors that

contribute to the intensity of rivalry here, which we will rank as before.

Number or Equality in Size/Power

o One could hardly argue that there is a shortage of companies currently within the

discount retail industry, either online or as brick-and-mortar establishments. In

fact, the overall retail industry in the United States was estimated to generate total

revenue around $4.35 trillion in 2012 with the top 5 discount retailers comprising


around $600 million (14%) of that number only from their U.S. sales (Schulz,

2013). Those five stores are ( in order of size): Walmart, Kroger, Target,

Costco, and Amazon. Among these, Wal-Mart is, without a doubt, the oversized

elephant in the room whose global annual revenue eclipses those of its four

closest competitors combined, i.e. $469 billion for FY 2013 vs. a total of $322.1

billion from Kroger, Target, Costco, and Amazon (Schulz, 2013). The rivalries

between these companies and cross-industry competitors like Best Buy and

Nordstrom’s reaches a fever pitch during the holiday shopping season. Even

during slower times throughout the year, normal moves from Wal-Mart or

Amazon could result in the immediate and painful collapse of rivals. For

examples, ask any of the companies from the long list of “big retail’s” victims,

e.g. the number of independent retailers in the U.S. declined by 60,000 between

1992 and 2007 according to the U.S. Department of Commerce (Mitchell, 2012).

Although not all of those business closures can be attributed directly to

competition with big retailers, there is little doubt of the impact Wal-Mart and its

top rivals have had on smaller retailers (Zhu, Singh, & Manuszak, 2007).

o Ranking: High

Industry Growth Factors

o Describing giants like Wal-Mart, Target, and Amazon as “expansion-minded” is

quite appropriate when it comes to their corporate mode of thinking (Porter,

1979). Taking into view the sometimes frenzied mode of sales & capitalistic

impulse, it becomes quickly apparent how easy critics of big business or even the

general public can say these companies “overlook the well being of their


customers, the depletion of natural resources vital to their businesses, the

viability of key suppliers, or the economic distress of the communities in which

they produce and sell” (Porter & Kramer, 2011, p. 64). Because of the maturity of

the discount retailing market, revenue and profits for many rivals either comes at

the cost of their foes, whether big or small, or as a result of diversifying into other

goods, like groceries for Wal-Mart and Target. Big fights between powerhouses

are always present here and failures of well-established, multi-billion dollar

companies are never ruled out (e.g. Kmart on the general retail side and Circuit

City and CompUSA on the discount electronics side).

o Even though overall annual growth in the retail industry was only 5% from 2011

to 2012, individual companies like Target are expected to grow their sales by just

under 50% over the next 4 to 5 years, achieving annualized growth around 12%

(Hargrave, 2013). This growth for Target appears to come from three main areas:

upgrading current operations to drive additional sales, expanding grocery

offerings (thus stealing market share away from grocers like Kroger), and

through both domestic and international store expansion (Hargrave, 2013). These

three types of growth are generally representative of how other retailers can get

bigger and is a model that has been followed closely by Target, Wal-Mart,

Costco and other retailers over the last half-century.

o Ranking: High

Products/Services Lack Differentiation of Switching Costs

o Although Target holds many brands close to its chest like a seasoned poker

player, the same cannot be said for its rivals. Even in Target’s case, it would not


necessarily be a painful experience for most customers to go from wearing

Mossimo jeans to stylish Lee jeans from JC Penny’s or to go from using

Chefmate to Pampered Chef. This is not to say that Target does not have brand

loyalty but rather stiff competition who offer close substitutes for most if not all

of its branded products. In the mobile technology arena, top dogs like Apple and

Samsung can certainly claim loyal or even rabid followers who would have a

difficult time separating themselves from their prized devices, but it is difficult to

stake a comparable claim in the discount retailing industry that is largely fought

on grounds of price, selection, and convenience. Nonetheless, some consumers

may genuinely cherish Costco’s Kirkland brand for its quality and consistency

and any one of Target’s 20+ brands and growing that lend character and

distinction to the company’s offerings.

o Ranking: Low to Medium

High Fixed Costs or Perishable Products

o As Amazon has learned the hard way, fixed costs related to this business can be

astronomically high and billions of dollars must be spent on the infrastructure

necessary to properly compete with Wal-Mart in particular and to a lesser extent

Target and other secondary players (Kucera, 2013). Perishable products are also

present for companies like Wal-Mart and Costco who lean heavily on their

grocery offerings. Provided a company has a well-thought out strategy for

managing the high fixed costs, e.g. begin with a small-scale digital model and

grow from there, they can easily avoid offering perishable products like groceries

since that would open them up to competition with industries outside of discount


retail (i.e. traditional grocers, convenience stores & gas marts, farmer’s markets,

co-ops etc.). As time goes on, however, and a company expanded, they would

have to face these high fixed costs one way or another. For instance, if we were

to exclude the cost of sales and focus on SG&A expenses, we would see that for

the top 5 discount retailers, those expenses make up between 16-22% of all

expenses (ADVFN, 2012). This indicates that overhead costs are a significant

portion of the expenses a retail company must manage and gives them additional

incentive to steal profits away from their competitors.

o Ranking: Medium

Capacity Augmented in Large Increments

o Even though Wal-Mart and Target are no longer in a high growth stage

domestically where 100 or more stores could open in a given year, capacity can

still increase in fairly large increments. For instance, from the end of 2000 to the

end of 2006 alone, Target averaged slightly over 100 store openings per year

whereas from 2006 to 2011 they averaged around 55 per year and most of those

were a result of their international foray into Canada (Target 10-k, 2000 & 2006;

Target 10-k, 2011). Although Target may have peaked for now domestically,

Wal-Mart has been keen on international expansion for over two decades and has

gone from 955 locations in 2000 to 4,112 units in 2010 (average of 316 stores per

year). Likewise, Wal-Mart has been far from soft on their domestic ambitions,

going from 2,522 stores in 2000 to 3,708 in 2010, an average of 119 stores per

year (Wal-Mart 10-k, 2000; Wal-Mart 10-k 2010). Even though Wal-Mart may

be rightly expected to slow its growth as Target has, the name of the game for


this industry has been large expansions in the past so opportunist competitors

would be best advised to slip in areas where they would not have to go head-to-

head with the leaders and be forced to quickly grow beyond their means or get

left behind.

o Ranking: High

High Exit Barriers

o This factor is certainly present here given the enormous amount of capital

investments required to begin full-scale operations and then even more as the

company is expanded to keep pace with the big boys. Although the discount

retailing industry doesn’t have as many specialized assets as computer

technology, oil companies or big bio-tech companies have, they still must invest

in their supply chain and distribution infrastructure, retail locations (if they

choose the brick-and-mortar approach), technology, and other areas that are not

easily liquidated unless they spark another player’s interest.

o Ranking: Medium to High

Rivals are Diverse in Strategies, Origins and Personalities

o One of the interesting stories here relates to the fact that Target, Wal-Mart, and

Kmart were effectively born as discount retailers in 1962 and immediately began

seeking their own distinct style of low-price retailing for diverse goods (Malcom

& O’Donnell, 2012). Costco, Sam’s Club and many others followed with the

modern culmination being with Amazon and, to a lesser extent, eBay. Just

looking at the four biggest discount retailers, excluding Kroger which is more

heavily invested as a grocer, you immediately notice sharply different strategies.


Wal-Mart pushes it’s “low prices everyday” along with the super-center model

that attempts to meet virtually every basic consumer need a person could have.

Target is more focused on its higher quality, upscale “chic” image and offering a

different shopping experience while not straying too far from the broad product

offerings and low prices of yesteryear (Target 10-k, 2012; Malcom & O’Donnell,

2012). Costco is big on the bulk-buying habits of its customers and allows its

customers to compare its per-unit prices with any competitor on the spot. Finally,

Amazon focuses on its extraordinarily vast range of products and services, low

prices, low shipping costs, and its deep network of 3rd party sellers for both new

and used items. Furthermore, Amazon, unlike its competitors, is now

transitioning into business services with its cloud computing and storage

solutions, something that may provide a new profitable dimension to their

business that could eclipse their core retail operations (Braswell, 2013).

o Ranking: High

Overall Ranking: High

Threat of Substitute Products/Services

Target, perhaps more so than any of the other top contenders, understands the need to

have exclusive, differentiated items that are not easily substituted. For instance, Target derived

approximately 1/3 of its total revenue from owned or exclusive brand merchandise, which works

out to be over $25 billion, a figure not far below the total revenues of eBay and Kmart combined

(Target 10-k. 2012). In theory, virtually any one business with the sufficient capital, supplier

connections, and business acumen can try to substitute its products for those offered through


discount retailers. However, especially given the extraordinarily vast swath of items offered

online through Amazon and eBay along with the diverse products available through a given Wal-

Mart or Target super-center, it would be a daunting task to offer a sufficient number of substitute

products to properly compete with the retail titans. Furthermore, companies like Target are quite

balanced in their sales across several categories so using a more focused targeting strategy (no

pun intended) against a certain set of goods might result in taking profits away from Target

short-term, but would hardly hurt the company and likely be followed by crushing retaliation

from Target or other companies who feel like they are in your crosshairs (Target 10-k, 2012). For

instance, if we had a discount retailer who established themselves as an alternative to Target for

fashion and household goods, Target executives could easily identify that company’s top brands

and seek to buy them out from underneath that retailer, leaving them scrambling for alternatives

once their licensing contracts expired. Likewise, Target could use its high powered, data-driven

marketing department to take back its customers and put the new retailer in a defensive posture

which would demand a sufficient counter-move (Duhigg, 2012).

If we were to use Porter’s (1979) original evaluation of which substitute

products/services companies should be most concerned about, we would find two scenarios:

“products which are subject to trends improving their price-performance trade off with the

industry’s product[s]” or those products which are “produced by industries earning high profits”

(p. 142). In the first scenario, we could see how companies like Nordstrom’s or Macy’s could

attack Target’s fashion-forward lines and successfully eat away at Target’s market share of those

products. Likewise, Costco is a dangerous competitor to Wal-Mart by offering many of the same

goods but in bulk and, in some cases, at lower per-unit prices. Outside of the discount retail

industry, you have a scenario where a specialty retail electronics and entertainment chain like


Gamestop, who has over 6600 U.S. stores, regularly eats away at portions of discount retailers’

home entertainment and video game segment (Zimmerman, 2012).

The other scenario involves a different player from a more profitable industry swooping

in and targeting your products with higher margin and higher value options, making your

products look less desirable in comparison. For instance, if Boeing were to begin manufacturing

a new line of small, private commuter planes, they could leverage parts of their facilities, high-

tech machinery, and enormous aeronautical expertise to mass produce a product aimed directly at

companies like Cessna. Likewise, a company like REI, a very profitable seller of outdoor and

athletic gear and clothing, could offer a branded line of tents, bikes, camping gear and other

products that would be priced competitively and marketed at consumers who would usually shop

at a big-box discount retailer.

Opportunities for product substitution are certainly present within this industry and top

retail companies are undoubtedly aware of their position and major movements within the

market that aim to accomplish this feat. It is no small surprise then that Target dedicates an entire

section of their risk report to this item and invests heavily in its brands to avoid falling prey to

substitute offerings (Target 10-k, 2012, Section 1A). With these considerations in mind, we

would give this force an overall ranking of medium.

Bargaining Power of Buyers

As outlined by Target’s executives in their 2012 10-k report, this is one force that they

not only have a great deal of respect for but have also come to realize that consumers can truly

make or break their business. For instance, Target, like virtually all its competitors now,


understands that “consumers are able to quickly and conveniently comparison shop with digital

tools, which can lead to decisions solely on price” (Target 10-k, 2012, Item 1A). Target is

rightfully wary to compete with major rivals like Wal-Mart, Amazon, and Costco solely on a

cost basis, though they have not abandoned price matching yet. Still, it is apparent from reading

the report that Target is more comfortable with its strategy of “differentiating our guests’

shopping experience” through competitive pricing, a diverse merchandise assortment,

convenience, better service than its rivals, loyalty programs and marketing efforts (Target 10-k,

2012, Item 1A). Failure to execute on this shopping experience promise, it’s competitive prices,

or failings of suppliers/vendors could all have adverse effects on sales, gross margins and

expenses (Target 10-k, 2012, Item 1A).

Like in other categories, Michael Porter lays out a set of conditions which contribute to

the overall strength or weakness of this force. Although for some industries the buying groups

are other business, e.g. agriculture and steel production companies, discount retailers primarily

sell to normal consumers as just discussed. Because Michael Porter originally framed these

factors in the industrial and commercial sense, we have modified them to fit our reference group

of consumers. Also, a low ranking means that the title statement given is less true and a high

ranking means the statement is mostly true.

Concentrated or Large Volume Purchases

o Costco would be the most obvious candidate among the discount retailers to

target as a retailer whose business largely hinges on large volume purchases by

its members/customers (McWhinnie, 2012; . Among the other retailers, this is

less the case though companies like Target have tried this bulk model on a

limited scale in the past (Gilbert, 2010).


o One of the primary aspects of the discount retail industry is the diversity in lines

of products companies offer. For instance, Target does not derive a significant

portion its revenue from products under any one particular category of goods.

Rather, its sales are distributed evenly over 5 categories: house essentials,

hardlines (e.g. electronics), apparel and accessories, food and pet supplies, and

home furnishings and décor (Target 10-k, 2012, Item 1). Wal-Mart, Costco, and

Amazon likewise have a very broad array of offerings that are likely not

dominated by one particular category of consumer, though this is virtually

impossible to tell given the limits of consumer information available and some

general statements must be made (e.g. Wal-Mart specifically caters to a lower

economic class of consumer). With this being said, there are certain

demographics that retailers need to keep in mind when marketing their wares.

For instance, Target’s guests have a median age of 46, among the youngest of

all major retailers; have a median household income of $55,000 (above the

national median); more than half are employed in managerial or professional

careers; 43% have completed a college degree; 38% have children at home, or

with them while they are shopping (also more than any other discount store’s

customer profile), and 80 to 90 percent of Target guests are female (Target,

2006). That last statistic in particular should give significant credence to

Target’s “chic” approach in its appearance and product offerings. Furthermore,

Target understands that its best opportunity to become “everything” to a given

consumer, and reap huge profits, is at the time when a couple is expecting a new

child (Duhigg, 2012).


o Ranking: Medium

Products Purchased by Buyers are Standard or Undifferentiated

o Although the tendency among laypeople is to think this is largely the case

among discount retailers, the opposite is more likely the reality. We cited a

number of examples previously in this regard so we will give just one here.

Let’s say a consumer was in the market to buy a water filter. First, they went to

their local Wal-Mart and looked at a few different brands. Not satisfied, they

went online to Amazon and discovered that many of the brands they viewed had

mediocre reviews and that only Amazon offered the very best in water filters

through a 3rd party seller in Alabama. Obviously, there are many items, like

certain household goods and durable wares, that will appear undifferentiated to

the average consumer. However, with the advent of online research through

computers and mobile devices, this has become increasingly less the case as

Target and many other companies have noted (Target 10-k, 2012, Item 1A). The

need to differentiate is very significant for retailers to survive in our modern

world and having the right selection and a community of active reviewers and

testers can be critical in achieving this.

o Rank: Low to Medium

Products Purchased are Expensive Relative to the Consumer’s Incomes

o A key aspect of the discount retailer model is the affordability and value offered

in their product lines. It is safe to say, without citing any research, that this

statement is most likely false for our industry. Companies in this industry are

careful to cater to the value minded desires of their customers and this is


unlikely to change any time soon. For example, Wal-Mart has become perhaps

the most prominent example in the entire history of the modern world of a

corporation relentlessly pursuing “low prices everyday” for its customers

(Bianco & Zellner, 2003). Target likewise understands that its target market,

while having more income on average than shoppers at Wal-Mart, appreciate

bargains for everything from durable household goods to high fashion designer

jeans.

o Ranking: Low

Quality is Not of High Importance

o Although this might have been a fair statement to make in the past, the

truthfulness of it is becoming less so. This applies not only to products but also

in service, which has been “influenced greatly by the changing nature of the

world economics and the customers changing needs, tastes, and preferences”

both here and in developing countries like Kenya (Kimani, Kagira, Kendi,

Wawire, & Fourier, 2012, p. 56). For instance, while companies like Wal-Mart

may still be able to get away with offering products of lower quality and

minimal customer service to its consumers, people who shop at places like

Target, Costco, and Nordstrom’s expect at least moderately higher quality in

both areas. Target in particular is very focused on how its guest’s perceive the

quality of their merchandise, guest service, loyalty programs, and store

appearance (Target 10-k, 2012, Item 1A). Likewise, with the ability for

consumers to research products in-depth with the click of a button or the tap of a


smartphone screen, quality will only become even more of a pressing concern

for discount retailers.

o Low to Medium

Overall Ranking: Low to Medium

Note: this ranking is not to say that consumers have low power with retailers. Rather,

retailers respect their customers opinions and perceptions greatly and thus have adapted

their offerings to more closely take into account the needs and desires of guests who

frequent their businesses. The ranking of this power reflects the fact that retailers have

put themselves in a position where consumers are largely satisfied and their customer’s

desire to pressure or force them to evolve is likely to be less going forward since

retailers are now more flexible and receptive to the power exercised by consumer votes

(i.e. dollars).

Bargaining Power of Suppliers

All players in the discount retailing industry understand that not only must they work

closely with suppliers to satisfy the needs of consumers, but they also must exercise a sufficient

level of control over those same suppliers in order to stay competitive. The supplier-retailer

relationship can at times be very difficult for one or both sides. Wal-Mart in particular has had a

much storied and sometimes ugly relationship with its suppliers, as demonstrated especially by

its fight with Rubbermaid back in 1994 that left Rubbermaid with a veritable concussion to its


sales from which they never recovered (Hung, Nijs, Hansen, & Anderson, 2012). However,

because Wal-Mart has implemented full-scale vendor managed inventory (VMI) and chosen to

exercise a policy of tight cost control over its suppliers, this has led more than 700 suppliers to

locate offices near Wal-Mart’s HQ in Bentonville, Arkansas and boosted numerous suppliers’

distribution capabilities, motivated suppliers to diversify their offerings to both Wal-Mart and its

competitors, and ultimately upped their bottom line profits (Hung et al., 2012, p. 141).

Although attempting to exercise power over Wal-Mart may be fool-hardy for a suppliers’

business and perhaps their very existence, suppliers still have some power to exercise against

Wal-Mart and its rivals. For instance, a supplier who provides an exclusive brand to Target, e.g.

a line of children’s furniture, may decide to market a different product, e.g. a line of modular

office cabinets, aimed at Wal-Mart’s more price sensitive customers. If this product began

gaining headway at Wal-Mart and was shown to have an impact on Target’s sales of comparable

items, this would give Target an incentive to acquire a comparable line of higher style from that

supplier who had proved their prowess to Target. Retailers like Target and Kmart can in fact

learn quite a bit from smart suppliers who learn how to differentiate products for them that

compete well against products they or other suppliers offer to Wal-Mart (Hung et al., 2012, p.

141).

Because many suppliers rightfully seek to find ways of bettering their position with their

customers, a final note should be said in regards to the vendor managed inventory (VMI)

mentioned earlier when discussing one of its biggest proponents, Wal-Mart. According to

academic researchers Bookbinder, Gumus & Jewkes (2010) who examined closely the benefits

companies stand to gain from VMI, the success of this system “depends greatly on the cost

parameters of the parties involved” (pp. 5564-5565). In other words, there are scenarios where


one or neither of the parties is better off but there is also an ideal scenario where the vendor

becomes more efficient at managing its production, inventory, and replenishment of the

customer’s goods, thus reducing its costs & increasing sales, while the retailer/customer’s

savings from VMI increase in parallel (Bookbinder et al., 2010).

With this background in mind, we will briefly cover the five points Michael Porter lays

out for determining the power of a supplier group and rank each category as per usual.

Domination by a Few Suppliers or a Higher Concentration vs. the Industry

o Taking into account that Wal-Mart alone has over 700 suppliers with offices in

close proximity to their HQ, this gives a good picture of the quantity, and likely

the range, of suppliers attracted by Wal-Mart’s business value proposition (Hung

et al., 2012, p. 131). Additionally, Target, in deriving around 1/3 of its total sales

from brands and suppliers which it either owns or has exclusive access to, clearly

indicates that it does not rely on a select few suppliers to drive its business (Target

10-k, 2012). Amazon, perhaps even more so than any of its competitors, relies on

an extraordinarily broad range of suppliers and 3rd party sellers (numbering in the

tens of thousands) to keep business running smoothly and has at times become a

major competitor of some suppliers seemingly overnight (Gobry, 2011; Gosal,

2011; Bensinger, 2012).

o Ranking: Low

The Supplier Group’s Product is Unique or Has High Switching Costs

o With a proper understanding of the diversity and extraordinary breadth of

offerings by retailers, it is difficult to imagine one particular supplier or group that

has a product which is truly unique (i.e. irreplaceable) or that has high switching


costs. This is not to say that it would be impossible for a supplier group to flex its

muscles in an attempt to pressure a retailer. Rather, virtually every product

conceivably offered by a given retailer has an alternative or competing supplier

for that same product. However, there are some exceptions to this rule. For

example, Wal-Mart makes up 10-20% or more of many major suppliers and

manufacturers in the country, e.g. Kraft, Heinz, Hasbro, Dial and others (Hopkins,

2003). This in turn means that Wal-Mart derives a great deal of its sales from

these suppliers which in turn lends those suppliers some power, particularly when

it comes to distinct product lines like those offered by Hasbro or Gillette. Each of

these companies has invested millions if not billions in their product lines to make

them both attractive and competitive, thus making it difficult for retailers like

Wal-Mart or Target to switch over to an alternative supplier without their sales

taking a dip.

o Ranking: Medium

The Suppliers Do Not Have to Contend With Rival Products to Sell to the Industry

o More so than all the other statements in this section, this is flatly false and hardly

bears consideration. Suppliers of nearly every product from apple juice to paper

towels to consumer electronics have to contend with competition in varying

degrees. Even though suppliers who are able to gain a majority share in their

market may end up competing against a retailer’s house brand (e.g. Costco’s

Kirkland brand) or smaller rivals who take advantage of their overconfidence and

prominent position.

o Ranking: Low


Threat of Integrating Forward

o Under certain scenarios, this is possible within the industry and has occurred in

the past. For instance, major suppliers of mobile phones, like Apple, have their

own retail and online channels to sell their products in addition to distributing

them through retailers like Best Buy and Wal-Mart. Likewise, the same could be

said for computer makers like Dell, Microsoft and HP who all have channels

which compete with offerings they allow retail establishments to carry. Lastly,

large companies like Johnson & Johnson or Proctor & Gamble could decide in the

future that a limited number of specialty retail outlets that compete against

discount retailers and other industries are a viable means to reap higher returns

from their product lines than otherwise possible.

o Rank: Medium

The Industry is Not an Important Customer

o This category would largely come down to specific suppliers or limited groups.

For example, suppliers of household goods heavily rely on the discount retail

industry whereas manufacturers of medium to high-priced furniture and

mattresses could probably survive without relying heavily on discount retailers to

sell their wares. Furniture makers in general have vast numbers of regional retail

outlets and specialty stores that would be better suited to product lines which

require quality sales people and targeted marketing. Other industries would be

caught somewhere in the middle, like grocery and food suppliers who heavily rely

on companies like Wal-Mart and Costco but to a lesser extent on retailers like

Target, Amazon, Kmart, and Sears. Likewise, certain fashion companies may


have a significant presence with one retailer but lack power with another. Lastly,

sellers of electronics and home entertainment rely heavily on discount retailers to

support their $271 billion worth of retail sales (US Department of Commerce,

2012)

o Ranking: Medium

Overall Ranking: Low to Medium

The “Sixth Force”

There are two main proposals currently for a sixth force, one of which is referred to as

“co-opetition” and was created by game theorists Brandenburger and Nalebluff (1997) and the

other involves the addition of stakeholders, an idea proposed by a number of authors. We will

explain each of these briefly and then apply them to Target and the discount retail industry.

Co-opetition, as explained by Barry Nalebluff (1996) in a series of lectures he gave at the

Yale School of Management, is where companies have “cooperation in creating value” whilst

still having “competition in dividing it up;” a sort of simultaneous “war and peace” (p. 2). This

field uses game theory to demonstrate its points and show that complementors, i.e. providers of

products or services which complement your own, are as much of a strategic force to consider as

any of Porter’s Five Forces. True complementors are on the opposite end of your competition in

the sense that customers value your product more when they have yours and the complementor’s

together versus if they have the competitors and end up valuing yours less if at all (Nalebluff,

1996).


Because many discount retailers attempt to provide as wide a product range as possible

and at the greatest value, there are many instances where complementors can come into play. For

instance, Target, Wal-Mart, and Costco have all identified the value of having fast food or deli

style food available at their locations. Costco does this on a 1st party basis whereas Target and

Wal-Mart have partnered with companies like McDonald’s, Pizza Hut, Subway and Starbucks

along with several more regional restaurant partners over the years (Brandau, 2013).

Additionally, there are other products that Target and Wal-Mart don’t offer that they wouldn’t

mind a customer buying elsewhere if it complemented products it could sell. For example, Target

is no longer in the garden center business like Lowes and Home Depot though some Targets still

retain non-perishable gardening items, like gloves and tools, that would complement the plants

and soils those big box home supply stores offer. Wal-Mart stores, likewise, do not always offer

major lighting fixtures like hardware stores but Wal-Mart would be more than happy to supply

you with light bulbs and fluorescent tubes at a lower price than Lowes or Home Depot could

manage, provided either of those stores can sell you a fixture to put it in.

Providing an exact rank of this sixth force is arguably not as straightforward as the others

considering that one could easily think of more situations where discount retailers have

competitors than complementors, and these two roles can often be played by the same rivals.

With this being said, we would give this category a rank of force from low to medium.

The second sixth force theory involves the idea that stakeholders who are not covered by

Porter’s Five Forces (e.g. governments, local communities, special interest groups,

complementors, shareholders etc.) should be included when conducting an industry analysis

(Wu, 2013, p. 20). Whereas Porter’s Five Forces is more focused on the external environment,

stakeholder analysis attempts to balance this by looking at inward forces, like shareholders and


employees, while also including external forces that were overlooked (e.g. local communities

and special interest groups). This perspective, much like the other five forces, is determined to

help business strategists decide how they can best leverage their competitive strengths, minimize

or do away with weaknesses, properly address risks and threats, and seize upon opportunities

within their industry.

Ranking each potential stakeholder would be rather laborious and beyond the purpose of

this paper so we will satisfy ourselves with covering what we consider to be the most important

or relevant stakeholder powers present in the discount retailer industry. Firstly, shareholders are

always a looming interest that can potentially make or break management’s strategy. For

instance, Amazon’s shareholders largely treat Amazon like a start-up by tolerating “razor-thin

profits” as long as Amazon is expanding and its managers make promises of large windfalls in

the future (Stone & Aley, 2013; Yglesias, 2012). Target’s or Costco’s shareholders, on the other

hand, could hardly be expected to tolerate the strategies that Jeff Bezos, CEO & Founder of

Amazon, and his compatriots are engaging in. On the flip side, shareholders would be well

within their rights to punish Amazon’s management for pursuing strategies that simply aren’t

maximizing their wealth quickly enough or which hedge too many bets on immature

technologies (e.g. cloud computing and business data services). Second, interest groups and

journalists, particularly those concerned with unethical corporate practices, have been critical in

reporting huge scandals like the Wal-Mex bribery debacle that has turned even more public

opinion than before against Wal-Mart and its questionable “growth at all costs” strategy

(Barstow, 2012). Third, employees are a critical aspect of each company’s ability to deliver,

especially Target, who calls their employees team members and who understands that customer

perceptions of its shopping environment greatly affect its ability to compete (Target 10-k, 2012).


For example, Target is particularly keen on presenting a clean, well organized, bright, safe

environment for its customers, all of which is impossible to do without solid and consistent

support from its team members (Target 10-k, 2012, 1A).

Because the theory of stakeholders as a sixth power covers such a wide array of critical

forces, most industries would have to consider this force to at least have medium power overall

with one or more components possessing a high power or medium-high power (e.g. labor unions

for American auto companies or state oversight and regulation boards for utility companies). For

the discount retail industry, we would rank interest groups as having low to medium power,

employees as having medium power, and shareholders as having medium to high power. If we

were to throw other stakeholders in, like the government and local communities, we would

expect the recipe to still produce a medium power overall.

Conclusion

Target exists within a very critical U.S. industry that is mature, competitive, sales-driven,

and even a fun and enjoyable experience for its customers. The authors can all recall instances

where we were fascinated, overwhelmed, or excited as children by the prospect of visiting a

large retailer with colorful aisles, shelves loaded down with toys, and racks of clothes to play

hide and go seek in with our siblings or friends. Although the industry has taken on a more

digital, e-commerce character in recent years thanks to companies like Amazon and eBay, there

is still a significant and rooted need for discount retailers among the American public. Retailers

like Target are ever-cognizant of the need to be innovative and always provide the best

experience for their guests, whether they be smart, single professional women, young families


with all their children under 10 and others on the way, or older folks who enjoy a good bargain

and consistent quality in the products they can attain with convenience and surety. In fact, Target

is arguably in the best position of all major discount retailers in the United States for positive

growth in both sales and EPS (Hargrave, 2013). Likewise, investors may view them as an

attractive proposition after looking not only at their expected growth and past stability, but also

at their PEG ratio of 1.3 and projected annualized investor returns of around 13.5% (Hargrave,

2013). The environment that Target thrives in will likely never cease being competitive and

diverse, but Target is more than well-equipped to handle new and old challenges now just as they

have for nearly three generations.


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