Target Case: group 6

Resource and Capability Analysis: Targets resources and capabilities that gave it a competitive
advantage over Walmart include physical, organizational and human resources and capabilities
[Exhibit 1]. They physical facilities that Target offered to its customers are clean and organized
shopping environment and high quality upscale products, which is different from Wal-Mart and
other discount stores. Target leverages pop up stores for promotional purchases generating free
advertising including a boat on the Hudson River in Manhattan at affordable prices. They also
focus on bold colors and fashion perception to generate a high end image. On the product side,
Target works with designer and suppliers to offer upscale products through massive manufacture
specifically for Target and thus sold at significantly lower prices. In addition, they offer private
label goods that enable them to earn higher margins. Target also competed with Wal-Mart by
adding upscale groceries to their offerings. This boosts their success as customers go to grocery
stores more frequently and spend more on food than other stores/items. The food items also
earns them higher margins because Target is a certified organic retailer while other competitors
are not.
Organizationally, Target differs from other discount stores as it makes sourcing and strategic
decisions at headquarters instead of at the store level. This method enables cost savings and a
consistent brand throughout the chain. More importantly, it operates as a boundary less
organization where ideas/technology is shared and synergies are created from other stores in the
Dayton Hudson business such as Mervyns and Marshall Fields department store. From a people
perspective, founder George Dayton has extensive experience in department stores. Target also
has an all-star board of directors, a strong operational team and great choices for director. Target
employs a creative cabinet that served as consultants on fashion leading to fashion shows. As a
result, they are able to come up with Go International, a strategy for new designers to be
introduced every 3 months which lured customers to the store repeatedly. In addition, they
introduced the Target credit card which enabled their customers to visit the store more frequently,
increase the amount spent per visit and also understand the consumers buying behavior.
Value Chain Analysis: The spread of Targets value chain is higher than that of Wal-Mart, its
major competitor. Target captures larger percentage value in value chain than Wal-Mart does
because Target creates more added value through a unique combination of low price, high
quality, and fashion. [Exhibit 2] even though Wal-Mart has better total financial result due to its
economic scales. Target differentiated itself as an upscale discount store through its philosophy,
expect more, pay less which enabled its customers to shop in a clean environment for designer
and high quality products with low price. Customers are willing to pay what they perceive as
higher prices at Target in return for better products and an overall higher-level customer
experience. At the same time, Target was able to keep price comparable with a few percent for
standard items. On the other hand, Wal-Marts motto is Save money, Live better focusing on
low prices every day. Wal-Marts customer is more price sensitive and their willingness-to-pay is
low. However, Wal-Mart has both lower cost and opportunity cost than Target has. Wal-Mart
operates on an international scale; Target remains solely a domestic firm. Wal-Mart is nearly 6
times the size of Target (2009: Target total revenue 64B; Wal-Mart 400B). This give Wal-Mart an
advantage of greater economies of scale, increase bargaining power with suppliers and access to
a larger amount of capital which keeps the cost and opportunity cost for Wal-Mart extremely low.
On the other hand, Target worked with its suppliers and fashion designers to create massive
production of upscale products which allow its cost and opportunity cost much lower than
department stores (only 10-15% of department store price). Targets OC and cost for standard

products are also relatively low (2-4% high than Wal-Marts price). Designers and fashion
industry can be both Targets suppliers and complementors. Targets extensively use of designers
to constantly bring freshness into store at relatively low price enables higher added value and
more competitive advantage over Wal-Mart.
Competitive Advantage Analysis: Target has several major competitors such as Wal-Mart and
Kmart. Targets competitive advantage came from four aspects [Exhibit 3]. Value: Target created
a large amount of added value by offering clean, organized shopping environment; combination
of low price, high quality and fashion into upscale products; variety products including home
furnishings, kitchenware, apparel and groceries. Target mainly achieved this advantage through
path dependence. Target traced its roots to George Dayton who opened a department store in
Minneapolis in 1902. Scarce: Target has a unique position that it offers some department store
features in discount retail industry. It setup long history, understanding and close relationship
with designers and fashion industry. It focus on less price sensitive non-rich customers. Target
mainly achieved this advantage through path dependence and causal ambiguity. Inimitability:
Target has well established company image and reputation for higher end product. Target owned
80-90% of its store real estate which gives it physical uniqueness. This increase Targets
flexibility on renovation. Experienced leadership and boundless organization strategy combined
with its unique product offering makes its imitability low. Appropriable: Targets strategy and
organization aligned with each other. Target create a chain of stores: strategic, buying and
merchandising decisions were made at headquarters and not at the store level as was common in
the industry. It started to advertise and marketing with pop up stores and vertical fashion shows.
This all support its strategy to focus on customer segment who are less price sensitive and caring
about quality and shopping environment.
In 2007 and 2008, Targets revenue significantly declined due to the slowdown of US economy,
increasing job insecurity, and soaring food and energy cost [Exhibit 4]. We believe this is just a
temporary phenomenon associated with the economic crisis given its business nature consumer
discretionary. In long term, we think Target is able to recover and regain the growth momentum
due to its differentiated strategy like upscale retain offering and superior customer experience.
However, in order to keep sustainable competitive advantage, scale of economy is very important
in which Wal-Mart has absolute advantages. Target shall thinking about global expansion.
Ackmans Proposal: We think that Ackmans sale of credit card business is good for the company
because Targets receivable write-off and past dues are the second highest in the retail industry.
Moreover, Credit card business will also defocus Targets core business and strength- upscale
discount retail.
Ackman also proposed placing the land under Target's stores into a real-estate investment trust
(REIT) and leasing back the land from the REIT with a 75-years lease. We dont think it is a
good idea. Firstly, this plan would cost the company about $1.4 billion in annual rent which is
roughly 20% to 25% of Target's annual cash flow. Secondly, REIT cant guarantee high valuation
to investors because it cant secure cash-flow stream, especially during the crisis. Third, it would
constrain Target's flexibility to make renovations and expansions on the store premise.
We think Ackmans idea about bringing new blood to board and top management is a good idea.
Due to their different background and industry experience, they may bring expertise and insights
and provide valuable suggestions about Targets future strategy.