The Target Corporation:

Strategic Analysis

A Comprehensive Report By:

Nick Gysberg

Kelsey Lee

Richard Cline

Table of Contents:

Target Analysis 3

Wal-Mart Analysis 18

Sears Holdings Analysis 27

Moderate Growth Strategy 39

International Strategy 42

Financial Data 43

Appendix 46

References 50

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Strategic Profile

The Target Corporation, founded by George Dayton, is now one of the top general merchandise retailers in the United States. The company’s mix of stylish products and everyday essentials at low prices give it a unique strategy; it is one of the only companies to simultaneously incorporate price leadership and differentiation as its strategic business model. Strong private label brands have allowed Target to capture high profit margins. The company also utilizes its large size to achieve economies of scale so as to better compete with merchandising giants such as Wal-Mart, one of Target’s main competitors.

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PESTL Analysis

Political The ever changing international political situation affects both domestic

and international firms. International trade policies, political movements and global events all affect the manner in which firms operate within the market.

The general retail industry has greatly benefited from the liberalization of international trade. Europe and the United States comprise approximately 75% of the market of the general merchandise store sector. With the lowering of US tariffs and the ending of Europe’s Multi Fiber Agreement, these markets now benefit from the availability of low cost labor. Reducing labor costs lowers the product price allowing companies to offer lower priced goods while still maintaining a profit margin (Datamonitor, 2007).

Economic The global general merchandise store sector relies heavily on the United

States for revenue. In 2006, the United States accounted for 40.5% of the value within the global industry (Datamonitor, 2007). Due to the lowering of trade barriers, the US market has experienced an increase in low cost goods from Asia. Lower prices encourage sales growth which increases revenue.

The current economic situation within the United States could pose problems for retailers operating within the country. The threat of recession looms over consumers who have increasingly become more frugal with their spending habits (Datamonitor, 2007). This shift to economic frugality benefits the firms implementing a price leadership strategy. As the economy worsens the price of crude oil continues to rises. The changing cost increases a firm’s costs associated with energy, transportation, and raw materials. Logistical modifications must be made to accommodate the rise in oil prices (Datamonitor, 2007).

The price increase also directly affects consumers. Energy and transportation costs for consumers also rise. A greater proportion of disposable income must be allotted to cover these expenses (Datamonitor, 2007). Because of the deteriorating economic situation, firms must find ways to motivate sales.

SocialUnderstanding the consumer’s needs and desires is necessary for

success in the general merchandise store sector. Failing to identify current social trends could potentially leave a company’s market share vulnerable to another firm addressing the demands of the customer.

Currently, the United States has an aging population. The baby boomer generation is nearing retirement age. Products and service catering to this group… In addition, a disproportionate number of shoppers within this industry are women. Approximately 80% of Target shoppers are female (need source). Since women do the majority of the shopping in these stores, it would behoove the firms to indentify the aspects of the firms which appeal most to the target market.

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Lately, consumers have developed a one-stop-shop mentality; consumers want to find all the products they need at one location. To capitalize on this firms lure potential customers in with some low priced goods and increase revenue through the purchasing of other goods (Datamonitor, 2007).

As mentioned earlier, the economic downturn in the United States and the rising fuel prices change consumer spending habits. Decreased disposable income translates into less spending for many consumers (Datamonitor, 2007).

TechnologyTechnology has become a major driving force in the retail industry.

Research has shown consumers in developed nations prefer a relaxed, uncomplicated shopping experience. With the proliferation of company websites, consumers can now peruse available products anywhere internet access is available (Datamonitor, 2007).

LegalRetailers operating within the United States are subject to the rules and

regulations set by the legislature. Failure to comply with such legislation can result in a variety of fines and penalties. In 2006, Equal Employment Opportunity accused Target of racial biased hiring practices. The allegations centered on the denial of four black applicants seeking management level jobs. This failure to adhere to the proper hiring practices can produce negative publicity for companies (Datamonitor, 2007).

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Porter’s Five Forces

Threat of New Entrants Target operates solely within the United States market. Its competitors

include nation-wide and local department stores, discount stores, specialty stores, grocers, drug stores, and internet businesses. All these competitors offer similar products to Target (Datamonitor, 2007). Due to the immense competition, consolidation among firms has given firms a competitive advantage. Barriers to entry in this market have continually been decreased. Liberalization of international trade has allowed for increased competition within the market. Another necessary requirement, large economies of scale, has also been realized by firms not operating in the United States. International firms with the necessary requirements are likely to expand into the United States market (Datamonitor, 2007). One firm, Tesco, already has made preliminary plans to launch a store in the United States. The company believes Americans’ appreciation of brand name and the ability to provide lower prices will ultimately prove profitable for the firm (Datamonitor, 2007)

Bargaining Power of SuppliersThe bargaining power of suppliers is very weak. Due to the lowering of

import barriers, global competition among suppliers increased benefitting retailers (Datamonitor, 2007). Low cost labor allows international suppliers to compete with and often create low priced goods than the domestic producers. The competition fosters lower prices for the sought goods. This allows the companies to maintain low prices and margins (Datamonitor, 2007).

Bargaining Power of BuyersThe bargaining power of buyers is strong. Buyers have access to many

options within the industry. Enormous amounts of rivalry among firms in the industry have lead to price competitions within the industry. Such behavior increases the power of the buyer. The buyer’s decision on which firm to frequent and which products will be purchased (Datamonitor, 2007).

Threat of Substitute ProductsThe threat of substitute products is low. Department stores have higher

prices than the discount retailers and are therefore unattractive to consumers seeking lower prices. Conversely, thrift stores and second hand stores offer lower prices but may also be unappealing to the consumers.

Rivalry among Competitors In this sector, the competition among competitors is a major force. Wal-

Mart and Target are the two giants in the general merchandise retailing. Wal-Mart operates on an international scale; Target remains solely a domestic firm. Wal-Mart is nearly 6 times the size of Target. This give Wal-Mart an advantage of greater economies of scale, increased bargaining power with suppliers, and access to a large amount of capital (Datamonitor, 2007). Despite this great

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advantage, the rivalry between the two is fairly evenly matched. Although Target has differentiated itself from Wal-Mart, the two continue to compete for consumers’ disposable income, especially in the commodities sector.

A key to gaining market share is understanding customer psychology (Datamonitor, 2007). Firms strive to understand the changing customer preferences and spending patterns. A greater understanding of these aspects can lead to more effective displays, more accurate inventory, and an overall more satisfying experience for the customer. The recent addition of pharmacies reflects this recognition of changing demands of consumers. Wal-Mart has begun to understand the needs and desires of the customers and is now catering to the changing fashion tastes. In a major rebranding of the junior clothing line Metro 7, the company has found the consumer desires a more fashionable look with key pieces rather than a collection (Edelson, 2008). The new line will be trendier without taking too much risk (Edelson, 2008).

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Internal Analysis

Tangible ResourcesFinancial Resources. Target has access to large amount of capital. This is

due to a very high cash flow in recent years. The company has experienced such a high influx of capital that it has been able to pay down long term debt (Datamonitor, 2007).

Organizational Resources. Target walks a fine line of a culture breeding creativity which is strictly regulated. It is a very top-down company. The CEO is very involved in many aspects of the business. He participates in the hiring of the top 600 employees. The current CEO has created an organizational structure which will not only survive his retirement but also that of his successor (Reingold, 2008).

Physical Resources. All 1,488 Target locations are located within the United States. The large number of stores gives the company valuable reality (Datamonitor, 2007).

Intangible ResourcesHuman Resources. Target boasts a wealth of human resources. There is

a high level of retention rate among the upper level employees. The management of the company also boasts great talent. Robert Ulrich, the CEO, provides the company with vision and expertise within the retail industry. A highly competitive individual, Ulrich recognized the need for Target to differentiate itself from competitors such as Wal-Mart (Reingold, 2008).

Innovation Resources. Target prides itself on innovation. Managers must compete for budget amounts based on creative ideas. Innovative product designs are crucial for the company. Top designers are recruited to create products in a wide range of categories. To find such creative individuals, the company sponsors design competitions (Reingold, 2008).

Reputation Resources. Target created a positive reputation with customers. Unlike Wal-Mart who often experiences great backlash when opening new stores, communities welcome Target stores with open arms. Furthermore, the social network Facebook.com has user created groups dedicated to declaring members’ love of the company (Reingold, 2008). Such a positive image is a result of many factors. One of these is the philanthropic efforts of the company. The company donates 5% of all pretax profits to the community, schools, or the arts (Schlosser, 2008). This translates into over $3 million given per week. This giving totaled 6.5 million meals, 1,700 free days at museums and theatres, and thousands of dollars every week to schools. (Schlosser, 2008). Compared to the negative image of Wal-Mart, Target’s positive reputation is a very valuable resource.

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Consumers perceive Target’s products to be of higher quality than that of many competitors, primarily Wal-Mart. This perception generally benefits the company except when customers believe that the prices are significantly higher than that of the competition. In most cases, Target’s prices are within 1-3% of Wal-Mart prices and 10-15% lower than most grocers (Datamonitor, 2007).

CapabilitiesHuman Resources. Target relies on creativity from its managers to

continually “surprise” its customers. To encourage this creativity, budget allotments are partially based on the creative input of managers. This incentive encourages employees to share new, innovative ideas for the betterment of the company.

Marketing. Target’s marketing team has been very successful in the campaigns to position Target as a stylish, affordable distributor. The company understands the consumers’ desire to both fit in and stand out. The “expect more, pay less” slogan captures the essence of Target’s marketing message (Reingold, 2008). The company successful implemented both a differentiated and cost leadership strategy.

Innovative Merchandising. Target has embraced the consumer demand for natural care products. With the introduction of nine new product lines, the company seeks to capture this growing market segment (Nagel & Brown, 2008). A growing concern among consumers, especially females, is the proliferation of harmful chemicals in everyday products. In an online study, 41% of respondents reported that they were willing to pay more for organic products. Furthermore, 45% of women feared the harmful, unnatural chemicals in beauty products (Nagel & Brown, 2008).

Management. Target’s management team has been able to identify market trends and adapt the company accordingly. Through understanding the desire of the customers to simultaneously fit in and stand out, the company has created an innovative line of products which cater to this desire (Reingold, 2008).

Additionally, the top level managers prefer the focus to be on the company rather than themselves. The heads of the competition, such as Sam Walton, have garnered much attention for their role within the company. Target’s upper level managers prefer the focus not fall upon themselves but rather the company itself.

Product design. To adapt to the ever changing market, Target constantly searches for new innovative designs. In the apparel section, a new designer creates a collection every 90 days. This gives merchandising strategy follows Target’s “expect more, pay less” mantra; consumers can find designer styles at reasonable prices (Reingold, 2008).

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Research and Development. In a unique stray from traditional marketing research, Target has created a secret cabinet of individuals to weigh in on strategic moves of the company. Ages, nationalities and interests vary among the cabinet members providing Target with many perspectives of current trends (Reingold, 2008).

Organizational Culture. According to the senior VP of marketing, Karen

Gershman, “The energy that flows through here is amazing, and it’s fun.” Target continually pushes to maintain the element of surprise. The corporate culture champions creativity rewarding innovation through budget increases. By rewarding creativity, the company can continue to surprise customers and encourage creativity among employees. In addition, members of the company are expected to be on the look out for the latest thing or newest designer (Reingold, 2008).

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VRIN TestingValuable.

Target understands consumer needs and desires allow the company to modify the product mix to cater to the changing demands of consumers. The secret cabinet provides insight to help the company adapt to the changing market. This ability to gain such varied insight is a rarity among competitors.

Rare. The organizational culture encourages and rewards the creativity of

individuals.

Costly to ImitateNinety-seven percent of Americans recognize Target’s bulls-eye. The

Target brand is uniquely valuable and would require extensive marketing and philanthropic activities to imitate.

Nonsubstitutable. Target’s ability to maintain both a cost leadership and differentiation

strategy is a nonsubstitutable core competency. Other companies attempting to implement the same strategy have failed.

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Value Chain AnalysisPrimary

Outbound logistic. Target strives to provide its customers with an overall positive experience. The store layout is formulated to be aesthetically pleasing. This contrasts to the experience in Wal-Mart, the “king of logistics”. During periods of growth, Wal-Mart neglected the design quality of the store. Inventory filled the middle of the aisles and lower quality products were introduced.

Marketing and Sales. Targets marketing research department consists of a secret cabinet of individuals across the nation. The members never gather together but rather contribute on an individual basis concerning trends in the market place and the activities of the company.

The “expect more, pay less” slogan exemplifies Target’s marketing message. Consumers, according to Target’s marketers, should find joy in the purchase of everyday items. These items should not look cheap even if purchased for discounted prices (Reingold, 2008).

The marketing activities of the company are strictly controlled by the marketing department. Every item bearing the logo must be approved by the department. This micromanagement has allowed for greater control of the brand. Since Target’s brand is so valuable, this management ensures that the brand equity remains intact (Reingold, 2008).

During the feared economic downturn, Target may choose to emphasis its price leadership, especially in the case of food and commodities to accommodate the changing economic landscape (Reingold, 2008).

Support ActivitiesProcurement. Target’s vast amount of capital resources allow it to expand

into new locations. In addition, economies of scale and the large amount of suppliers, both domestic and international, allow Target to obtain products for lower prices (Datamonitor, 2007)..

Human Resource Management. The CEO personally interviews the prospective employees for all the top 600 positions. Target boasts a very low turnover rate among top level employees. This is a reflection of the success of the Human Resource Department within the company (Reingold, 2008)

Technological Development. To continually improve the processes of the

company, Target created a user experience research center, referred to as the Ulab. The lab tests the creative ideas of the company with actual consumers. This ensures the ideas are viable options that can be implemented into the business. Currently the lab is testing a new cart prototype (Reingold, 2008).

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SWOT AnalysisStrengths

Strong Market presence. Target has been able to decrease its volatility in revenue by diversifying its operations. Also, because of the company’s size and resources, it has been able to achieve economies of scale. This allows the company to reduce costs of goods and in turn offer lower prices to the consumer (Datamonitor, 2007).

Brand Mix. The company has also created a strong brand image. Because of this image, the company can charge higher prices for it’s private brand labels. This markup provides a high-margin profit on the private brands (Datamonitor, 2007). The company created a mix of both external and private labels.

Private brands include: Archer Farms, Choxie, Circo, Embark, Gilligan & O’Malley, Kool Toyz, Market Pantry, Merona, ProSpirit, Room Essentials, Target Limited Edition, Trutech, Xhilaration, and other prominent brands. The licensed brands include: C9, ChefMate, Cherokee, Eddie Bauer, Fieldcrest, Isaac Mizrahi, Kitchen Essentials, Liz Lange, Michael Graves Design, Mossimo, Nick and Nora, Genuine Kids, Sean Conway, Smith & Hawken, Simply Shabby Chic, Sonia Kashuk, Thomas O’Brian, Waverly and Woolrich (Datamonitor, 2007)

The mix of private and licensed brands gives the consumer a greater selection and brings in better margins for the company.

Operating Cash Flow Increase. Target’s strong levels of cash flow allows the company to invest, improve its balance sheet, and provide returns to investors. In 2005, Target’s capital expenditures totaled about $3,068 million. This number grew to over $3,928 million in 2007. Target has greatly benefitted from the increase in operating cash flow. The increase allows the company to invest capital in growth. This growth can be in the form of new stores, as well as the remodeling and/or expansion of old stores. Due to this large amount of capital, Target has been able to retire long term debts. The company has also been able to pay regular dividends over the last three years (Datamonitor, 2007).

WeaknessesPoor quality control. Many vendors provide the array of products to Target.

This large amount of vendors creates difficulty in controlling the quality of all the products on the shelves. Because of this the company has recalled several products. These recalls were attributed to choking hazards, lead paint, and other dangers in children’s toys. These recalls harm the customer’s positive brand image and customer confidence. This can result in a loss of customer loyalty and harm the company’s ability to attract new customers (Datamonitor, 2007).

Customer Perceptions. Target’s vast marketing campaign does not always produce the desired results. Consumers sometimes experience disconnect between the perceived value or quality of a product and their prior expectations (Zimmerman, 2008). Marketing campaigns create an image of the brand and products which is not always consistent with the actual products.

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Conversely, perceptions of superior quality can hinder sales. When polled, many people believe Target prices grocery items higher than grocery stores. In reality, Target generally prices grocery products 10-15% below average grocery store prices (Datamonitor, 2007).

Litigations. Target has also encountered some legal difficulties in recent years. In 2006, the Equal Employment Opportunity Commission accused the company of racially biased hiring in the case of four black applicants. Target settled in 2007 for $775,000. Although competitors have also experienced the bad publicity associated with litigation, such accusations reflect poorly on the company and reduce its creditability as an employer (Datamonitor, 2007).

Geographic Concentration. Unlike its competitors, Target is only active in the United States market. Wal-Mart has locations in numerous countries around the world. This not only allows for vast economies of scale but also decreases Wal-Mart’s dependence on the American market. Target’s is more vulnerable to changes market changes because of its limited geographical concentration. This is only further complicated by the looming threat of a recession (Datamonitor, 2007).

OpportunitiesGeneric Drugs. With the ending of patent protection on many prescription

drugs, the generic market for such drugs will be growing. The profit margin for such drugs is very high making them an attractive opportunity. Target has already found success with the $4 generic prescription. Wal-Mart has yet to offer such rates on generic drugs. Target has already established itself in the pharmacy market. This creates an excellent opportunity for the company to capitalize on the high profit margins of the generic drugs industry (Datamonitor, 2007).

Photofinishing Market Thriving. In recent years digital photography has increasing gained popularity. It is estimated that in 2008, half of all the photos in taken in the United States will be digital. Many people still depend on retailers to provide finishing for prints. Target’s partnership with Yahoo in 2005 has allowed for customers to share, store, print photos and create customized gifts (Datamonitor, 2007).

Private Label Products Growth. The growth in sales of private labels has increased in recent years. About 20% of items sold in retail stores, drug chains and mass merchandisers are private labels. 41% of consumers buy private labels, an increase of 5% over the last five years. Profit margins for established private brands are much higher than that of branded products (Datamonitor, 2007)..

Target’s private brands include: Archer Farms, Choxie, Circo, Embark, Gilligan & O’Malley, Kool Toyz, Market Pantry, Merona, ProSpirit, Room Essentials, Target Limited Edition, Trutech, and Xhilaration (Datamonitor, 2007).

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ThreatsIncreasing Competition. Because of Target’s wide range of product

offerings, its competition also has a wide range many of which are international players. Competitors include: National and local department stores, specialty and discount stores, supermarkets, drug stores, independent retailers, and online businesses (Datamonitor, 2007)..

Price competition among Wal-Mart, Costco, and Family Dollar Stores, lower Target’s profit margins (Datamonitor, 2007). Price competition has lead to a period of consolidation within the retail industry. In 2005, the industry produced two major consolidation efforts: Sears and Kmart, Federated Department Stores and The May Department Stores Company. In 2006, Supervalu acquired some of Albertson’s assets. The flourishing market has also attracted foreign companies. Tesco seeks to enter the market opening locations on the West Coast (Datamonitor, 2007).

American Market Slowdown. Target’s home furnishing and décor sales accounted for 19% of the total revenue in 2007. As the housing market slows and the mortgage crisis worsens, the demand for furnishings and décor is likely to continue to decrease. Since Target only operates on a domestic level, such fluctuations will cause difficulties for the company (Datamonitor, 2007).

A major issue facing the corporation is the changing of the Chief Executive Officer. Robert Ulrich stepped down for the position on May 1, 2008 due to company bylaws (Reingold, 2008 ). Hired in 1967 as a merchandising trainee, Ulrich rose to the rank of President of the Target Stores division. In 1984 when he was promoted to president, the division consisted of only 215 stores in 1984 (Reingold, 2008). Recently, he was named CEO of 2007 by Chief Executive Magazine. The award recognizes his valuable traits and qualities he brings to the company. Ulrich is known for his strong work ethic and dedication to the members of his teams, Target’s guests, and the communities (Chief Executive Magazine, 2007).

Ulrich’s commitment to the community is also very apparent in the company’s philanthropic efforts. Since 1946 the company has donated 5% of all its pre-tax income. Currently, this averages about $3 million every week (Chief Executive Magazine, 2007). In addition to monetary donations, Target team members both current and retired are active in the community. In 2006, they donated over 315,000 hours of service to community based projects. These projects aim to improve education, safe families, and communities (Chief Executive Magazine, 2007). Take Charge of Education, one of these programs, has raised more than $200 million over the past ten years for over 100,000 schools nationwide. In addition, sponsorship has allowed for children and families to attend over 1,500 free days at major art and cultural institutions annually (Chief Executive Magazine, 2007).

He only accepts the best from those around him; he “doesn’t suffer fools” (Reingold, 2008 ). Ulrich understands the importance of having the right people

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within the business. For the upper levels of management to the people working with the customers, the team members of Target have been a crucial element of the company’s success. Those team members dealing directly with Target guests are responsible for the atmosphere of the establishment (Chief Executive Magazine, 2007). Ulrich has created a corporate culture that values constant innovation and great design in its products (Chief Executive Magazine, 2007). Under his leadership, the company has partnered with notable designers providing items of quality at an affordable price (Chief Executive Magazine, 2007).

He is also a very competitive individual (Reingold, 2008). When Wal-Mart model seemed attractive, Ulrich tested the model in several Target stores. The venture proved less successful than hoped. Ulrich then decided to focus the strategy of the company on differentiation and low cost. Target has been the only company to successfully implement such a strategy. Thus Ulrich is credited with reinventing the discount retail industry (Chief Executive Magazine, 2007).

Overall, Ulrich is an inspirational leader (Chief Executive Magazine, 2007). Losing such an asset is detrimental to the company. As with any CEO transition, there are many opportunities for problems to arise. The corporate culture could change. Investors could become insecure about the company. The new CEO may even take the company in an entirely different direction than his predecessor. Fortunately, Ulrich has been grooming his replacement, Gregg Steinhafel, since 1999 (Chief Executive Magazine, 2007).

After graduating from Kellogg’s MBA program, Gregg Steinhafel worked in the merchandising sector of Target for nearly 20 years. In 1999, Ulrich promoted him to President and it has been well-known that he was to be the next in line for the Chief Executive Officer. Like Ulrich, Steinhafel is well liked both inside and outside of the company (Reingold, 2008).

Steinhafel’s experience in the industry is extensive. He grew up in the retail working in the family store (Reingold, 2008). This combined with the years at Target allowed Steinhafel to develop a deep understanding of store layouts and vendor relations. He also recognizes the importance of the presentation of the product. In the “status room” Steinhafel and other executives examine possible displays before implementing them into the stores. Not only does he examine the displays, but also the advertisement campaigns. Target executives micromanage many aspects of the business. Although time consuming, this ensures the entire organization is on the same page (Reingold, 2008).

As the new CEO, Steinhafel faces an economy in recession. Luckily, Steinhafel is a self-proclaimed “wonk”; he loves the numbers. At a time when financial information will be crucial, this change may prove beneficial for the company. Steinhafel talks about the key drivers necessary to improve performance and metrics.

Since Steinhafel has been groomed for nearly a decade for the position, the transition should run smoothly. Also, Ulrich will remain chairman until Jan 30, 2009 (Black, 2008). This can further hedge against any major problems arising within the company. Perhaps one of the most important beliefs of both Ulrich and Steinhafel share is the importance of the brand. Both strongly feel the focus

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should not be on the people managing the company but rather the brand itself. Ulrich has created a structure which is designed to outlast his time as CEO as well as his successor’s time as well (Reingold, 2008).

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Strategic Profile:

The Wal-Mart Corporation is the leading retail chain in the entire world. Through discount prices and constant expansion Wal-Mart went from being a local Alabama retailer to the leader of the market. Although there is significant competition in the retail realm, Wal-Mart has been the leader by staying on the edge of prices and the ability to be lean when it comes to cost cutting and operating costs. The most important thing for Wal-Mart to focus on in the future will be its ability to remain as dominantly competitive in a market that values not only low prices, but also a certain quality of goods purchased. With the continuing price increases on the supplier end, and the widening gap between minimum wage and cost of living increases it may be difficult to be as competitive and stay nearly as profitable even in the next five years. Another increasingly large concern for Wal-Mart is its struggle to be competitive in international marketplaces. The cut prices at all costs technique aren’t as well accepted in many overseas countries. All of these will be important aspects for Wal-Mart’s future.

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Porter’s Five Forces:

Threat of New Entrants:

In the retail world there is always a threat of new entrants. When the business involves being a middleman to the consumer it is always an attractive industry. Especially in the case of a discount retail merchandiser as there is a great amount of need for inexpensive products considering the pending economic downturn. For a business as large as Wal-Mart the threat of new entrants is less as to compete with a corporation as big as them you would have substantial barriers to entry. If you were not a new company then Wal-Mart has the privilege of being the leader and watching you as you continue to grow in the competitive market.The barriers to entry for any retailer are relatively low; all you need is a simple business license, a location to sell products out of, and a supplier of what it is you’d like to sell to your target market. On the level of a discount retailer such as Wal-Mart the barriers to entry would be substantially higher. From large amounts of capital, which would likely be unattainable, to an impossible amount of retail space and enough supplier power to stock everything. Therefore the threat of new entrants that will actually compete with Wal-Mart is virtually non-existent.

Bargaining Power of Suppliers:

Suppliers in the realm of retail have relatively minimal power when it comes to the sales of their merchandise. Although the supplier has the ability to choose which retail locations that they put their products into, they also must put their product somewhere because in order to be competitive within their own market they must have their products available to consumers. For an upper end product it is less likely that they will have items for sale at a discount retail location, although to reach a greater market it is sometimes necessary to get the market share. In the case of Levi-Strauss, they created what is known as the orange tab especially for Wal-Mart so that they could reach out to the lower income shopper. Although the quality of the product is further diminished in order for it to fit the prices of the discount retailer and still turn a profit, it reaches out to the lower income bracket and makes it more recognizable of a brand to all types of individual. Other businesses have done the same time, especially as Wal-Mart is the leading retailer in the discount world, and is recognized as the place to shop for the lower income bracket, especially within the United States.

Bargaining Power of the Buyers:

The buyer holds most of the power in the retail industry. It is up to them where they are going to shop and Wal-Mart will not turn a profit if the buyer does not come to their store. In Wal-Mart’s case the buyer is often times coming to them because they offer the lowest prices and the most convenient locations, both of which they have positioned themselves to do because of consumer behavior.

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Although suppliers will dictate prices to a certain extent, and Wal-Mart and the suppliers dictate what will be sold in the stores, the consumer dictates what will be bought at Wal-Mart.It is obvious that Wal-Mart would like a share of each market for the buyer as they are making a one-stop shop for the entire traditional consumer needs. Things such as photo places, eating establishments through joint ventures, automotive, grocery, pharmaceutical and doctoral needs, plus traditional retail needs are all available at Wal-Mart for the convenience of the consumer.

Threat of Substitute Products:

In the retail industry the threat of substitute products is relatively low. Aside from the pressure from competition, the substitute product is the upper end location retailer. Since the discount retailer deals with a traditionally lower income bracket individual, it is less likely that they will ever go somewhere more expensive to meet their needs at any point unless they reach a higher income bracket.

Rivalry Among Competitors:

Competitors are many in the discount retail marketplace, but often the will differentiate themselves differently from Wal-Mart as they have the majority share of the cost-based marketplace. Differentiation is key because direct substitutes in the discount retail industry will only lead to failure. In the last decade one of the strongest direct substitute of Wal-Mart, (Kmart), has been on a steady decline as they cannot compete with the prices that Wal-Mart offers. Their inability to differentiate themselves has lead to a popularity and consumer decrease, leading to a slide that has forced them to close numerous stores nationwide and created an inevitable end to the corporation in the next decade. Therefore the greatest challenge in the discount retail market is differentiation and this will create no direct substitute or competitor.

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Internal Analysis:

Resources:

Tangible Resources:

Wal-Mart has numerous resources within the corporation at their disposal when it comes to retail marketing and maintaining a leading competitive edge. Wal-Mart’s tangible resources consist of mainly stores and the ability to house millions of items in each location. Although Wal-Mart is a retailer and houses a lot of product at a cost to the manufacturer and doesn’t actually maintain the assets, the stores themselves are the greatest resource, those and the warehouses. Each store is a viable asset to the company and losing any of them would not be good for the company. Aside from that Wal-Mart has relatively minimal tangible resources, which of course they make up for with their intangible resources.

Intangible Resources:

Wal-Mart is not only a retail discounter, but also a cash-and-carry retailer to exclusive club members. With the formation of Sam’s Club Wal-Mart entered into the specialized retail industry during the 1980’s. In order to reach more people and offer even greater discounts on wholesale items, Sam’s Club brings further revenue to the largest discount retailer.Online resources are now also an important key to Wal-Mart’s current success. With the looming threat of the online marketplace growing larger and larger Wal-Mart’s online enterprise will continue to grow in importance. Hand in hand with Wal-Mart’s online presence is the storage space to put items that sell in the online marketplace. Although it is viable to send out items individually from any Wal-Mart store that is close to the sale location, it is much easier to centralize the process with a series of warehouses and hopefully some ability for just-in-time delivery.

Organizational Culture:

Wal-Mart provides many jobs for those who cannot get jobs elsewhere or would have trouble getting jobs based on certain personal conditions. Wal-Mart is one of the number one employers of elderly and low-income individuals in the United States. Although there is a high percentage of employees it is to be expected in a service based retail that it will be hard to maintain employees, as many positions are menial and available to anyone with zero experience. Often, employees are either older or younger and are only at Wal-Mart until a better job opportunity arises.

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VRIN Testing:

Value:

Wal-Mart maintains value by continuing to be the low-cost leader through smart distribution of products and taking less margin on retail items within their stores. They have learned to differentiate themselves by taking the smallest margin on current products and selling a greater number of them to create the largest amount of profit in the market. Often times although cheaper, and item at Wal-Mart will only be a small amount less than elsewhere.

Rare:

Wal-Mart is not rare, but it is differentiated by cost which does give them a form of rare advantage over the competition. Other firms have to use other methods to bring in customers and it can be difficult in a nation facing economic downturn to show that price is not the number one thing that individuals should be considering when choosing where to do their retail shopping. Although there will always be larger discounters, they will never have the ability as Wal-Mart does to expand to a greater amount of locations. And other traditional discounters deal specifically in one are of retail and not all as Wal-Mart does.

Imitation:

Wal-Mart is difficult to imitate at this point because of the brand value. In order to create the same cost differentiation that Wal-Mart has a competitor would have to give up another differentiation point in order to remain profitable. Since customers already go to the other stores because of their differentiation it is reasonable to assume that if they changed then it would not draw enough new customer base to make up for the customers lost in the transition. Therefore, it is difficult to imitate Wal-Mart, even though it is relatively easy to enter into the retail industry.

Non-Substitutable:

Wal-Mart as a corporation cannot be directly substituted for. Although the retail products you purchase at Wal-Mart can be found elsewhere, the ability for them to do everything from take family pictures, to sell gas, and sell retail items cannot be equaled at anything aside from another discount retailer that differentiates on something other than simply cost. Therefore, if Wal-Mart can continue to expand and sustain sales, there should be no fear of direct substitution in the near future.

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SWOT Analysis:

Strengths:

Wal-Mart is the leading retailer in the United States by a large margin. In a market where the average consumer concentrates largely on price, and don’t differentiate on anything aside from that. Because they have recognized that many individuals are willing to put up with more crammed stores and congested checkouts just to save a few dollars on items that need to be purchased.Their large product offering and wide variety of products also helps to differentiate them from other stores. With the store size and ability to offer all products ranging from automotive to grocery, personal care to electronics, and a wide variety of other services such as photography and banking, Wal-Mart really is the only place you need to go for anything that you need. The combination of low prices and the ability to get everything you need for your daily life really give Wal-Mart the competitive advantage.Wal-Mart has strong marketing and amazing supply chain ability. With shipments every night and an ability to send something to any store that needs it within a short period of time. With such a short turnaround, the ability to get a shopper to come back the next day, or the day after that instead of essentially forcing them to go to another store is much easier. Often when customers cannot find what they are looking for they will go elsewhere; however, if there is an overnight turnaround they are more likely to wait.

Weaknesses:

Wal-Mart has been expanding lately, and almost to an over expansion sense. Because of their push to make most Wal-Mart locations into the new Wal-Mart Supercenter, they have increased a lot of store size, added hundreds of new items, including an entirely different product mix with the addition of grocery, and they have sustained losses. With the economic downturn there is a chance that

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there will be a large slowdown in the amount of new Supercenters throughout the United States and internationally, at least for the time being. Wal-Mart also has issues regarding the international market. Their international plan has been very similar to the domestic plan, which has been largely unsuccessful, especially in the German market where they are planning on shutting down Wal-Mart entirely and focusing the efforts in other areas of the world. Germany was a huge failure and each quarter spent there has been a loss since its inception.Other issues for Wal-Mart include product recall. With such a large product offering there is higher risk of more faulty items, especially when the majority of the product offering is of lower quality to help with overhead costs and ultimately to provide the lowest prices. Although there is not a lot that Wal-Mart can do about this, because to change that would be to change the structure they stand on, it is still an aspect that should be paid attention to.

Opportunities:

There is still large opportunity for growth in the retail industry. Even with economic downturn there are still certain aspects of life that are necessities for individuals and families and Wal-Mart offers these products, so sales will continue. Since Wal-Mart is the lowest price provider, it is also likely that their growth will be larger that the growth of competitors and may even cut into the competitions revenue if the slump continues for an extended period of time. This may prove to be a very effective time for Wal-Mart to focus on what they do best and slow down on some of the areas where they are currently losing money.Wal-Mart is continuing their push into different international markets, most recent with the push into India and the Indian marketplace. Although there have been issues with other international attempts in the past, there is a bright outlook for India, and hopefully with the failure of Germany Wal-Mart will be more cautious when deciding how to market themselves in the new marketplace. Although this could also prove to be a failure for them, it is still more of an opportunity than anything else.

Threats:

Wal-Mart’s biggest threat is the opposition from communities. Especially on a smaller town level it is often against the communities wishes to put a Wal-Mart up. Local business suffers and it often times draws less desirable individuals to a community. Many times Wal-Mart wins because they offer a product that is different than anyone else, and numerous people wish to have one more near them, but there have been several instances where Wal-Mart has been shut out of a community and had to go elsewhere.The other large threat is competition. Wal-Mart stands at the top of the pyramid and therefore is the biggest competition for any of the other discount retailers in the market. Although they are all also competing with each other they will view Wal-Mart as their main competition, and they are not incorrect to do so. Although

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it is hard for other retailers to differentiate themselves in the same way that Wal-Mart does, it is not hard for them to offer other services that Wal-Mart cannot because they have more working capital since they have slightly higher prices and profit margins. If Wal-Mart were to do the same they would take significant losses in their profits.Aside from each of these Wal-Mart should be concerned with potential for counterfeit products that could be sold to their store. Since the products are traditionally of the cheaper variety and many of them are shipped from China, there is a higher probability that the products could be counterfeit. Although this is likely not a large concern it is still a threat and should be recognized as one.

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Analysis:

Although Wal-Mart is the big kid in the discount retail world, there is a substantial amount of threat for the future that both the competition poses to them and they have done to themselves. Wal-Mart has no need to fear for being successful but it is important to watch how they are displaying their corporate image on the international scale. With poor examples such as Germany there is doubt in my mind that Wal-Mart has done all that is necessary to decide how they will differentiate themselves in the international market, and it is of more than a slight concern for their future, especially in a time of economic slump/recession. Therefore, it is my determination that Wal-Mart has made many smart decisions thus far and should re-evaluate before moving any further.

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Strategic Profile

Retail industry has been a very competitive market that has thinned out through the years, which have left mainly a few main companies in the market. Sears Holdings Corporation wasn’t always Sears Holdings Corporation with thousands of stores and subsidiaries. They started out as a catalog company in 1886 selling its products from out of a catalog by mail order and were called Sears Roebuck. Around 1953 Sears Roebuck went north to Canada and entered the merchandising markets by joining up with Simpson to create Simpson’s-Sears, now known as Sears Canada. Through out the years Sears Roebuck become a leader in the full-line and specialty retailers in the United States. Carrying products/services such as: kitchen, bedroom, and bathroom supplies, along with appliances, electronics, painting, jewelry, yard equipment, tools, clothes, footwear, home installation, product repairs, auto, and marine as well.

That was how Sears Roebuck was known until 2005 when Kmart proposed to buy Sears Roebuck for $11 billion. When the merge is complete they were known as Sears Holdings Corporation and the new third-largest retailer in the United States. Additionally in 2005 Sears Canada sold their credit and financial services operations to JP Morgan Chase Bank, which is a subsidiary of JP Morgan Chase & Co. Following that Sears Holdings was able to purchase 25.3 million shares of Sears Canada to then own 77.3% of the total outstanding shares and 50.8% or the minority shares outstanding. (Data Monitor)After the merge with Sears Holdings restructured their online sales website with more available products to purchase including: automobile tires and batteries, and health/wellness products that added and expanded their market range.

With all the changes and buying of capital the leader of the change Alan Lacy the chairman of Sears Holdings and Director of Sears Canada resigned. Around the same time Craig T Monaghan was chosen as the Chief Financial Officer of the company but his term ended quickly in January 2007.

On a brighter note Sears Holdings is developing a new e-commerce development center in Chicago. Also they signed a multi year contract with EnerSys the manufacture and distributor of industrial batteries that would supply Sears Holdings with new after market DieHard Platinum automotive and marine batteries and applications. In April of 2007 Kmart the subsidiary of Sears Holdings now decided to contract with Draftfcb to be their new advertising agency that would took affect in May 2007, and Sears Holdings selected MPG (US based) a media company to be their new media planning and buying Agency affective in May 2007.

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INDUSTRY ANALYSISSituational Analysis

Along with all this change and restructuring Sears Holdings seemed to be holding strong but recently has showed some falling in the market due to consumer spending being down. Surprisingly a few broad line retailers recently seem to faring pretty well in trading, Sears Holdings started the week of April 7, 2008 up forty four cent to 106.05 along with Wal-Mart, Target, and Bid Lots who also were up but not nearly as much. Sears Holdings stalks stand at about twice as much as Target and Wal-Mart and four times that of Big Lots. (Broad line retailers rise modestly)

Chief Executive Myron Ullman for JC Penny said with the higher cost for energy, the reduced hiring, and weak housing market the credit markets are weighing down the customers to spend. Ullman also said, “Consumer confidence is at a multi-year low," in a statement. While tax refunds might help for a while, he said, "We expect the continuation of a difficult environment over the course of 2008."(JC Penny) JC Penny is in the same market and is showing the same problems that most retailers are showing in the market. All are looking for the competitive edge through these hard times waiting for the economy to make a turn for the better.

On a Sociocultural note Sears Holdings is active with in communities working with struggling families that are having a hard time holding their homes and family up and running. That’s why Sears Holdings have partnered up with the organization Rebuilding Together that work to preserve and revive low-income homes and communities. Sears Holdings also highly support the men and women in our Armed Forces; they were awarded the Secretary of Defense Employer Support Freedom Award that is given to employers who voluntarily support their employees who serve in the National Guard and Reserve. Within the industry it is important to do be an active participant in the community or its going to be hard for people to support you because with all the other retailers that are doing the “extras” people won’t come to the store.

With 3,800 full-line and specialty stores across the United States and Canada, Sears Holdings is a major employer with over 350,000 associates that encourages teamwork to give superior customer service relations while remaining profitable. By combing forces with Kmart has expanded their demographics to anyone that is looking for a solid product from low income to higher-class families with their wide variety of products from low end products to mid/high grade products.

Politically Sears Holdings is constantly involved with the Political Action Committee to make sure they are complying with federal laws and regulations. Law makers aren’t always educated in how laws can impact a company so Sears Holdings work with law makers to make sure they are aware and prevent laws that could greatly impact the industry or the market.

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FIVE FORCES

Strength of Rivalry amongst Competitors

Sears Holdings is in a highly competitive market with large players like Wal-Mart and Target being the third largest retailer in the United States right behind Wal-Mart who is notably the largest retailer in the world and then Target. On a Global setting Sears Holdings is only in Canada and has a strong presence there as well. Sears Holdings prices are a little higher then Wal-Mart which is hurting them currently as the economy is hurting and looking like it is starting a recession. Wal-Marts low prices and ability to give jobs to lower skilled workers is like a crutch to the retail market and is starting to put smaller corporations and businesses out of business, which is causing a monopoly like status in some areas. This is killing Sears strength against is competitors as they offer higher quality products and services that cost more. And while people are trying to save money they’d rather shop somewhere else.

All the major competitors offer similar products but different brands that hold different quality connotations held by the consumer. Sears Holdings for example carries Kenmore Appliances that are held as high end products as well as Craftsman Tools that are made in America. These products can carry consumer loyalty because of the quality and Craftsman where it is made. These are just a few products that Sears Holdings carry that strengthen their rivalry between competitors that carry the most of the same products.Bargaining Power of Buyers

The buyers in the industry are simply you and I, not other companies or businesses but us as individual consumers. As a consumer we do have some power but not a lot as certain brands that Sears Holdings carries hold a certain value while other products could have some room for price negotiation. Most of what Sears Holdings sells has a predetermined value and going to be a universal price in the region due to cost of living, cost of transportation, and cost of actual product.

Typically though retailers try to get as much as they can for their product or as much as the consumer will pay this price with vary with competition in the area with such stores as Target, Wal-Mart, and similar stores. Whiles buyers tend to buy the best product that they can with the money they have available the slump in the economy hasn’t exactly help Sears Holdings situation because it has tighten up the pocket books of consumers to look for the cheap substitute that then gives power to the buyers and pressure on the retail industry to lower prices to either minimize profit or take a lose just to get turn over of their inventory.

Threats of Substitute Products

There are hundreds of substitutes in the retail business, what the corporation has to rely on is its customer loyalty and products reputation stay good. They can do this by offering incentives to customers such as

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memberships and rewards for spending money in Sears’ stores. They can also offer warranties for certain items such as appliances, furniture, electronics, etc. Another area that can reduce consumers from buying other substitutes is the customer service they receive in the stores, if a customer has a good experience buying a product at one Sears store they can assume that the service will be the same at all Sears locations.

In the case of certain substitutes that are hot selling items in the market Sears can purchase and carry those products on their shelves creating a competitive environment unless the item is by a product only carried by a competitor. In turn Sears Holdings holds certain brands that can also make substitutes that only they can sell. The retail industry is full of the exact same product just produced by different manufactures, but the hope is that your manufacture can produce that product for the cheapest price or highest quality that is worth paying for by the consumer.

Threat of New Entrants

Threats of new entrants into the retail business are low but to become a player that would compete with Sears Holdings and larger companies like Wal-Mart, Target, and Dollar Store is not an immediate threat at all. It would require large amounts of capital and a unique business technique that is going to be able to sell a product of value for a lower price or have a product differentiation then Sears Holdings or even Target or Wal-mart. Just like Wal-Mart and Target who have found there niche and have done both with discount and product differentiation to give to customers so would a new entrant.

All the large companies hold bargaining power with their suppliers because they buy in bulk and buy large enough orders that suppliers depend on the constant business to keep them in business like a security blanket.

The top three retailers in general control so much of the market share that you would not be a concern for them due to the size of a new entrant into the market at this point in the industry. Even variations in the industry are common but to become a big league play in the market is hard because the larger firms will find a cheaper less expensive way to produce a substitute of that variation.

Bargaining Power of Suppliers

Key characteristic of the retail market is the retail store wants to buy for as cheap as they can and for large quantities. Unless suppliers work together to set prices or make deals with buyers they can lose business unless the corporation is dealing with select supplier like Craftsman or Kenmore but in Sears case they have formed relationships with those companies which have transferred some of the power to the suppliers since Sears Holdings is dependent brands like those that they guarantee to carry in their stores. It’s a give and take relationship in the retail world because every one is looking for the lowest price but still have a product that will sell.

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With the over seas manufactures being cheaper to contract with, they have run many of the United States manufactures go out of business. When long-term supply contracts have formed with certain suppliers the power of the suppliers increases because the company has committed to doing business with one company and then typically looses any power they might have had for the set period of time. In the case of retail this is a typical occurrence because stores will typically carry the same product year after year for each season unless there are new products on the market.

Attractive Industry?

Even though the barriers to entry fairly low, the bargaining power of suppliers and buyers is intense with pressures on both sides due to the supply and demand. The competition is rough to see who is going to receive the consumer’s dollar. The major companies have squatted their territory in the industry and are fiercely battling out who is going to win the price wars, Wal-Mart, Target, and Sears Holdings have the power right now and not something I would want to compete with even on a smaller basis because they are known for running smaller businesses out. All in all the retail industry does not look attractive to new comers unless they can find a niche in special locations because people will rather go to a well established store that they can rely on.

Key Success Factors

Sears Holdings have established their brand name and what brands they are going to carry which have allowed them to be a reliable source for those certain products over the years. They haven’t varied over the years and if anything they have added new product lines that have been successful in assuring customers the same quality and price time after time.

Their known and respected services tag along with their established product line that is reliable and well respected in the market. Sears Holdings have also established a level of quality in their customer’s services and in the store and in homes and commercially that have become industry standards. Unlike Wal-Mart or Target, Sears Holdings offers in home services for some of their products, which have been great successes.

The product variation that Sears Holdings is able to carry keeps expanding allowing them to grow in new areas of retail and strengthen the ones they are already in. They have been able to balance their brand mix and product offerings allowing customers to do more of a one stop shop or know they can come to their store for specialty items.

Sears Holdings have made key purchases of subsidiaries that have definitely strengthened their stand in the market and become more appealing to their customers. It has also eliminated some of their competition such as Kmart, Land’s End, Sears Canada, Orchard Supply Hardware, and EnerSys.

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Competitive Analysis

In the United States retail industry there multiple competitors but Sears Holdings main competitors are Wal-Mart and Target. Wal-Mart uses the low cost technique to acquire their customers and steal part of the market share. While Target tries to carry better quality items then Wal-Mart for a slightly hirer price to attract their customers, but unlike Wal-Mart, Target tries to practice better more moral business practices, which is Sears Holdings business technique as well. Wal-Mart seems to have no respect of their workers or customers in reality all they are looking for is a profit by selling low quality items for the lowest price they can look to sell quantity instead of quality

Wal-Mart

Strategy: Giving people low prices and the best deals so they can live better while staying in front of the market.

Vision: Sustain their market dominance through low prices and product variety.

Mission: Like their strategy their mission is to save people money so they can live better.

Capabilities: Strong market presence and if the economy dumped then Wal-Mart will most likely be left standing with the market due to the low prices will run all other retailers out of business then after they have control of the market will be able to raise prices because there will be no one to compete with them.

Target

Strategy: Giving more people more for their money through their motto: “Expect More. Pay Less.” They strive to do this by connecting business and community through affordable products and innovative product design.

Vision: Be Responsible. Accountable. And Committed to continuous improvement in their products, relationships with customers and the earth.

Mission: Fast, fun and friendly: They're the words that guide us in creating your shopping experience, in person or online. At Target.com, you'll find thousands of selections, with many exclusive to our online store. Fans turn to the Red Hot Shop every week for a quick, sizzlin' style-fix. (www.target.com)

Capabilities: There are hundreds of capabilities Target has the opportunity to; such as they have expanded to India working. Target has focused

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on its global market while also making a very strong move towards being sustainable in the community, which other retailers haven’t really concentrated on. They have the ability to capture a lot of market share locally and globally

Industry Key Success Factors

Within the industry the factors that are successful are those that a company can sell low cost items with a high quality while also providing a product that is different from other vendors that set them aside. Retailers need to be able to sell products at a lower price then other retailers otherwise the customers are going to go to another retailer to get what they need. Also supplying a product differentiation gives customers more of a selection and allows them to know they are purchasing a product that is unique to that store and holds some value in their eyes and the company.

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INTERNAL ANALYSIS

Value Chain Analysis – Primary Activities

Sears shows strong primary activities within their value chain their service is superb while offering in-home service for certain products. When there are problems their customer’s service departments are there to address any problem the customer is faced with. They solve any problems that arise. Refereeing to what was said about Sears Holdings signing Draftfcb to be their new advertising agency that would took affect in May 2007, and Sears Holdings selected MPG (US based) a media company to be their new media planning and buying Agency affective in May 2007. This was a smart strategic move that definably strengthens their marketing sector to have those agencies under contract.

Their operations have been kind of like followers in the industry except for the creation of services that other retailers haven’t installed in their stores, which have been smart moves. When it comes to be sustainability and other market trends Sears seems to be close behind but not a leaders, which is hurting them. Their operations are very strong though in the acquiring of subsidiaries and brand names.

Sears Holdings outbound logistics have been strong in their placement of stores within communities that have a need for their product. Sears Holdings is able to push their products out with out to much problem strengthening their value chain in the outbound product distribution. On an inbound logistic point of view Sears Holdings has created strategic relationships with certain vendors and suppliers that add value to their business. Brands Such as Craftsman, Kenmore, DieHard, and Land’s End’s are just a few that have strengthen inbound logistics over the years.

Overall the primary activities of Sears Holdings appear to be strong, they have a great grasp on what the basic functions of their industry require them to do and how to do it while staying up and competing with their competition while providing great customer service. Value Chain Analysis – Support Activities

The procurement of Sears Holdings is a sound area of activity because Sears has made its presence known over the years and established relationships with its suppliers, which have also translated into lower prices, and better deals that also transfer to Sears Holdings customers.

Technologically Sears buys from its suppliers the newest technology on the market to sell to their customers. They also use the newest marketing strategies along with old ones to keep up with the changes in the market and industry.

From the human resource aspect sears tries to promote career hiring and internal promotions to attract well-qualified employees and to be an attractive

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company to work for. With good job security and chance of promotion is crucial to workers today. They also work with community relations to build that strong relationship that shows Sears Holdings doesn’t only care about profit but our world that we live in at they function in.With a small executive board the company tries to keep things decentralized that allows information to flow better. This allows problems to be fixed sooner while making the firm more efficient and effect. There are new faces though running the show from the corporate office that have been only been changed in the last five years but there should not be any concern because they seem to be doing just fine in the path they have decided to lead the corporation down.

Core Competencies

A. Flexible to the market as it changes and the trends that the industry go through

When the market made the switch from catalogs to internet Sears holdings was there to offer online ordering but still kept their well known catalog that still serves as a source of income and a purpose for those who don’t have computer access. This has allowed loyal customers to continue their business with Sears the same way they have always done.

The focus and the concern of many people today are how can we be sustainable within organizations and where can we reduce our use of resources. Sears is also making changes to help address this issue with their products trying to use appliances that are more eco friendly and clothes that are more sustainable.

B. Product differentiationSears Holdings knows that to be a top competitor in the retail market you

cant just sell everything that that another store sells but that they need something that there competition doesn’t have be give them that competitive advantage. They carry appliances that Wal-Mart doesn’t carry while Target carries a limited supply. Sears Holdings Also carries an auto department which Target does not carry either. Sears Holdings has also been able to identify when they need to set up specialty stores versus a full-line store, which has allowed them to open more stores around the United States.

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SWOT ANALYSIS

Strengths

Sears Holdings first strength is their strong market presence that enhances their bargaining power and brand image that was touched on earlier. They are all ready a presence that is known in the industry that gives them the advantage over other new entrants or players that aren’t as knowledgeable in the market. Being the third largest retailer in the United States also helps with the amount of time people see the stores, because they are diversified with stores connected to major malls and then they also have smaller store in smaller communities that can’t support a large full-line store.

A balanced brand mix has also been crucial in the survival of Sears Holdings through out the year. They have the ability to balance their product line so that they carry a variety that their customer market base will always be satisfied with and bring them back to continue shopping at their stores. With the selection of private brands such as Kenmore, Craftsman, and Diehard, in addition to other mainstream brands Sears has been able to acquire a customer base that comes to rely on these brands. Recently they have launched in their women’s department three new brands Liz Claiborne, C.L.O.T.H.E.S, and Latina Life from Jones along with two jean brands for both sexes American Exchange brand denim and Buffalo Jeans. The addition with new brands and old brands the balance has allowed Sears Holdings to reach a balance between revenue growth and margins that would other wise are fairly difficult.

In relation to balanced product mix Sears is also able to offer broad range of products give a selection in price and quality for each item catering to more then just one demographic while showing their ability to be close to a one stop shop for multiple items. Sears Holdings Domestic offers several types of stores as well ranging from full-line stores, specialty stores, direct-to-customer business, and home services. All of which offer a wide ranch of products across several merchandising groups. Groups starting with health and beauty products, toys, home appliances, consumer electronics, tools, fitness, and lawn and garden equipment, certain automotive services and products.

Weaknesses

First weakness would be in the decline in comparable sales between stores and items. Even Kmart, one of Sears Holdings major subsidiaries is showing a loss between 0.6% and 1.2% in the last yearWhile Sears Holdings showed a decline of 6% and 1.1% mainly in the lawn and garden and home fashions sectors, which kind of makes sense due to the economies down turn, people don’t have the extra resources for the little extras just as fixing up houses and their lawns. Decline in sales also shows problems with advertising strategy and product range and since the time of year these products sell best is in the fall that would directly affect revenue growth.

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A weakness in any business would be product recall but Sears Holdings have been affected lately be several recalls which not only don’t produce any revenue but also send the image out to their customers that the quality of the product is falling and Sears can’t be dependable anymore. When a product is recall there is a direct cause and affect with the loss of product and lose of corporation quality standard controls image.

The last major weakness Sears is showing low returns on the last fiscal year compared to their industry peers. This translates into the company not being efficient in the way they are running the organization and its management practices to keep the company positive. With weakness is going to directly affect investor confidence and the way they are going to run the business in the future.

Opportunities

Sears does have a positive outlook in the future if they pursue their potential growth in private labeled products. The United States economy is showing that private labels on food, drink and personal care is expected to rise from $108 billion since 2005 to $137 billion by the end of 2011. (Data Monitor)

With private brands accounting for one in every five items sold in the United States retail stores, drug chains and mass merchandisers this is going to grow and be a large opportunity for Sears to take advantage of in the near future. Since consumers or going to favor private labels, utilizing private labels will also boost company margins.

While the United States is labeled as the pill popping country in the world personal health care products are on the rise and could benefit Sears Holdings if they take advantage this increase in personal healthcare spending. In some cases combining food and drug store with in the company would also boost profit margins.

You can forget that our world is constantly on the internet and utilizing the online market would be a very smart decision and path to pursue for Sears Holdings as they already have a website increasing it and offering more options would only benefit the company.

Threats

First threat is scary because it’s not only a threat to sears but also all companies and businesses across the country that would be the economic slow down in the United States. As the economy shrinks, so do the profit margins, market shares, and overall industries. What hurts the most is the key market that is going to be affected is going to be Sears Holdings and subsidiaries.

Along with the economic slow down there is intense competition that is not going to go away but only get stronger as players in the industry become smaller and the large players only become larger, reducing profit margin across the board. The intense competition is only going good for the player that still growing and is able to produce the lowest price for the product that consumers want.

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There is also the threat of business being consolidating which narrows the market share making the competition even more fierce and competitive.

Anyone say rentals? There has been an increase in the amount of renting in the renting market specially in the housing district which can affect retailers because houses are going to come with appliances and tenants aren’t going to go out and buy new products, that will be up to the landlords who will get them fix instead of replacing them which in return will lower sales for retailers like Sears. (SWOT Data Monitor)

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Moderate Growth Strategy:

Target Corporation is a domestic force when it comes to discount retail, and needs to consider what is most important to the business, especially in time of recession, as is currently the economic status within the United States. There are major factors that need to be studied within Target to make sure their company is running efficiently.

Although this strategy may sound like nothing will be happening within the corporation and we hope the future will simply remain profitable for Target, this is wrong, there is a lot of strategy involved in trying to maintain forward progression in time of economic downturn. Although there is traditionally a boost in discount retail during a time of recession, a lot of this extra growth often hits the ultimate price drives Wal-Mart and Dollar Store. With these two in the picture it can be figured that although there will be higher than stagnant growth, it will require work to maintain positive growth in the profit margins. Although Target is currently projecting a growth of two or three percent it is my modest opinion that more than 1.5% growth should not be anticipated.

With the plan we have set out the profits should reflect the collaboration of the strategy and the current economic position. Although it is possible that the recession will end and other strategies could be undertaken, it is most economically effective right now for the following strategy to be implemented over at least the next three years.

Currently Target projects that the revenue and profit margin rise about five percent annually, this of course was in time of no recession and that should certainly be taken into consideration. Target must concentrate on the following things for their growth to continue in the next three years.

Brand Image:

Although during a recession it is a common thing to assume in order to boost sales someone should concentrate on lower prices, especially in the discount retail industry, but this isn’t necessarily the case for Target. Being a company that prides itself on a blend of lower cost and higher quality product differentiation, it could hurt their brand image to lower things too drastically. This doesn’t mean that it is a bad idea overall, it’s just that too much of it could constitute a problem in the future. Since the brand image is one of the most important factors in Target’s differentiation strategy, it is one of the most important things to concentrate on for the next three years. With the implementation of different corporate teams to go around and look for problems with each store, the image that is being displayed by every store is important to look at.

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Product Offering (Private Labels):

Over the last few years Target has become stronger in their differentiation of private labels within the store. From brands such as Archer Farms or Market Pantry, to clothing lines such as Mossimo, or the Michael Graves home wares collection, each label represents Target and that is another important part of their brand image and also their variety of selection within the stores. As each store can only fit so much, it is important to remember that a store filled with private labels is not always the most effective business model. Therefore cuts should be made on the corporate level, or if not cuts then the new development of more private labels should be put on hold. It is important to keep Target’s product differentiation present in order to keep the same demographic coming to the store.

Domestic Store Locations (Super Target Expansion):

Currently Target is in the process of transforming many of its domestic retail locations into the new and improved Super Targets, which are the answer to the Wal-Mart Supercenter on the competitive scale. Super Target is the second coming of the attempts to answer to the Wal-Mart Supercenter. Starting in the late nineties with the Target Greatland, which was the first sort of grocery/retail location Target had attempted, the Super Target is the direct response including automotive and full lawn and garden department. These stores will create a better competitive unit with Wal-Mart; however, it may not be the time to pour millions of dollars into a project that is designed to answer the call of the competition. Although Wal-Mart is the direct competition of Target it doesn’t mean that their way of doing business is best. With poor treatment of employees and uncomfortable shopping conditions, Target stands ahead of Wal-Mart in the experience department of shopping. It is my belief that these differentiation points should be the ones concentrated on, as there is a different specific target market that Target shoots for. Where Wal-Mart shoots for the lowest income bracket and will not cater to any customer, Target shoots for a consumer looking for more than the lowest price, although not shooting for the upper class by any means, Target stands out as the store where you pay just slightly more for a little better experience. This is Target’s number one differentiation point and should be protected indefinitely. It is therefore this marketers decision that the current projects should be continued through completion, but to halt all current future plans of Super Target expansion until the project can become more economically feasible within Target’s brand and image plans.

Inner Corporate Strategy:

Currently Target stands with a new CEO as of May 1st, 2008. This is a time of certain uncertainty and should be taken as delicately as any other power change would anywhere. Although it is clear that the new CEO has been breed by the company and Robert Ulrich personally, it is always a little unbalanced when

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someone leaves who has been a success story for the last two decades. It has already been stated that Target’s Brand is the most important thing for the future, which is a good starting point in deciding how the new leadership will be, and it does seem as if it will be a seamless transition; however, it should be taken into consideration to go through the corporate offices and find any sort of issues that could arise. Although this is potentially the least important issue in the Moderate Growth Strategy, it also has potential to be the most important issue if the new leadership does not meld well with the style that has been present for a long time now.

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International Expansion Potential:Canada

Target could implement a global expansion plan in addition to the moderate growth strategy. The most likely candidate for international expansion would be Canada. Each day trade between the United States and Canada measures approximately $1.5 billion worth of goods. In 2006, trade totaled over $500 billion. Large volumes of trade are possible because of the implementation of NAFTA in 1994 (US Department of State, 2008).

A viable option for northern expansion would be to open trial stores in British Columbia. Possible locations could include Victoria and Vancouver. Although marketing research would be necessary to identify possible markets, these locations would geographically be ideal. Expansion into the Canadian market would allow for Target to use existing distribution networks with only some modifications. As cities near the border, both options would allow for Target to use its current distribution network. Currently, Bellingham, WA is the closest store in relation to these possible options (Target.com). With 25 regional distribution centers and four import warehouses, the distribution infrastructure could support the expansion (Datamonitor, 2007).

EuropeEntering the European market could prove challenging. Wal-Mart’s

attempt to enter the German market was met with limited success. The company failed to adapt its product offering to the local preferences. The company offered low priced, low quality goods. Such products failed to sell well in a country, which valued quality products. Aldi, Wal-Marts competitor within Germany, offers low priced, high quality goods. Although Wal-Mart provides a wider variety of products, Aldi still outsells them. (Ewing, 2005). Wal-Mart also failed to establish relationships with local suppliers. Without connections with local suppliers, Wal-Mart cannot provide products to meet local demand. This issue is especially apparent with the food products. Wal-Mart is now creating relationships with local suppliers (Ewing, 2005).

If Target did choose to expand into the European market, extensive research would be needed first find a suitable market and then to adapt to that market. So as to not repeat the mistakes of Wal-Mart, the company could research local preferences before entering the market. After the potential product line is identified, the company can find local suppliers to meet the demand requirements. Distribution within Europe would be eased by the existing extensive infrastructure. Asia

The Asian market could be an attractive option for future expansion. Wal-Mart has found success in Asia with its price leadership strategy. It may be beneficial for the company to enter to gain market share early in the development of the economies of the Asian countries. Like the other international expansion options, extensive research would be necessary to identify potential markets, local preferences and possible suppliers.

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Financial Data:

Return on Assets

During the last quarter filings Wal-Mart had slightly higher returns with an 8.80% return on their assets followed closely by Target with 8.05% and Sears Holdings was only a fraction of both of those major competitors with 3.38% in returns. With Wal-Mart being the industry leader, earning about $100 Million more and operating on a global scale, Target had a similar return on assets, which displays their ability to be efficient in use and designation of their funds in operation of the company. Wal-Mart does dwarf Target in that aspect but this should not take away from the 8% that Target does bring in.

Looking at the last three years Target should hover around 8% for the next three years to come, even with the current recession that is affecting the economy. Also looking at the last time Target experienced the economy in recession, they didn’t seem to be affected greatly, in fact, their stock price improved by more than twenty dollars over the three year period. Target has the ability to make profits from their investments, unlike many companies that cannot turn over the quantity of product that Target does. Anyone can throw money into operations without a plan but to receive a return is where a company can greatly benefit giving them more options to expand or strengthen their position in the Global Retail Industry.

Return on Equity

Looking at the ratios for return on equity between Target, Wal-Mart, and Sears Holdings there is a much larger variation in numbers. Wal-Mart leading the way with a ratio of 20.42%, Target with a ratio of 18.42%, and Sears Holdings bringing up the rear with a 7.07% return on equity. Keep in mind each company is on their own tier when it comes to revenue and cash flow but the ratios still show the efficiency in using the money shareholders have invested.

Within the industry Target is showing a solid return at 18.42% and doesn’t show any reason for that number to take a huge increase or decrease unless Target starts to take some serious risks which they shouldn’t do during the current recession, after the recession though Target should not have a problem raising its ratio if it is able to keep growing similar to Wal-Mart and increase their ability to gain profit from shareholders investments. Recession is natural, and although it is a smart time to focus on what they have, Target should not react

Return on Investments

One area that Target struggles with is investing; their returns are negative which translates into losses. This is negative considering their lowest seeded competitor Sears Holdings averages a return on investments of about 4.5 times. Sears Holdings only recorded an investment of $30,000 in their last Cash Flow report and a cash flow of about $163,000. Wal-Mart, a closer competitor didn’t

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show any investments but showed a loss of $406,000 from cash flow investment activities. Investments are a concern for the domestic retail industry recently, most likely because of the current frugal economy. Usually a positive return from investment means that management is making good monetary decisions for company operations.

If Target plans on continuing to take losses in their investments a good recommendation would be for them to stop their investments or try to reduce them at least and then research new options for their investments looking for ways that benefit the corporation. Target does have cash to experiment and look into new options but taking a constant loss does not make business sense for the corporation.

Price/earnings to Growth ratio

Target shows a strong PEG ratio with 1.03 for the next 5 years being predicted. PEG ratio is a valuation metric that is used to help determine the company’s expected growth. The closer to 1 the better, but a ratio between 1 and 2 is considered normal. This ratio shows that the price and earnings are matching that of the percentage of growth for the company. Wal-Mart shows a PEG of 1.41, although still a strong number, it does not reach that of Target. Sears Holdings PEG ratio is at a high of 3.18, which is not a good number showing that Sears’ price is way higher in relation to their expected growth. Target is looking the best for potential growth in the retail industry within the bounds of their closest competitors.

Debt to Equity Ratio

The Debt to Equity Ratio helps define how a company funds its operations, whether it is stockholder money, revenue gained, or through debt. A ratio of over one means that the corporation is fueled with debt. Unfortunately for Target their ratio stands at over 1, a mere 1.116 means that Target is financing its self with its debt, however little it must use, in comparison to Wal-Mart who stands at 0.691 and Sears at a mere 0.32. Target isn’t in the wrong by utilizing debt financing, but must be careful. If a solid growth period were to occur, than that may help eliminate some of the debt it has acquired through it’s financing and if they so choose can bring the ratio down below one. Although financing with debt will not equal bankruptcy when a company is still profitable, there is always the risk that the market will take a turn for the worse and there may be issues repaying for Target to keep its head above water. Therefore it is an important ratio to keep track of, although it is minor financing for Target in the debt column.

Current Ratio

Unlike Target’s debt to equity ratio they have a very strong current ratio meaning they are able to pay back short-term liabilities and debt in an expedient

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manner if not immediately. They can almost pay back twice as much short-term debt than what they have now with a ratio of 1.695. Wal-Mart, who’s ratio is less then one at 0.691 shows us an example of a company that doesn’t have the cash on hand to address their short-term debt. Sears Holdings comes in the middle of Target and Wal-Mart with a ratio of 1.339.

With Target’s high ratio they are able to turn their product into cash fairly easily, much easier than their competitors, who are not as able to turn their inventory over efficiently. For Wal-Mart, this is potentially due to large quantities of product that exceed Target’s reach. This is a very good sign for Target with the current recession, they are able to pay back any short term debt they acquire quickly, minimizing any problems that arise and allowing them to address other opportunities in their market and industry.

Economic Value Added

Target can plan an estimated modest growth rate of 1.5% due to the current economic recession, which is less than the last three years where Target has been at a stable 3%. There is no reason for Target to assume there will be a growth stoppage within the Global Retail Industry, although currently they are only located in the domestic market, it is important to look from an International scale. In the future when the economic situation is looking better, Target will be able to take advantage of overseas markets. Going international should only help and increase the economic value added to their company if the timing is right and the correct research and Global Economy are in place.

Staying at their current status in the industry and strengthening it will only help the economic value of their company as well and produce continued slow mature growth. Not to forget that a 1.5% increase isn’t a small increase in relationship to the amount of cash flow and revenue they handle on a daily and yearly basis.

When addressing ratios and comparing them to other industry players you cannot forget about the amount of business each company does, although this separates exact comparison it is still a valuable note on how each company compares to the other players in the market. For instance, Wal-Mart on average handles a lot more money and inventory than Target yet their ratios are the same in some instances. This actually shows that Wal-Mart it more efficient in those areas due to the increased amount of money they have to account for and designate. The ratios are still important to Target because they still show how the company is doing in relation to itself and how it manages its money.

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Appendix:

Value Chain Analysis:

Target Value Chain:

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Wal-Mart Value Chain:

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Sears Value Chain:

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Financial Ratio Spreadsheet:

 2008 Ratios

      Target Wal-Mart Sears  ROA 8.05 8.8 3.38  ROI -0.95 -2 4.5  ROE 18.42 20.42 7.07  PEG 1.03 1.41 3.18  Debt/Equity 1.116 0.691 0.32  Current 1.605 0.814 1.339                      EVA    

2008 2009 2010 2011  $44,440,000 $45,106,600 $45,783,199 $46,469,942  

0.985 0.985 0.985 0.985                             Growth Rate 1.5      

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