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Target Case

Target operates in the highly competitive discount retail industry. Using Porter's Five Forces model, the document analyzes the bargaining power of customers, suppliers, threat of substitutes, threat of new entrants, and industry rivalry that Target faces. While Target and Walmart both operate as large discount retailers, Target differentiates itself by targeting more affluent customers and emphasizing cleaner stores, easier navigation, good customer service, and some higher-quality products. The document argues that activist investor Bill Ackman's demands for strategic changes at Target, including exiting the credit card business, changing the board composition, and using a real estate investment trust, were not justified given Target's strategy and financial track record, and

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158 views3 pages

Target Case

Target operates in the highly competitive discount retail industry. Using Porter's Five Forces model, the document analyzes the bargaining power of customers, suppliers, threat of substitutes, threat of new entrants, and industry rivalry that Target faces. While Target and Walmart both operate as large discount retailers, Target differentiates itself by targeting more affluent customers and emphasizing cleaner stores, easier navigation, good customer service, and some higher-quality products. The document argues that activist investor Bill Ackman's demands for strategic changes at Target, including exiting the credit card business, changing the board composition, and using a real estate investment trust, were not justified given Target's strategy and financial track record, and

Uploaded by

Brian B
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Target Case

1. Apply Five Forces to analyze the industry in which Target operates. Is it a competitive industry?

Target operates in a very competitive industry, the discount store and grocery industry to be specific. It

has been doing so for the better part of its ‘business life’. It has remained a very large player in the

market, number 2 behind Wal-Mart, and has led in many times in its own respective segments. Porters 5

forces are very applicable to Target, which I will highlight below:

Bargaining power of customers: The customers don't have much bargaining power over Target because

there is great competition between Target and its competitors, which ends up being beneficial to the

customer, who if they are price sensitive, they will go to the next competitor that is offering the better

price.

Bargaining power of suppliers: Target's suppliers have little bargaining power due to the fact that none

of their suppliers are large enough to effect a change. In addition to the lack of size of the suppliers,

there were also a multitude of suppliers which allowed Target to utilize the best supplier for their needs

at the time. Let’s not forget that Target's size also plays a huge role in giving them an advantage over

their suppliers and helping to leverage the bargaining power in their favor.

Threat of substitutes: Target cannot avoid the looming threat of substitutes, as there are many discount

stores which have very similar offerings. The customer can obtain these goods from one of Target's

competitors and still be 'satisfied' without much inconvenience for doing so.

Threat of new entrants: Target doesn't have a threat of new entrants in the domestic market, as this

market has matured and there don't appear to be any entrants that will directly affect Target, there is
the possibility that there may be large foreign entrants who may be able to enter the US market and

develop themselves into a viable threat for Target.

Industry rivalry: Target is in a fierce battle with its competitors who are each striving to maximize their

profit and market share. While each competitor might not have the same exact strategy, they all

compete with the other in some way or fashion. For instance, Target focuses on a more affluent

customer, who are expecting better service, and who might be willing to pay a small premium for the

same goods. On the other hand Wal-Mart’s core customers are more price focused and the customers

appear to be willing to sacrifice some luxuries as additional customer service / support.

2. How does Target’s business model, competitive strategy and corporate strategy differ from

those of Wal-Mart?

Targets business model is one that started out unique and seemed to work 'right out of the box' for

them. They would operate as a discount retailer, but one that largely catered to the needs of the more

'affluent' shopper. These shoppers indicated that they appreciated the length's target took to make the

store cleaner, easier to navigate, increased customer service, and offerings of some higher quality

products. Wal-Mart on the other hand, primarily focused on the cost conscious lower income consumer

who didn't 'require' some of Target's 'fringe benefit's'. Target has chosen to operate domestically as

indicated in the case, where Wal-Mart operates internationally in over 28 countries.


3. Do you think Ackman’s demands for strategic changes at Target are justified, given Target’s

strategy and its financial track record? Comment on EACH of the proposed changes by Ackman.

I don’t believe that Ackman’s demands for strategic changes were justified. Although Ackman makes

many claims to having ‘skin in the game’ because of his financial investment to Target, he appears to

want to recoop some of his earlier losses with the company.

Ackman wanted Target to get out of the credit card business, although they didn’t listen to him, they

endured some tough times, with the economic down turn, and sold off some of their bad debt to JP-

Morgan Chase while still holding control of their business.

Demand for board change was another one of Ackman’s major driving forces. He wanted target to

change up its staggered board construction, and implement some of his recommendations. Ackman

wanted people with more ‘relevant’ experience, such as real estate, credit card and extensive retailing.

Target fought back by having separate ‘cards’ which allowed them to implicitly ‘force’ its shareholders to

vote for the board members that Target had recommended. I believe Target did the right thing with this

initiative.

Ackman recommended that Target move to leverage its real estate options by using a REIT leasing

structure instead of owning its real estate. Target again was weary of this proposal and rejected this

idea.

Targets rejections of Ackman’s demands, proved to be the right decision for the company, as they have

proved to remain profitable. Some may view that Target (and its Board) were taking a more cautious

approach with many of its decisions.

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