Transcript Important financial ratios

Company Situation Analysis for Target
Team 2
Shawn Buck
Ashley Burnett
Whitney Horton
Kelly Riester
Jennifer Shotts
Sam Snelling
Mickea Smith
Target
 Founded by the Dayton Company in 1962.
 Dayton was previously focused on department stores and
bringing European quality to the mid west.
 They were able to keep customer loyalty by offering
name brands at discounted prices.
 In 2000 the Dayton Hudson company officially changed
their name to Target.
 Since Founding in 1962, Target now operates 1,685
stores and is expanding on a global scale.
Core Competency
 Focus on design.
 Began with the store layout.
 In the 90’s Target partnered with the world famous
architect Michael Graves.
 Target has also partnered with designers Mossimo
Giannuli and Sonia Kashuk.
 Target also puts on community art competitions to find
up and coming designers.
 Wal Mart and K Mart cannot compete on this level
Competitive Position
 Target is currently second to Wal Mart.
 Continue to compete, even in a troubled economy.
 They have effectively differentiated themselves in their
market, making their brand difficult to replace.
Important financial ratios- Profitability
Net profit Margin
4.00%
3.50%
3.00%
2.50%
2.00%
Net profit Margin
1.50%
1.00%
0.50%
0.00%
Target
Wal-mart
Sears Holding
These are the profits you make after
interest and taxes for every dollar.
Important financial ratios- Profitability
Return on Assets
12.00%
10.00%
8.00%
6.00%
Return on Assets
4.00%
2.00%
0.00%
Target
Wal-mart
Sears Holding
This is the rate of return that the company is earning on
the company’s investment
Important financial ratios-Profitability
Return on Equity
25.00%
20.00%
15.00%
Return on Equity
10.00%
5.00%
0.00%
Target
Wal-mart
Sears Holding
This is the rate of return that the company is
offering its shareholders.
Important financial ratios-Liquidity
Current Ratio
1.8
1.6
1.4
1.2
1
Current Ratio
0.8
0.6
0.4
0.2
0
Target
Wal-mart
Sears Holding
This demonstrates liquidity. For ever dollar of short
term debt that they have, they have the number above
in current assets to pay
Important financial ratios-Liquidity
Quick Ratio
1.8
1.6
1.4
1.2
1
Quick Ratio
0.8
0.6
0.4
0.2
0
Target
Wal-mart
Sears Holding
This is another liquidity measure. It excludes inventory
from the ratio, so it only includes cash and cash
equivalents to pay off. Current debt above one is wanted
Important financial ratios-leverage
Debt to Equity
2.5
2
1.5
Debt to Equity
1
0.5
0
Target
Wal-mart
Sears Holding
This means for every one dollar of equity they have the
amount above of debt, which means they are leveraged
and thus recognized by the tax shield advantage. The Tax
shield advantage is recognized by the shareholders and
can be explained by the accounting rule that interest is tax
deductible. The more debt present in a firm’s capital
structure, the more interest payable therefore there is more
interest available to be added into after tax income.
Kohl’s financial ratios
Kohls
40.00%
35.00%
30.00%
25.00%
20.00%
Kohls
15.00%
10.00%
5.00%
0.00%
Gross Profit
margin
Net profit
margin
Return on
Asset
Return on
Equity
Kohls
7
6
5
4
Kohls
3
2
1
0
Current
Ratio
Quick
Ratio
Inventory Debt to
to Net
Asset
working
Capital
Debt to Inventory
Equity Turnover
Fixed
asset
turnover
Worksheet 9.1
Target
0%
Access to Capital when Required
Degree of Capital Utilization
Ease of exit from the market
Profitability, renturn on Investment
Liquidity, Avaiable Internal Funds
Degree of Leverage, Financial Stablility
Ability to compete on prices
Capital Investment, Capacity to meet
demands
Stability of Costs
Ability to Sustain effort in Cyclic Demand
Price Elasticity of demand
Weak
Neutral
Strong
100%
PIMS
 According to the profit impact of market strategy the six steps in
pims are true. The six steps are as follows:
 Absolute and relative market share correlate with ROI
 Product quality is key to market leadership
 ROI is positively correlated with market growth
 Vertical integration can help in product life cycle
 High investment intensity leads to less ROI
 Capacity use is critical with a high level of capital intensity
 However Wal-mart has broken the mold on this and does not
follow these steps and they are the leader in the discount variety
stores, and because of this PIMS is used less frequently today.
Key People
 Mr. Douglas A. Scavanner- Target
 Mr. Thomas M. Schoewe- Wal-mart
 Mr. Michael D. Collins- Kmart
 Mr. Wesley S. McDonald- Kohl’s
Target
 Threat of entry
 Large discounters have driven down prices with imports from other
countries and slower holiday sales.
 Most independent retailers don’t have the margins to compete on
price.
 They have to be creative in finding ways to get people shopping at their stores.

Offering exclusive gift items & giving more personalized service or hosting
event and fund-raisers to lure in more foot traffic.
Powerful Suppliers & Buyers
 Suppliers
 Suppliers are continuously increasing due to the boom in online
retailers & large supercenters.
 Target stores are able to secure a particular % of certain suppliers
business.
 Online market gives suppliers additional channels to get their
products to consumers but it increases their ability to negotiate for
their prices.
Powerful Suppliers & Buyers
 Buyers
 There are usually multiple retailer in one community that offer
similar or identical products, buyers are prone to shop at a store
based on factors other than loyalty.
 This gives the buyers an intermediate level of bargaining power but
the suppliers and retailers still control most of the power.
Target:
 Industry overview
 Annual revenue of $130 billion
 Discount department store Industry encompasses 5000 individual
retail stores.
 Franchise giants like Target, Wal-Mart, Kmart.
Target has 26 distribution centers in 21 states.
 Top 8 companies hold 100% of the industry sales.

Products, Operations & Technology
• Products
– Major products that are sold in discount stores include apparel
(20% of sales)
– Personal Care Products (15%)
– Electronics & Groceries ( 7%)
– Toys (6%)
– Apparel includes women’s, men’s and children’s clothing.
• Target maintains a large product inventory so they are able to offer high
volume discounts.
Products, Operations & Technology
 Operations
 Discount department stores inhabit a large portion of the market &
require big portions of real estate: the average size is about 100,00
square feet.
 Companies like Target, K-mart, & Wal-mart select locations near
population centers, other retail centers, or major highways.
 Supercenter arrangement averages 180,000 square feet & offers a more
wide-ranging merchandise & grocery section.
Products, Operations & Technology
 Technology
 Reduces labor costs and overall operating cost.
 These systems include automated distribution centers, point of sale
systems (POS), and computerized inventory management systems.
 Keeping track of inventory on the floor is done electronically with hand
held scanners, bar codes, and radio frequency identification (RFID) tags.
 These systems can also be used on a network to connect inventory and
sales information across the nation.
 Wal-mart has incorporated a satellite communications system to link all its
facilities.
Stages in Product Distribution
 Target
 26 distribution centers in 21 states
 Giving the ability to fulfill the needs of their stores within a 24 hour time
frame
 Target also competes on a cost leadership strategy but focus
more on quality. “Expect more. Pay less”
 Private labels such as: Massimo & Converse One Star
 Target currently operates 1,685 stores in all but two states in
the U.S. (Vermont & Hawaii)
Core Capabilities
• Strategic intent– every employee in the organization must understand his or her
role and how their actions affect the outcome of the
organization.
• Obsessive customer focus
– Understanding what customers want
• Innovation and Commercialization
– Private labels, customer service, POS, Supply chain Mgt.
• Talent Mgt
– Finding the right people to work and having them in the right
places within the organization.
Key People – Then and Now
Robert Ulrich:
CEO from 1987-2008
Gregg Steinhafel:
CEO from 2008-present
Gregg Steinhafel – Level 5 Leader
 Steinhafel and Ulrich have been working together at Target since 1984
 Resolve to do what must be done
 Steinhafel took a pay cut of a little over 24 percent due to the failing
economy in order for Target to stay afloat
 Personal Humility
 Variety, a popular entertainment magazines describes Gregg by saying:
 He “keeps his head down when it comes to the news media -- in fact, his handlers say
he has a standing policy not to talk to the trade press.”
 Willful and Fearless
 “Our space, signing, promotional programs and the hundreds of millions of
consumers in our stores annually should not be undervalued.”
-Gregg Steinhafel
Design and Emphasis
 Design: Target’s main focus is on innovation, design, and store
experience.
 Target conveys its design not only through their floor layout and instore displays, but also through their media.
 Catchy commercials targeting youth
 Emphasis: “Expect more, pay less,” and “Design for all” essentially
embody everything that Target stands for.
Training
 Target prefers to recruit management at the college entry level.
 Target University
 A training program for educating future managers and trainers.
 The graduates of Target University will eventually go out to the stores and
train the store-level employees.
 Additionally, each brick-and-mortar store has at least one employee
who has attended the Disney training program in order to manage
ongoing and new-hire training.
Retention Strategies
 Health Benefits
 Full benefits package
 Dental Benefits
 Vision Benefits
 Use of Target Pharmacy – 10% discount
 “Team Member LifeResources” counseling program
 Private counseling, support, and information
 Child care arrangements
 Elderly care arrangements
 Help developing a healthy dinner menu
 Financial Support
 Aid in saving for retirement through TGT 410(k) Plan
 For every dollar an employee deposits, up to five percent of their pay, Target
matches it dollar-for-dollar
 Daycare Flexible Spending Account (FSA)
 Save before-tax dollars from each paycheck that will be used for qualifying daycare
and eldercare expenses
 Insurance
 Company-paid life insurance
 Disability coverage (short-term)
 Choice auto and home insurance
 Offer group rates from various different insurance companies
 Benefits
 Team member discount
 10 percent
 Qualified family members can use the discount as well
 Tuition reimbursement
 Up to $3,000 per year, per child
 Education loan aids
 Offered through Wells Fargo Student Loan program
 Qualified employees may borrow up to $25,000 per year for expenses such as room
and board, books, etc.
 Home loans
 Home Buyer’s Assistance program
 Adoption Assistance Reimbursement program
 Up to $5,000 to cover any fees such as application, filing, placement, and/or agency
costs, as well as court costs, immigration, translation and/or attorney fees
 Benefits (cont.)
 Group Legal Plan
 Gives employees access to legal representation at an affordable price
 Childcare discount
 Up to 10% off weekly tuition at more than 2,500 conveniently located childcare
centers
 Target Credit Union
 Banking
 Savings accounts and loan options
 “Target Work Perks” - Miscellaneous Discounts
 Fitness centers
 Cell phone plans
 Computers
 Clothing
 Flowers
 Etc.
Company Culture
 In Target stores, guests will always find a clean, organized, welcoming
atmosphere and smart, stylish merchandise.
 All Target employees are empowered
 Employees are recognized as part of a winning, successful team (an
asset)
 “The strength of many, the power of one,” means that contributions
from everyone make one end result that benefits everybody.
Marketing
 Target’s Mission: “…delivering outstanding value,
continuous innovation and an exceptional guest
experience by consistently our ‘Expect More. Pay less’
brand promise.”
 96% of Americans recognize the bulls-eye symbol as
representing the Target brand.
 Target’s brand value was found to be $17.1 billion
Advertising
 In the year 2008, Target spent roughly $1 billion on
advertising.
 Recently decided that 3/4ths of their marketing budget
will be spent on advertisements that would show the
price of their products.
 This would go along with their brand promise, “Expect
More. Pay Less”
 http://www.youtube.com/watch?v=KdTwVCNKxV8
Store Design
 The store is designed to feel more like a boutique than a
warehouse style store.
 Store is filled with contemporary signage, backdrops and
liners
 These are mostly printed on inexpensive paper or foam
boards
 “Tar-zhey” the psuedo-French pronunciation coined to
express the designer feel of Target.
Store Design
 Target has been experimenting with new
store designs that enable them to blend
within the area.
 These include multilevel-building with
escalators and elevators
 They even designed a new carts for
people to use on escalators
 New “urban” designs have lead Target to
expand into places such as: New York
City, New Orleans, Los Angeles, etc.
Target’s target market
 Median customer is around 41 years old
 Household income of roughly $63,000
 75% of the customers are made up of woman
 More than 45% of the customers have at least 1 child
 80% of Target’s customers have attended College with
around 48% having completed college
Sales Forces
 Target created the “cheap chic” in response to the
demand for cheap but fashionable clothes
 Brought in Designers like Isaac Mizrahi and Sonia Kashuk
who are high-end designers that developed a lower-end
merchandise for Target
 They are also experimenting with limited edition
designer series
Sales Forces
 The down turn in the Housing market has affected
Target’s sales
 Target Home goods sales have mirrored the housing
market.
 The rising cost of Health care has lead to innovative
designs and cheaper medication.
 Target Clinic has been introduced in to some store layout
to provide cheap and fast healthcare.
Success Stems From….
 Social responsibility:
 $3 million/week awarded to schools throughout the U.S.
 Recycling programs in every store in a number of different ways.
 Carts, carpet, boxes, bags, walls
 70% of the store has and will eventually be recycled
 Always looking for innovative techniques to drive down cost while retaining
quality consumer goods.
 Through SKU’s, customer feedback
 Employees are urged, not mandated, to perform community service (avg.
store does 100 hrs./month)
 Product lines are big on organics, naturals, energy saving
 Infant products, domestic products such as linins, lighting throughout the stores, skin
care products- Target brand
 Even there gift cards are biodegradable!!
 Vision: “strengthen families and communities wherever we do business.”
It All Starts With Diversity
 Believe this motto
 57% of the corporate positions are held by women
 10% higher than the national average
 Have a number of minority scholarship offered
 Hispanic Sch. Fund, Unit. Negro Fund, Asian Am. Fund
 Their corporate partners are from a wide range of backgrounds
to “better suit the customer’s needs”
 Includes employees, marketing, and suppliers
 Work with independent suppliers, some of which are women (Wal-Mart
can’t say that)
 Support “free days” for those less fortunate
 Over 1,500 events- baseball, museums, carnivals, etc.
Target Coordination
 “Focused on the efficiency of the process as opposed to the
contribution to expansion.”
 Porter believed in: short term vision only breeds short term
results.
 Believe in “healthy relationships throughout the supply chain.”
-Back to success logic
 Wal-Mart will cut long standing suppliers out of deals for
pennies on the dollar.
Innovation
 “ClearRx”- introduced to the market in 2005
 “flattened out the label and turned everything upside-down for
easier, more legible bottles”
 Reduce and Reuse:
 PVC : “Polyvinyl chloride”
 Certificate of Appreciation from Sec. of State
 Shopping carts, carpet, gift cards, bags, electronics
 Experimenting with “gardens”
More Keys
 Compromising is the value addition to their supply chain.
 “Target spends three-quarters of their budget on advertising
and logistical operations” –Corp. Website
 Witty commercials and newspaper advertisements have
suppliers at heart.
 Good business practices
 Operations are tied together by: Inbound logistics,
surveillance, front of store, back of store, and operations.
Where Target is Now
 Mature Company
 Careful that “dry rot” does not set in
 A few programs to prevent this circumstance
 Productivity enhancement
 Organizational effectiveness and training
 Executive coaching
 Teambuilding
 Effective mentoring
Space Chart Analysis
 Financial strength
 Target was ranked 31 out of 500 for largest U.S. Corporations
in 2008
 Revenue exceeding 65 billion
 Competitive Advantage
 Quality product and a reasonable price by world-class
designers
 Targets middle-class
 Innovation
 Clear Rx
 Itso Furniture
Space Chart Analysis
 Industry Strength
 Number 2 behind Walmart
 Average salary of Customer is 60,000
 Targets middle class, 51% with college degrees
 Environmental Stability
 Active within communities supporting the arts
 Active with recycling efforts and uses of alternative energy
A Few Issues…
 Constantly improve convenience
 Instill use of SmartCart
 Strive for lower prices on their goods
Use chart from the
book,
Blue Ocean
Strategy
Decrease
Price
Goal
Increase
Customer
Utility
Conclusion
 Get the right people on the bus and the wrong people off of
the bus
 Right people are the most important tool for a successful
company
 Target puts prominence on their slogans to emphasize their
goals
 Train employees to work towards the same goals
Conclusion
 Target aims for the middle class
 Walmart is ahead, but Target is keeping up soundly
 Target is a sound company, but needs to make sure they avoid
“dry rot”
 Keep focusing on making shopping more convenient and
driving costs of their quality products down
Conclusion
 The most important concept to remember is that people are
the most important part of the business