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Corporate Analysis (Part A) of: TARGET CORPORATION QUESTION #1 Assess the overall performance of the firm using the Balanced scorecard Balanced Scorecard Financial Customer Business Strategy Learning & Growth Internal Business Processes Financial Perspective Target Corporation strives to achieve 15% or more for their average earnings per share overtime by demonstrating effective leadership and corporate governance 2013 • Rev=$73,301(m) • EPS= $4.52 • Div=$1.38 2014 • Rev=$72,596(m) • EPS=$3.07 • Div=$1.65 2015 • Rev=$52,188(m) • EPS=$1.57 • Div=$1.47 Financial Perspective 2011 2012 2013 ROCE 16.5% 15.7% 13.3% Return On Capital Employed =5,322,000/ =5,371,000/(48,163,000- =4,229,000/(44,553,000(46,630,000-14,287,000) 14,031,000) 12,777,000) Assessment: A higher ROCE indicates more efficient use of capital Since Target’s ROCE has been declining since 2011, it indicates that Target has not utilized its capital efficiently In 2012, Earnings has increased, but total assets in 2011 has increased more than the EBIT It leads to decline of ROCE in 2012 In 2013, all components of ROCE have decreased significantly Financial Perspective (Million) 2011 2012 2013 EVA 1739.5728 2583.0246 2622.0175 Economic Value Added =3512.52-(15487*5.75%) =3491.15-(15821*5.74%) Assessment: EVA is a performance metric that calculates the creation of shareholder value Since Target’s EVA has been increasing for the past three years, the firm has more profits remained after the costs of the company’s capital =2706.56-(16558*5.84%) Financial Perspective (Million) FCF Free Cash Flows 2011 2012 2013 1069 2048 3067 =5434-4368 =5325-3277 =6520-3453 Assessment: Cash is the real asset that firms generate FCF gives a much clearer view of the ability to generate profits Target’s FCF has been increasing in the trend where cash flows from operating activities is increasing and capital expenditure is decreasing It could mean that Target started earning profit from its investment in the past Consumer Perspective • Strategic Objectives • Larger Inventory Predicting Customer Needs Target is seen as an upscale discount store, because it has many major designers that design a line of products just for Target Their chic, upscale discounter image is used as their focus in building and enhancing their brand personality, with the ability to better target key customer groups • High-end Atmosphere Customers prefer to shop in an atmosphere where they are treated well and feel good about the store This results in a willingness to pay more for items, and individuals who are not as price sensitive Consumer Perspective • Strategic Objectives • Occasional Event for targeted loyal customers Gaining Customer Loyalty According to a study performed by Maritz Research there 20% of Target shoppers are highly loyal to shopping at Target There are more females than males, 80% are under the age of 40 and are also college educated, and they are in the middle to upper income range Customers of Target also prefer to shop at a place where there friends and family are likely to shop, and they are not price sensitive Consumer Perspective • Strategic Objectives • Online Customer Service Customer Service This hits more of the tech savvy buyers that like to use the internet to search, review and buy products online than going to the store Other than showing products, it also allows the customer to see where their money is being contributed to by the company Ethical Behavior According to Tim Baer, executive vice president, general counsel and corporate secretary “More than six decades ago our company founders established an unwavering commitment to ethical business practices and generous community support We expect every one of our 350,000 team members to demonstrate sound, ethical business practices that bring good judgment and integrity to every business decision.” Consequently, it will strengthens competitive advantage and supports the superior experience guests expect QUESTION #9 Please discuss the firm’s structure and strategic leadership responsibilities of the firm’s CEO Strategic Leadership Responsibilities Leadership Strategic Direction Managing Firm Resources and Portfolios Balanced Organization Controls Organizational Culture Ethical Practices Strategic Leadership Responsibilities • Leadership: The Target Brand CEO Brian Cornell • Strategic Direction: Strategic responsibilities, as noted in mission and value statements ‘Our mission and values work together to foster connections and conversations both inside and outside our doors.’ • Balanced Organizational Controls: The balanced score card, which describes learning and growth for financial assistance, volunteering, educating, participating, setting goals Internally through promoting, understanding consumer segments and efficiency Customers through confidence Financially through EPS and revenue growth, as well ass effective leadership skills • Managing the Firm’s Resources and Portfolio: All relates to the innovations and efficiency of the technology that target maintains through its retail establishments, online website, social media and apps Also in programs for consumers and employees • Organizational Culture: Previously discussed in the strategic partnerships with Target, such as The Heart of America Foundation, To Make US Healthiest, Fish Wise and Federal Emergency Management Agency • Ethical Practices: Including all types of relationships, including any types of minorities, sex, vendors, suppliers, etc This allows the company to become industry leaders Strategic Leadership Responsibilities CEO of Target: Brian C Cornell Addressed Mission Statement “Our mission is to make Target your preferred shopping destination in all channels by delivering outstanding value, continuous innovation and exceptional guest experiences by consistently fulfilling our Expect More Pay Less.® brand promise.” Strategic Leadership Responsibilities • Target CEO Brian C Cornell believes in social responsibility for the branding There are specific types of integrated areas that the target brand focuses in the direction of its mission statement and value to its consumer • Design for all • Great guest services • More for your money • A fun and rewarding workplace • Celebrating diversity and inclusion • A legacy of giving and service • This is the background of the ever popular company slogan ‘Expect more Pay less.’ QUESTION #10 Please make recommendation for the firm Help the firm improve its competitive strategy, corporate strategy, corporate governance and strategic leadership Recommendations •Keep higher quality and innovative products •Bond with exclusive partnerships with designers •Appeal the firm’s original atmosphere and appearance Strengths •Expand in international markets •Diversify its grocery department •Engage more in exclusive design partnerships •Increase advertising for private brands •Enhance efforts to be environmentally firendly Opportunities •Increase locations the nation •Decrease high stock-out rate •Change customers’ pricing perception Weaknesses •Set the firm’s own style among the increasing rivalry in retail market •Predict the change in economy and governmental policy Threats Competitive Strategy Competitive strategy is a long-term action plan devised to help a company gain a competitive advantage over its rival To improve its competitive strategy Target should: • Implement a better re-stocking system for inventory management: • Point-of-sale stocking system Remove the potential for human error and would be extremely fast and cost efficient Focus on design and innovation to develop a competitive advantage through value-creating diversification • Maintain quality difference in comparison to Walmart Incorporate employee incentive plans to decrease employee turnover and retain valuable human capital • Identify improvements for employee hiring and training standards • • • • Continue finding ways to enhance the customer’s shopping experience: • Offer free food sample • Install store mannequins displaying the latest fashion trends Corporate Strategy Idea Suggestion Expand into South America Large rising middleclass American companies are perceived as having better quality products Existing infrastructure Vertical Integration Engage in vertical integration Continue offering private-label brands (i.e Archer Farms) focusing on quality and cost Explore Pharmaceutical expansion Corporate Strategy Idea Suggestion CityTarget Outreach Pursue further market development in urban areas with CityTarget Create value with its large selection targeted at urbanites Explore shopping experience enhancement Corporate Strategy REVALUATE INTERNATIONAL STRATEGY Implementing a transnational strategy may aid Target’s international expansion into Latin or Canadian markets to combine global integration and local responsiveness Target had lasted less than two years in the Canadian market—its first global outreach—closing 133 stores What Went Wrong Better Suggestion Rushed Market Entry Target should slowly enter the market with a few stores, first introducing to new customers and developing hype among fans of the US branch, like J Crew who successfully entered the market with this strategy Target bought cheap leases and opened 124 stores in a timespan of 10 months Inconvenience Target stores were located in out-of-the-way locations Stores were smaller than their US counterparts and often has smaller isles—proving difficult to navigate in Canada’s cold winters when everyone is bundled up! Lacked in comparison to competitors Walmart has already infiltrated the Canadian Market Target seemed to provide less at higher prices in comparison While entering the market little by little, choose locations convenient for customers and help the Target brand become visible in the public eye Identify aspects of Canadian lifestyle despite similarity to the US Assumption leads to faulty judgment, as with the size of the isles becoming troublesome in winter Target offered less selection than that in the US, which disappointed those already familiar with the Target brand If Target is going to charge a higher price, it needs to prove its diversification Corporate Governance Increase the diversity of the backgrounds of board members… About half of their backgrounds are financial or investment related; look for someone with academic background for example Look into hiring more women (3 women vs men) & more ethnic individuals (8 white vs non-white) Modify executive compensation… Reduce stock options, which sometimes cause problems such as option backdating Strategic Leadership Maintain core competencies… Including: Distribution, Marketing, and Human Resources Keep building and improving human capital… Provide effective training and learning opportunities for team members, and offering incentives Knowledgeable and happy employees help the firm’s strategic success! Improve the balanced scorecard framework… Scrutinize the security process to ensure that data breach doesn't happen again Improve customer satisfaction and ensure customers are fully satisfied with their Target experience Woof (shop at Target) The End [...]... AMZ= 37% TGT= 43.2% WMT= 24.76% AMZ= 14.71% Target s Performance – 1 ROCE Concept EBIT TOTAL ASSETS Current Liabilities • Return on Capital Employed (ROCE) depicts a corporations use of capital • The higher the ROCE, the more efficient the use of its capital • Let’s utilize this concept to compare Target s advantages and disadvantages with a competitor… ROCE Target s Performance – 1 Compared with… Advantage... Wal-Mart Through Target s everyday operations, design and raw materials merge to become the products sold Target collaborates with highly qualified vendors and aim to make production better for the people of the planet Target s inventory ratios are disadvantages as compared to Amazon and Wal-Mart in that Target s products sit on the shelves longer than its competitors Shipping is Target s outbound... Walmart’s This means that Target must work on better using their assets to generate revenue Target s Performance – 2 Disadvantages Cont’d… Disadvantage Ratios Why? 4 Receivables Turnover TGT = 72,596,000 / 5,841,000 = 12.43 WMT = 476,294,000 / 6,677,000 = 71.33 Receivables Turnover = sales / accounts receivable Walmart’s receivables turnover is nearly 6 times that of Target Target needs to investigate... dollars Again, Target does not use their assets to generate revenue nearly as well as Walmart, whose percentage is 20% lower 7 Profit Margin TGT = 1,971,000 / 72,596,000 = 2.7% WMT = 16,022,000 / 476,294,000 = 3.36% Profit Margin = net income / revenues Walmart once again trumps Target in profit margin, by 66% Target keeps 2.7% of every sales dollar, while Walmart keeps 3.36% Target s Performance... Sell Ship Value Chain Analysis A Primary Functions Inbound Logistics Produce Outbound Logistics Target Corporation promotes design through imagination, improvement and innovative ideas that enable them to give more While dreaming up new products and sketching new store sites, Target is building responsibility and sustainability into every brainstorm This is reflected through Target s CGS/Sales ratios... AMZ = 647,000 / (40,159,000 22,980,000) = 3.77% ROCE = EBIT / (total assets - current liabilities) Target has a 10% higher ROCE than Amazon This high ROCE means Target uses their capital more efficiently 2 SGA / Sales TGT = 15,375,000 / 72,596,000 = 21.18% AMZ = 19,526,000 / 74,452,000 = 26.23% Target has a 5% lower SGA to sales ratio than Amazon This shows their Selling, General, and Administrative... sell COGS / Sales Target beats both Amazon and Walmart when it comes to this ratio! Target s Performance – 2 Compared with… Disadvantage Ratios Why? 1 ROCE TGT = 4,229,000 / (44,553,000 - ROCE = EBIT / (total assets - current liabilities) Target s ROCE is 6.5% lower than Walmart’s, indicating their need to use their capital more efficiently 12,777,000) = 13.3% WMT = 26,991,000 / (204,751,000 69,345,000)... Collectively, we find Target company to be an attractive industry with high profit potential! Attractiveness of Target Co • Simple slogan: Expect more, pay less • Recognizable branding with products • Expanding of stores nationwide • High end deigns and innovation of products • Higher end products for everyday, affordable costs • Distinguish themselves compared to their competitors (Ex Target has a distinct... attractiveness and to what extent to competitive advantage? Target s Performance – 1 Target vs Competitors Inventory Turnover Fixed Asset Turnover TGT= 2.31 WMT= 4.04 AMZ= 6.80 TGT= 8.28 WMT= 10.62 AMZ= 10.05 COGS/Sales TGT= 13.3% WMT= 19.93% AMZ= 3.77% SGA Expenses/Sales TGT= 21.18% WMT= 19.18% AMZ= 26.23% Margin Fixed Assets/Sales Profit Margin Capital Turnover ROCE Receivables Turnover TGT= 12.43 WMT=... AMZ = 54,181,000 / 74,452,000 = 72.77% Target s 2% lower COGS to sales ratio indicates that they don’t have to spend as much money on the goods that they sell 4 Profit Margin TGT = 1,971,000 / 72,596,000 = 2.7% AMZ = 274,000 / 74,452,000 = 37% Profit Margin = net income / revenues Target s profit margin is significantly higher due to its superior net income Target s net income benefits from its