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Target Corp Analysis
March 19, 2015
Lindsay Summerlin
Met with Jordan- Feb. 23, 2015 at 6:00 pm
Table of Contents
Porter’s Five Forces- Chapter 3
2
Key Financial Ratio Analysis Framework- Chapter 4
4
SWOT Analysis- Chapter 4
7
BCG Matrix- Chapter 8
10
Penultimate
12
References
13
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Porter’s Five Forces- Chapter 3
Low

Threat of
New
Entrants
High




Bargaining
Power of
Suppliers


Federal
Regulations
Trade
Restrictions
Working
Capital
Wal-Mart
Costco
Sears
K-Mart
Rivalry
Among
Existing
Competitors
Moderate
 Partnerships
 Exclusive
brands
Threat of
Substitute
Products or
Services
High
 Restaurants
 Boutiques
 Movie
Theaters
Bargaining
Power of
Buyers
High
 Large variety
of retail stores
 Low/No
switching
costs
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Porter’s Five Forces determines where power lies within a company and its stakeholders.
Above is the Porter’s Five Forces for Target Corporation, most of the bargaining power is high
meaning Target has to maintain to appeal to their customers and suppliers. Being in the retail
industry, Target has several severe competitors they must have an advantage over. The rivalry
between Wal-Mart, Sears, K-Mart, Costco and Target is very high; each company wants to bring
as many customers through their door as possible. Having such a severe rivalry means that each
store must have a competitive advantage over the others to ensure buyers will be spending
money in their stores.
Bargaining power of buyers and threat of substitute products or services is high because not
only is it easy for a buyer to go to any of Target’s competitors to shop but they have a large
assortment of options to get products they need. Buyers can go to any retail store that’s
convenient for them to get household products, groceries, apparel, electronics or any other
products Target offers. Target must stand out against their competitors to attractive buyers and
make their experience memorable. Threat of substitution is high because buyers have the option
to go to restaurants, wear used clothing, grow their own food, go to movie theaters, etc.
The only category in Porter’s Five Forces that’s low is threats of new entrants. New entrants
have a many hoops to jump through if they want to compete against the large retailers, like
Target. Federal regulations and trademark restrictions make it difficult for new entrants to enter
the market and gain enough market capital to be a rival competitor. Not only do retailers offer
apparel and household goods, but most of them also include pharmacies. Getting licensures to
have an in-house pharmacy difficult and time consuming. After looking at Porter’s Five Forces,
Target has a strong competitor rivalry, along with high buyer/supplier bargaining power, but they
don’t have to worry too much with new retail entrants.
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Key Financial Ratio Analysis Framework- Chapter 4
Target Financials for Year End of February 1, 2014
Profitability Ratios
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Total Return on assets
Net return on total assets
ROE
Return on invested capital
Activity Ratios
0.295
0.058
0.027
0.070
0.044
0.121
0.068
Liquidity Ratios
Current Ratio
Working Capital
Other Ratios
0.906
-1204000.0
Leverage Ratios
Total Debt to assets
Long-term debt-to-capital
Debt-Capital
Long-term debt-to-Equity
Times-interest-earned
Days of inventory
62.54
Inventory turnover
5.84
Average collection period N/A for 2014
0.6357
0.4375
1.7449
0.7776
3.7558
Dividend yield on
common stock
Price-to-earnings ratio
Dividend payout ratio
Internal cash flow
Free cash flow
0.00650
0.20464
0.00133
4194000.0
-265000.0
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Target is a well-known business across the United States but without its strong financial
equity it would not be nearly as large as it is today. When looking at the financial ratios it really
helps to look at the company’s overall well-being and how they are doing financially compared
to previous years and the retail industry. Ratios determine how a company is doing without the
extra numerical information; it takes the key statistics and brings them to a ratio number that
everyone can understand. Let’s first take a look at the profitability ratios. Profitability ratios help
to determine how the sales are doing compared to operating expenses, assets and stockholders’
equity. With total revenue from February 2014 until February 2015 being $72,596,000 but the
after tax profit being $1,971,000 can determine that a significant proportion of Target’s revenue
has been spent. Net profit margin helps to see how much profit the company made over sales but
investors and manager can then take the ratio and compare it to other companies in Target’s
industry to see how the company is doing to help figure out what needs to be improved. The net
profit margin for Target for the year-end February 1, 2014 is 2.72%. Return on stockholders’
equity is another important financial ratio; it is calculated by taking the net profit and dividing it
by the amount of stockholders’ equity the company has as of that year. For 2014 it was 12.14%
that means that every $1 net profit there is, Target has $12.40 in stockholders’ equity.
Another very important set of ratios is the Liquidity ratios, they determine what
percentage the company has of assets to liabilities in case of any need to liquidate their assets.
The current ratio compares total current assets to total current liabilities. Target has a 90.58%
current ratio, which means they have about the same number of current assets and current
liabilities. Target has $11,573,000 in total current assets and that are spread over inventory,
company trucks, stores, offices, etc. Even with a large amount of inventory Target needs to
insure they are actually selling what they have, the inventory turnover rate lets investors know
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how long the company is holding their inventory. Currently, it is 5.84 days so Target is holding
inventory about 6 days before selling and needing to restock, which is higher than Wal-Mart’s 8
days.
The last set of financial ratios investors and companies look at involve dividends and
cash flow. Not every company pays out dividends but Target has chosen to reward their
stockholders with an average of $0.52 quarterly. The dividend yield on common stock is 0.65%,
the annual dividend paid out is very small compared to the current market price per share of
Target common stock. Dividend payout ratio also compares how much the company is paying
out compared to how much they are earning. Target’s dividend payout ratio is 0.133%, they are
paying $0.52 per dividend and earning $390.93 per share. Financial statistics are public records
for every firm so stockholders have no problem looking up to see how companies are
preforming. When looking at Target’s financial records, managers are doing their job and
keeping stockholder and stakeholders happy.
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SWOT Analysis- Chapter 4
Target SWOT Analysis
External Origin
Internal Origin
Helpful
Harmful
Strengths:
 Exclusive Brands
 Partnerships with celebrities
and designers
 Superior Customer Service
 Target REDcard, Target Visa
and Target Card
Weaknesses:
 Geographic Concentration
 No stores in several US states
 Not a low price leader
 Less stores than Wal-Mart
 Issues with Canada
Opportunities:
 Global Expansion
 Expanded “Green” products
 Grocery departments in all
stores
 Larger Pharmacies
Threats:
 Dependent on U.S. markets
 U.S. Economy
 Customer Preference of
shopping locations
 Competition with Wal-Mart
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The SWOT Analyses help evaluating the internal and external factors of firms.
Companies cannot always control the factors of business so the SWOT analysis helps them to
determine what they can control and what they cannot. The internal help is the strengths of a
company; Target has many strengths that helps them stand apart from their competitors. One of
the most important strengths that Target upholds over Wal-Mart is their superior customer
service. Wal-Mart may be a low price leader but customers still take their business to Target
based on the customer service they receive. Another extreme strength that Target has is their
unique brands and partnerships with famous designers. Method is one of the unique brands that
Target carries, they offer stylish house cleaning products that customers can keep out in the
open. Carrying unique brand and partnering up with designers portray to their customers that
they want to appeal to every target audience, not just offer cheaper products. Weaknesses are
also internal origins that a company can control. Some weaknesses that Target has are
geographic concentrated, Target stores are not located in every state here in the United States.
Being confined to the U.S is holding back Target tremendously and their not even located
everywhere here in the U.S. Target needs to focus on expanding within the U.S. then continue to
expand globally.
Not all factors a company should worry about are internal, many external origins can help
and harm a company. Opportunities are external factors that can help a company, Target can turn
their weaknesses into opportunities with a little work. One of the largest opportunities Target
has, would be expanding their brand into more markets. First by having store locations in at 50
states in the U.S., as of 2015 there are no stores in Vermont. Another opportunity Target has
would be going more “Green”, they’ve already started by offering “Green” products but the
demand is always growing. Target’s target audience is narrower than Wal-Mart so offering
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products for the narrow audience keeps customers coming back. Although Target benefits from
the unique products and superior customer service that Wal-Mart doesn’t offer, they still have a
severe competition with Wal-Mart. Wal-Mart is a low price leader, whereas Target isn’t, so
customers who what the cheapest products available are going to turn their nose away from what
Target has to offer. Target’s threats include customer preference of prices, but they excel in other
resources that bring customers back. As mentioned before, being dependent on the U.S. market is
a weakness and a threat. The U.S. economy isn’t as thriving as much it was once before, gas
prices and the prices of products are a huge threat for Target’s overall well-being. After doing a
SWOT Analysis, a company has a list in each category on whether or not they need to focus on
internal or external origins.
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BCG Matrix- Chapter 8
Relative Market Share
(Cash Generation)
Low
Stars:
 Apparel
Question Marks:
 Pharmacy
Cash Cows:
 Toys
Dogs:
 Groceries
High
Low
Market Growth Rate
(Cash Usage)
High
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The BCG Matrix is a portfolio planning instrument that helps companies look at their
products and determine what’s helping bring in money verses using most of the money. For
Target, most of their market share is in toys, they are in the top 3 toy retailers in the United
States. Being recognized, the company has a large market share of toys, so toys would be their
Cash Cow. Target’s apparel are Stars because the company has several partnerships with
designers and celebrities that have high market share but use substantial financial resources.
Designers such as Prabal Gurung, Neiman Marcus and Jason Wu bring positive sales but the
collaborations tend to be pricey. However, the price of designer and celebrity collaborations are
well worth it because apparel is a huge product line for Target and will continuously bring in
revenues. Apparel styles are always changing so clothing products will also be bought to keep up
with the latest trends meaning the growth is never ending for Target’s apparel.
The complete opposite of the Stars would be the Dogs. Dogs tend to have low market
share and never really have much growth potential. Groceries are a Dog for Target because they
don’t even have groceries in all stores; only Super Targets offer a full grocery department. Target
could turn grocery departments into opportunities but it would take them years to transform all
the current stores to accommodate grocery department space. The Question Mark would be the
pharmacy departments. The pharmacy counter in Target is convenient for shoppers but the
pharmaceutical industry is always expanding and growing. Target should focus more attend to
their pharmacies because they can bring customers in to refill prescriptions but attract them to go
shopping as they wait. Target’s current market in pharmaceuticals is small but the industry itself
is growing rapidly.
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Penultimate
After looking at each of the four frameworks listed above, Target Corp. has room to grow
but is doing well with what they currently have. The financial ratios determined Target is mostly
keeping up with the industry ratios. The working capital is negative meaning they have more
current liabilities than they do current assets and being a retail company they shouldn’t have a
negative working capital.
The threats and opportunities in the SWOT analysis should be turned into strengths if the
company wants to continue to grow to be more of a competitive leader. Target should expand
within each state of the U.S. and soon globally if they want to compete closer to Wal-Mart.
However, their strengths are differentiating them from other retailers so they should continue to
offer superior customer service and unique product lines. Because Target appeals to higher
income buyers, they definitely should continue to collaborate with high stylist designers and
invest their money into the growth of the apparel line. Overall Target is staying highly
competitive with their rivals and maintaining consumers’ attention. The company should
continue to stand apart and grow as much as the economy will allow.
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References
Bickle, M. (n.d.). Battle Grounds Among Toy Retailers: Breaking Down The Consumer
Demographics. Retrieved March 19, 2015, from
http://www.forbes.com/sites/prospernow/
Capstone Analysis: Target. (2012, June 5). Retrieved March 19, 2015, from
http://www.slideshare.net/dlcolgrove/capstone-analysis-target?related=2
Design & Innovation: Partners, Products, News | Target Corporate. (n.d.). Retrieved March 19,
2015, from https://corporate.target.com/about/design-innovation
Porter's Five Forces Analysis: Assessing the Balance of Power in a Business Situation. (n.d.).
Retrieved March 19, 2015, from
http://www.mindtools.com/pages/article/newTMC_08.htm
TARGET CORPORATION Names of Competitors. (n.d.). Retrieved March 19, 2015, from
http://www.hoovers.com/companyinformation/cs/competition.TARGET_CORPORATIO
N.d874c3aa052df19e.html
TGT Balance Sheet | Target Corporation Common Stock Stock - Yahoo! Finance. (n.d.).
Retrieved March 19, 2015, from http://finance.yahoo.com/q/bs?s=TGT Balance
Sheet&annual
Webb, T. (2013, February 13). Target's high-fashion partnerships will continue, retailer says.
Retrieved March 19, 2015, from http://www.twincities.com/ci_22583903/target-turnsprabal-and-neiman-fashion-lessons