Target Corp’s Tarnished Reputation: Failure in Canada

and a Massive Data Breach

Case

Author: Alan Hoffman & Natalia Gold

Online Pub Date: January 02, 2018 | Original Pub. Date: 2015
Subject: Strategic Management & Planning, Strategy Transformation
Level: | Type: Indirect case | Length: 6029
Copyright: © 2015 RSM Case Development Centre, Erasmus University. All rights reserved.
Organization: Target | Organization size: Large
Region: Global | State:
Industry: Retail trade, except of motor vehicles and motorcycles
Originally Published in:
Hoffman, A. , & Gold, N. ( 2015). Target Corp’s tarnished reputation: Failure in Canada and a massive
data breach. Rotterdam, Netherlands: Rotterdam School of Management, Erasmus University.
Publisher: Rotterdam School of Management, Erasmus University
DOI: http://dx.doi.org/10.4135/9781526429308 | Online ISBN: 9781526429308
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© 2015 RSM Case Development Centre, Erasmus University. All rights reserved.

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Abstract
Target is a US mass-market discount store catered to shoppers seeking high quality products. In
a crowded market, Target was eager to grow its business outside the US and online. It expanded
to Canada in 2011 by acquiring a failed retailer. A move that seemed prudent actually saddled
Target with inconveniently located stores and strained its logistics infrastructure. Closing down
its Canadian stores, Target focused on strengthening its online presence. But two massive data
breach incidents in 2013 and 2014 affected over 100 million of its customers and weakened
Target’s sales significantly. In order to keep its market share on a par with competitors such as
Walmart and Amazon, Target clearly has challenges to be met.

Case
Target is an US mass-market discount store catered to shoppers seeking high quality products. In a crowded
market, Target was eager to grow its business outside the US and online. It expanded to Canada in 2011
by acquiring a failed retailer. A move that seemed prudent actually saddled Target with inconveniently
located stores and strained its logistics infrastructure. Closing down its Canadian stores, Target focused on
strengthening its online presence. But two massive data breach incidents in 2013 and 2014 affected over 100
million of its customers and weakened Target’s sales significantly. In order to keep its market share on a par
with competitors such as Walmart and Amazon, Target clearly has challenges to be met.

Company Background
Target Corporation’s vision was to offer customers everyday essentials and fashionable, differentiated
merchandise at discount prices, including apparel and accessories, home décor and furniture, electronics,
office supplies, toys, health and beauty products, food, pet supplies, and pharmacy products and services.
Traditionally, Target sold its own brands, as well as specialized merchandise through periodic exclusive
design and creative partnerships. The company also generated revenue from in-store amenities such as
Target Photo, and leased or licensed departments such as Target Optical and Starbucks. For the fiscal
year ending January 31, 2015, the company generated over $72.6 billion in annual revenue from continuing
operations at its 1,790 stores spread across all 50 states in the USA, a figure that represented an increase of
$1.34 billion or 1.9 percent over the previous fiscal year’s revenue.

Founded by George Dayton, a bank and real estate investor, Target began as the Dayton Dry Goods
Company in Minneapolis, Minnesota in 1902. Dayton and his department store chain became known for
dependable merchandise, fair business practices, and a generous spirit of giving, the core of the business
from its inception through its more than 100 year history. When Dayton passed away in 1938, his son and
grandsons took over and began to grow the Dayton Company into a nationwide retailer. In 1961, Douglas
Dayton and his leadership team saw an opportunity to develop a new kind of mass-market discount store that
catered to value-oriented shoppers seeking high quality that would be come “Target.” After significant growth
on a regional scale, the company was ready for national expansion with an Initial Public Offering (IPO) on
October 18, 1967. The common stock was listed on the New York Stock Exchange under the symbol “TGT.”
Doug Dayton’s vision for the company was to create “a shopping experience that would be fun, delightful, and
welcoming to the entire family, [in] stores that would include wide aisles, easy-to-shop displays, fast checkout,
and well-lighted parking [lots].” 3 Doug Dayton and his brothers also prioritized programs that fostered strong
leadership in its store managers, founding the company’s “Target Business College” which worked toward
developing and retaining superior managerial talent. The Dayton brothers shared a passion for volunteerism
as well, and established a renowned corporate-giving program. From 1946 on, the corporation gave 5 percent
of its pretax profit back to the community in support of education, the arts, social services, and volunteerism.

By 1979, Target Stores had reached an organizational milestone of $1 billion in annual sales from 74 stores

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in 11 states. Over the next decade, Target invested in innovative technology and became the first mass
merchandiser to introduce UPC scanning at its stores and distribution centers. UPC scanning made for
a more efficient shopping experience for customers and team members, as it improved Target’s inventory
management system, increased automation, and reduced the wait time in checkout lines. Throughout the
1990s and 2000s, Target continued to innovate in ways that improved customer experience. The company
introduced a grocery section in many stores and became a USDA certified organic produce retailer; created
the ClearRx pharmacy program with easy-to-read medicine bottles and color-coded rings; and unveiled GO
International to provide affordable fashion created by emerging designers around the world. In the years
after 2008, Target made a conscious effort to build its mobile and online presence so that customers could
use those platforms to navigate Target stores, refill prescriptions, browse the weekly Ad, and pick up online
orders in stores. Target also began expanding into urban areas by creating CityTarget stores which offered an
assortment of everyday essential products appropriately sized for city dwellers.

2013: The Data Breach

As discount retailing became ever more competitive, Target faced significant challenges. Competitors such
as Walmart put downward pressure on prices at Target, which in turn had to match those prices to satisfy
customers. Amazon also emerged as a fierce competitor, and Target had to struggle to leverage technological
innovation and interact with consumers to the same degree as its competitors.

During the fourth quarter holiday season in 2013, Target learned of a massive data breach in its system,
and had to acknowledge that criminal hackers had stolen the credit and debit card information of 40 million
customers. In 2014, the company revealed that additional personal information, such as email and mailing
addresses, had been stolen from 70 million to 110 million people with some overlap between the two
groups. After these revelations, Target sales weakened significantly, and cashiers temporarily stopped asking
shoppers if they were interested in participating in Target’s REDcard program. In a bid to rescue its image and
its business, Target announced plans to invest $5 million in new security measures and offered customers
a free year of credit monitoring and identity theft protection. While Target’s management did not expect the
incident to have a long-term impact on the company’s relationship with its customers, the breach nevertheless
had a negative impact on Target’s reputation and sales. In March 2015, Target agreed to a $10 million dollar
settlement with the victims of the data breach, who stood to collect up to $10,000 each in damages.

The Disastrous Canadian Expansion (2011–2014)

Target also met with disastrous results in its expansion into the Canadian market. In 2011, Target acquired
133 Zellers sites across Canada that it reopened as Target stores in 2013. However, the stores failed to meet
demand due to inventory software constraints and other expansion issues. A major reason for the operational
failure was the company’s entering into the Canadian market by purchasing all the stores of a failed retailer,
a move that seemed prudent but actually saddled the Canadian unit with inconveniently located stores that
weren’t built for Target’s well-known layout.

Opening so many stores at once in a brand new market strained the company’s logistics infrastructure and
left Canadians staring at empty shelves. At the same time, this increase in operational scale made it difficult
for the company to scale down during times of slowing sales. Target’s major operational failure in Canada
turned out to be a huge loss for the company. After careful review of all options, the company was unable to
find a realistic scenario that could get Target Canada to profitability before 2021 and decided instead to close
all 189 of its Canadian stores in January, 2015.

Strategic Direction
Target’s brand promise, “Expect More. Pay Less” succinctly expressed its mission to become customers’
preferred shopping destination by offering high quality affordable products and services, continuous
innovation, and an exceptional customer experiences to satisfy customer needs, simplify their lives, and
deliver outstanding value. To do so in the face of stiff competition, Target differentiated itself by combining
the better quality fashion aspect of a higher-end retailer with the low prices of a discount store. It also offered
price matching and an additional 5% savings when customers used its REDcard loyalty program as part of its
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commitment to making sure customers got “more for their money” every time they shopped.

To further distinguish itself Target prioritized innovative design, positive employer/employee relations for
positive employee attitudes, diversity, and strong community relations through community giving. Its store
layouts were designed to create a fun, energetic, and inviting atmosphere to engage shoppers, and its
employees were encouraged to see themselves as “team members” to enhance customer experience by
providing friendly and efficient service. In addition, the company strove to foster an inclusive culture, hiring
a diverse workforce and making sure everyone felt welcome, valued, and respected. Team members were
supported with training and development opportunities, and encouraged to innovate, contribute ideas, and
discover solutions to improve customer experience. Diversity was viewed as intrinsic to every aspect of
Target’s business, from team membership, to those in its supply chain, to the communities in which the
company operated, important for developing lasting relationships and leveraging partners’ talents to drive
innovation and success. Finally, community giving was fundamental to the company ethos: Target regularly
pledged 5 percent of its income to local groups and encouraged employees to donate their time, talent, and
business strengths to various community initiatives.

At a recent investors meeting, Target Chairman and CEO Brian Cornell and his leadership team presented the
vision and strategies they hoped would transform Target’s competitive edge in the near future with renewed
emphasis on innovation and putting customers first. They planned to increase focus on the company’s
omni-channel evolution; further develop merchandise categories that would differentiate the Target from its
competitors; tailor a more personal approach for individual customers; and implement more flexible store
formats such as TargetExpress and City Target. A thorough strategic analysis of the business revealed that
customers who shopped both in Target stores and on Target’s website generated three times as many sales
as those who shopped only in the stores. 6 In response, the company decided to take a channel neutral
approach to growing its business, driving a total Target experience across stores, online, and on mobile
platforms. However, Target’s perhaps appropriately aggressive sales objectives: to grow in-store sales by 2 to
3 percent annually and online sales by 40 percent, would require significant enhancements to the company’s
technology, supply chain, and inventory management systems.

In 2014, four merchandise categories (style, baby, kids, and wellness) accounted for more than 25 percent
of Target’s sales. Moving forward, Target planned to invest more resources in those key areas, focusing on
newness and differentiation for greater consumer value. Another corporate objective was to create a more
customer-centric experience by using demographics, climate, location, and other customer-led factors to drive
store and online purchasing, and build up its data analytics to deliver a more personalized digital experience
by tailoring promotional offerings to specific customers. The company also planned store expansions that
would focus on new, more flexible formats to cater to rapidly growing dense urban populations, testing new
layouts to ensure that each store opened was the right fit for each community. Target hoped to realize cost
savings of $2 billion over the two years 2015-2016 by establishing leaner operations to make the company
more agile, even while planning to invest $1 billion in technology and supply chain improvements in 2015.

Target’s Competitors
Target’s prime competitors in the discount retail chain market were Wal-Mart Stores Inc., Costco Wholesale
Corporation, Sears Holdings, and Amazon.com. The company’s competitors in related industries such as
electronics, grocery, drug, department, and home furnishings stores were Macy’s, Burlington Stores, Dillard’s
Inc., Dollar General Corporation, Dollar Tree Inc., Family Dollar Stores, J.C Penney, and Kohl’s. As of 2015,
Target was the second largest discount store chain in the United States, with a market share of about 2.5% in
the retail category.

Walmart Inc.
In the fiscal year 2014 Wal-Mart, a top competitor in the discount stores segment, generated revenue of
$485.65B. Prior to 2014, Wal-Mart had seen its revenues rise by 16% while Target’s revenues only increased
by 12.9%.

Like Target, Wal-Mart maintained a reputation for convenience, value for money, and offering a wide range
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of products all in one store. Its core competencies in information systems and cost leadership strategy were
used very effectively to identify better ways to perform tasks, manage stores, and stock the shelves. Its size
allowed Wal-Mart to exercise power in relation to suppliers by demanding lower prices; and its best practices
allowed it the flexibility to improvise its inventory and supply chain management whenever necessary. Wal-
Mart’s international success and Target’s failure in Canada posed a huge threat to Target’s future operations.

Amazon Inc.
Target was slow to provide customers with a satisfying online retail shopping experience. Amazon, its biggest
competitor in that realm, reported revenues of $88.99B, constantly edging out Walmart and Target in online
sales for a variety of products (though it was necessary for shoppers to keep close tabs on Amazon’s
fluctuating prices). Amazon had had the foresight to build its fulfillment centers near airports, which proved a
highly successful strategy for providing expedited shipping. While Amazon’s major weakness, its lack of profit
on its financial statements, raised concerns for its investors, its stellar record of innovation and reshaping the
consumer experience on line assured its number one place in online retailing.

Barriers to Entry/Imitation
Historically, three major barriers to entry into the discounted retail segment industry – customer captivity,
proprietary technology, and economies of scale – tamped down competition as the companies already
occupying this segment had daunting competitive advantages in these categories. For example, Amazon
and Wal-Mart were ahead in deploying technology for inventory management and supply chain; Target had
the advantage of providing customers with relatively high quality products at low prices. The companies in
this segment were huge, yet their operating margins were low. A company could enter this market only if it
could compete with the prices that were offered by these retail giants, which would require massive capital
investment and access to prime locations.

Target had stronger product quality than its main competitors, and exclusive partnerships with designers.
Its differentiation strategy of offering designer brands, owned brands, and signature national brands had
proved very successful. 20% of the brands sold in Target Stores were private; and 22 of those brands
were sold exclusively at Target. For example, Target partnered with Peter Pilotto for apparel, Chris March
for Halloween wigs, and Justin Timberlake for his special edition CD. Target’s image, compared to that of
Amazon and Walmart, was that of an upscale discount retailer. Target’s strong customer service component
also distinguished it. For example, 43% of Target’s customers were parents with children, thus Target
designed its new shopping carts with built in baby seats for customer convenience. Target also gained
substantial PR from its huge number of followers on Instagram and YouTube.

Sustainability
In recent years, critics, investors and customers became increasingly concerned with all companies’ ongoing
environmental sustainability efforts. Wal-Mart took the lead in this important area. Rising demand for organic
and eco-friendly products required companies to abide by laws regulating sustainability, follow sustainable
practices, and ensure their suppliers followed environmentally friendly practices. Target made commitments
to ensure its packaging included recycled and renewable content; to build an energy efficient IT network and
implement technology that reduced greenhouse gas emissions; and to create buildings that used space more
efficiently and that were located in areas convenient to customers and team members, and enhanced local
communities.

Finance
Analysts considered Target a seasonal business because its Q4 (Oct-Dec) and Q1 (Jan-Mar) were its highest
revenue periods. While the company had been growing for decades, it had a hectic year in 2014 after its data
breach and failed expansion into Canada. Its 2013 strategy in Canada had been to cut prices below its COGS
just to increase its market share in Canada, but that led to shrinking its overall margins.

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By the end of Q1 FY2015 Target sales had topped $21.75 billion—its peak seasonal sales as compared to
$20.893 billion for Q4 of FY2014, a 4.1% increase (see Exhibits 1 & 2) even as pressure from the market for
low prices during peak seasons had forced Target to cut its prices. Annual growth from FY2014 to FY2015
was 1.9%. Its net operating margin shrank during FY2014 and FY2015 as a result of price cutting in its
Canadian stores where income margins fell to 1.34% in Q2 FY2015, compared to 4.2% in Q2 FY2013.
However, the company predicted margins would recover after it shut down its Canadian stores, and the day
Target announced the termination of its Canadian operations, its stock price rose 37% from $60 to $82.

Marketing
In fiscal 2014, Target Corporation spent $1.7 billion on advertising, $.3 billion more than the $1.4 billion spent
in fiscal 2013. Newspaper circulars, Internet ads, and broadcast media made up the majority of the company’s
advertising costs. Target was facing increased downward pressure on prices from online retailers, particularly
Amazon, and also had to adapt to the “showrooming” that occurred when customers browsed items in Target
stores then used their smartphones to check prices and buy from cheaper online sites. To stay competitive,
Target decided to match Amazon’s prices and offered free Wi-Fi in its stores, in-store pickup of online orders,
and in-store concierges offering tips, recommendations, and other enhanced customer services.

Target further committed to improving its own online customer experience, launching a pilot program, Target
Subscriptions, and establishing an innovation center in San Francisco to foster online and mobile business
growth. In its advertising the company increasingly emphasized the value pricing promised in its slogan,
“Expect More, Pay Less,” over its earlier emphasis on differentiation. This shift of focus to pricing and
value succeeded in improving the company’s competitiveness, enabling the company to tap the constantly
growing market of customers opting for lower priced merchandise. Target’s website was redesigned to
include product recommendations, enhanced registries and lists, integrated community features, and social
networking integration. Target also focused on increasing its online presence through acquisitions.

The key to Target’s success was its strategy of positioning itself as a high-style brand despite its low prices to
attract shoppers who would ordinarily avoid discount retailers. It did this with clever, eye-catching marketing
and a series of partnerships with high-profile design-oriented suppliers. Target Corp. provided an excellent
example of a content-based strategy with “A Bullseye View.” Revamped and re-launched, its website told “a
deeper story” about Target to media members and other influencers, significant in terms of online marketing
as many brands were only just beginning to focus on content, whereas Target was ahead the curve in
presenting its audience with innovative content. With celebrity assets such as Jay Leno, Solange Knowles
and Maria Sharapova, Target’s internet marketing strategy generated about 40 million-plus unique monthly
visitors and its website became the fourth most-visited retail website in the U.S.

Target also applied an integrated design philosophy to everything from visually appealing building exteriors
and an award-winning mobile app, to innovative tools and systems such that all aspects of the Target interface
cohered to create a satisfying customer experience. The Target mobile app was very successful in offering
personal, easy, and convenient options for customers to shop whenever and however they wanted. Target’s
marketing 2015 campaign featured three of its solutions-focused initiatives—subscriptions, store pickup, and
Cartwheel, which was designed to help customers save time and money and stay organized—which were
highlighted and in TV spots and online educational videos online explaining how they worked.

Also key for Target was its “REDcard,” its proprietary credit and debit card, that encouraged customer loyalty
and drove sales by offering customers a 5% discount every time they used their REDcards.

Operations and Logistics

Target had always combined great leadership and operational savvy with cutting-edge technologies to
optimize its supply chain network. After its operational failure in Canada, Target’s primary objective was to
operate as a single segment throughout the U.S. The company decided that the leadership team for each
store would include at least seven executive level managers counting the Store Team Leader or General
Manager, and each would be assigned a strategic department of expertise: Soft Lines, Hard Lines, Asset
Protection, Guest Services/Front End, Logistics, Human Resources and Store Team Leader. High volume
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and SuperTarget stores would have at least one additional Logistics/Replenishment Executive Team Leader,
an Executive Operations Team Leader, and an Executive Food Team Leader. The company also turned
its attention to its business-to-business subsidiary, Target Commercial Interiors (TCI), which operated about
a half-dozen showrooms in Illinois, Minnesota, and Wisconsin providing office products and services. The
interior design company, whose clients included some of America’s largest companies, wanted to expand by
marketing its products and services to small and midsize companies.

Through store level data analysis techniques, Target identified opportunities that were lost when data was
aggregated at the chain level rather than store by store – opportunities that, the company predicted, could
substantially improve its week-in/week-out ability to forecast sales, plan promotions, and optimize its supply
chain. Logistic operational experts, who went on to work for the Capital Ladder Advisory Group, were hired to
streamline the early morning logistic process at Target to help the company increase profitability and deliver a
clean, clutter-free experience to customers every day. The success of this partnership effectively saved Target
$475 million in expenses over the three years from 2012 through 2014. Target continued to foster its greatest
strength—its ability to do outbound logistics—which helped it to differentiate from other low cost leaders by
emphasizing its brand as more upscale and trendier, and to capitalize on the weaknesses of other low cost
leaders by creating a higher scale in-store atmosphere, and more space.

Target also realized it needed to build on relationships already established with suppliers rather than abusing
them from a price/profit standpoint simply because they could, a strategy that wouldn’t foster long-term
relationships or even fit its partnership philosophy. However, it became increasing clear that Target needed
to better understand its own systems such as TLO and POL; even its supply chain experts had a hard time
understanding how to fix opportunities. Target suffered a huge decline in overall net profit growth during the
financial crisis that began in 2008, partly because its operational size could not be scaled down fast enough.
While the thousands of Wal-Mart stores operated 24-hours a day, Target stores did not, a disadvantage in
times of crisis. Logistic processes were the heart of Target Store operations, and accounted for much of the
operational effectiveness of any given store. If the logistic process was broken, the chain’s entire operation
was also broken. The leadership teams knew operations could be fixed, but that it would take increased
proficiency levels to achieve operational success and respond to customer demand more effectively.

One weak spot for Target was its inventory system software whose main function was to fuel the Logistics
processes. The company itself seemed to recognize the system’s deficiencies, as it added an In-Stocks
process. The flawed inventory system software also added to employment and labor costs, especially as the
Logistics work center became the source of the highest rate of attrition at Target. The inventory and Logistics
processes simply did not operate the way they should have, hurting the company’s overall Net Profit. In short
Target’s scalability left it more vulnerable to downturns in the economy than Wal-Mart.

Human Resources
Target had made it a goal to offer a wide variety of job opportunities throughout its operations, from its
retail stores to its distribution centers and corporate offices. Over the twenty years prior to 2015, Target
scaled stores to achieve levels of productivity outlined by executive level managers. Based on the operational
demands of the average Target store.

Target determined that the appropriate mix of full-time and part-time employees was a 63-37 split in favor of
full-time employees. This ratio of full to part time was among the retail industry’s highest. In addition, Target
implemented many important human resource policies, from its hiring practices and diversity efforts, to the
benefits offered employees. Target defined diversity as individuality incorporating differences of race, gender,
sexual orientation, education and life experiences, and physical ability, and instituted specific recruiting efforts
to hire teams characterized by diversity on all of these fronts.

Target was always known as a reputable company and fun place to work with good benefits, yielding very
high employee satisfaction. As one of its most effective benefits, Target provided educational opportunities
for employees to build on their skills, thereby attracting a significant number of young college graduates as
an appealing stepping stone for those just starting their careers. At the same time Target’s hiring philosophy
consisted of not only hiring recent grads but seasoned retail management team leaders from outside the
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company as well. Whereas Wal-Mart hired both graduates and non-graduates with equivalent management
experience as leadership personnel for their stores, only 10% of Target’s Executive Team leadership were
promoted from within without 4 year college degrees, landing it among the bottom 15% of Fortune 500
companies when it came to promoting from within. Nevertheless, Target’s hiring practices resulted in benefit
to the consumer, as the average Target Executive Team Leader was much more customer focused than the
average Wal-Mart Executive/Assistant manager.

One downside of Target’s large organizational structure was that it required a lot of meetings and red tape.
Decisions often needed to go through many layers, and unless an employee was specifically on a strategy
team or at the director level, strategic vision was typically not a primary focus. Rising labor costs also
became a major concern for those responsible for Target’s bottom line: the federal minimum wage, which
had remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008, $6.55 per hour in 2009,
and $7.25 per hour in 2010, with further hikes projected, and many states and municipalities had minimum
wage rates even higher than $7.25 per hour in response to higher costs of living. Rising wage and healthcare
costs had the potential to hold down profit margins. In addition, Target’s failed expansion into Canada had
significant one-time costs. Target Canada had 133 stores across the country and employed approximately
17,600 people. To ensure fair treatment of Target Canada employees, the Target Corporation sought the
Court’s approval to make voluntary cash contributions of C$70 million (approximately US$59 million) to an
Employee Trust that would provide Target Canada-based employees not required for the full wind-down
period a minimum of 16 weeks’ compensation, including wage and benefits coverage while Target Canada
stores remained open during the liquidation process. This operational failure resulted in a huge financial loss
for the company.

Core Competencies
First and foremost, Target made sure its brand was widely recognized in the US market, by utilizing strategic
placement of its logo on all merchandise, media communications, and events. According to a recent survey
conducted by Target 96% of Americans recognized the Target bullseye logo. At the same time, Target
traditionally differentiated itself by providing exclusive private brands and designer products along with
everyday essentials at attractive prices, capitalizing on quality products and affordable prices. The company
introduced its first design partnership in 1999, in collaboration with the architect Michael Graves. By 2015,
Target had over $1 billion of owned and exclusive brands. The company also formed partnerships with high
profile design oriented suppliers including Neiman Marcus, Lilly Pulitzer, Burt’s Bees, Massimo, Isaac Mizrahi,
Liz Lange, Kashi, and many more, launching these brands and partnerships through limited edition lines
or by stocking the brands for a limited time. These designer brands generally yielded higher margins than
equivalent national brands and represented a significant portion of Target’s overall sales. The company further
enhanced the value of these brands by using celebrities such as Jay Leno, Solange Knowles, and Maria
Sharapova to promote them.

Ultimately, Target struck an effective balance between fashion and price, and its strong product/service
assortment became one of its key competitive advantages. Target had always positioned itself as an upscale
discount chain with a bright and attractive environment, known for carrying discount designer clothes and
home decor under the same roof as detergent and dishwashing liquid. Target thus positioned itself to
attract customers from as wide spectrum of demographics, and as the US economy exited one of its worst
slowdowns, consumers evidenced more willingness to spend on Target’s quality and exclusive products.

Another aspect of Target’s success was its goal of providing a more pleasing shopping experience than
that of its competitors. Target recognized that many customers preferred wider aisles, less crowding, easier
checkouts, with pricing that remained competitive. In addition, the company provided effective on-floor
assistance (such as price checkers, on-floor customer service representatives, etc.), as well as savings
programs through options such as the REDcard. According to industry analysts, new REDcard holders spent
50% to 150% more than typical customers, and made 8–10 more visits per year, evidence customers were
satisfied with the program and benefiting from it.

Target’s Challenges Going Forward

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Especially after the Canada debacle, it became clear that Target had challenges that had to be met. Its
inventory management system was inefficient and costly, leading to empty shelves, which had a direct
negative impact on customers and thus on brand perception. The flawed inventory system software also
added to employment and labor costs for Target. The company saw the greatest attrition from the Logistics
work center. The In-Stocks team process was designed to cover every shelf space and SKU in the store.
The team aimed to scan every SKU during the course of a week to monitor shelved product levels so that
in-stock products could to be brought to the sales floor from the backroom should the shelved product be low
or out, and out of stock products could be re-ordered. However, the In-Stock process essentially duplicated
the efforts of the Logistics processes. Unfortunately, the inventory system employed by Target was prone to
errors and created artificial holes in the Logistic process that the In-Stock team aimed to fill. The Logistic
process was supposed to fill the shelves according to the inventory system software that dictated what was
needed on the sales floor and what should be sent directly to the backroom when it arrived on the daily 53’
trailer, but it did not.

Further, the company’s inability to scale the inventory up or down depending on economic conditions and
demand was a primary reason why Target failed in its expansion efforts in Canada. The improvements needed
required not only investment in technology but also investment in centralized teams assigned to assess and
monitor current systems and recommend changes as needed.

Target’s online presence was another area of weakness. While the company had made some improvements
in its website and mobile applications, it struggled to attract and retain a base of online shoppers. As online
shopping was so prevalent, it became increasingly important that Target innovate in this area to keep its
market share on a par with competitors such as Walmart and Amazon.

Finally, Target had difficulty accurately forecasting consumer demand. From the company’s earliest days
as an apparel company, it kept its inventory lean to preserve profits in an industry known for low margins.
However, the downside of lean inventory was missing out on sales and disappointing customers who got to
the store only to find empty shelves. An example of keeping the inventory too lean undercut Target’s recent
partnership with Lilly Pulitzer, an American fashion brand featuring bright, colorful, floral prints. It was wildly
successful: Lilly for Target items sold out within hours of the brand’s debut on Target’s website. Loyal Target
customers were frustrated and voiced their opinion that faulty insight into consumer demand was indicative
of larger problems at Target. Even with a robust inventory management system in place, Target ran out of
products and could not meet consumer demand. The situation was particularly problematic for Target because
it prevented the company from fulfilling its core mission; if items were out-of-stock, Target was not able to
meet customers’ expectations, and customers would then leave the store empty-handed and frustrated. The
situation was complicated by an inefficient inventory management system that required manual fixes by in-
store teams to combat system errors, which resulted in higher labor, storage, and transportation costs than
those incurred by Target’s competitors.

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reserved.

part-2-of-3

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