Purveyor of all that is cheap, yet chic, Target is the US's #2 discount chain (behind Wal-Mart). The fashion-forward discounter operates some 1,795 Target and SuperTarget stores across North America, as well as an online business at Target.com. Target and its larger grocery-carrying incarnation, SuperTarget, have carved out a niche by offering more upscale, trend-driven merchandise than rivals Wal-Mart and Kmart. Target also issues its proprietary Target credit card, good only at Target. The company is growing its grocery business and aggressively expanding stores. It entered the Canadian market in 2013 with 124 stores but pulled out in early 2015 after failing to win over Canadian shoppers.
Operating across the US, Target's biggest markets by total sales are California, Texas, and Florida. The chain has 40 distribution centers. It has offices in 14 other countries to support various trading and shipping functions.
Sales and Marketing
Target spent $1.6 billion on advertising in fiscal 2015 (ended January), compared with $1.7 billion in fiscal 2014. Newspaper circulars, Internet ads, and media broadcast made up the majority of the company's advertising costs. The vast majority of its merchandise is distributed to Target stores through its network of 40 distribution centers.
Following the closure of operations in the Canadian market, Target's revenue for fiscal 2014 have been restated.
In fiscal 2015, the company's revenue grew by $1.3 billion, reflecting a 1.3% increase in comparable sales and the contribution from new stores.
Target experienced a net loss of about $3.6 billion that year due to discontinued operations in the Canadian market (resulting in a pretax impairment loss and other charges), partially offset by higher revenues.
In fiscal 2015, the company's net cash provided by operating activities decreased by 32% due to the absence of proceeds on sale of accounts receivable originated at Target and a change in accounts payable and accrued liabilities.
Target was attracted to Canada's relatively-healthy retail market, which presented ample opportunity for growth. It entered the market by purchasing 124 stores from failed retailer Zellers, 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. Then big box big gorilla Wal-Mart defended its hard-won gains in the country by slashing prices and Target's hopes for the Great White North were swept away in a blizzard of red ink. The company took a huge $5.4 billion write-down in 2014 and will take another $275 million in losses in 2015 to shutter the operations and close 133 stores. Cash costs to wind down the Canadian operations will be between $500 and $600 million.
Perhaps as a result of its failed Canada expansion, Target in late-2015 sold CVS Health its pharmacy and clinic operations for $1.9 billion. As part of the deal, CVS acquired more than 1,600 pharmacies from Target in 47 states and will operate them under the CVS name in Target stores. CVS will also operate branded pharmacies in new Target stores that offer pharmacy services. Target plans for its profit margins to rise following the deal.
Going forward, the retailer’s differentiation in the marketplace will be driven by a shopping experience that is centered on ease and inspiration, with mobile serving as the front door to all of Target. The retailer also plans to reassert its cultural leadership. In addition, Target plans to create a headquarters team that is more agile, efficient, and guest-focused.
Target’s transformation roadmap includes a focus on areas like continued enhancements in technology, supply chain, and inventory management to create a shopping experience rooted in ease and inspiration; Style, Baby, Kids, and Wellness are being prioritized and will be the merchandise categories. It also plans to create a more guest-centric experience by offering more locally relevant products, and taking demographics, climate, and location into account.
Another key to Target's strategy has been its proprietary credit and debit cards (REDcards, collectively), which encourage customer loyalty and drive sales. Use of the cards for store purchases more than doubled from fiscal 2010 (about 6%) to fiscal 2014 (nearly 20%). In late 2013, however, a data breach at the company resulted in the personal information of some 110 million customers -- including some 40 million credit and debit card accounts -- being compromised. Target saw significantly weaker sales after the breach became public, and cashiers temporarily stopped asking shoppers if they would like to participate in the REDcard program. In a bid to rescue its image and its business, Target announced plans to invest some $5 million in new security measures and offered guests a free year of credit monitoring and identity theft protection. Its chief information officer resigned and Target is facing more than 80 civil lawsuits filed on behalf of its customers, payment card issuing banks, and shareholders, as a result of the breach.