Case Study 19: Target Corporation

Michael Sample

Assignment 2-2

FINA495-V1WW

Professor O’Flaherty

05/08/2014

Case Study 19: Target Corporation

Target is a higher-end discount retail store that opened its first store in 1962 in Roseville, Minnesota. Their main focus is on their “guests” shopping experience with the slogan “Expect more, Pay less.” By 2005, Target had opened 1397 stores in 47 states with plans to open 100 stores per year to continue their growth. Target brought in $52.6 billion in revenues in 2006 and they have enjoyed a 12.1% sales growth over the past five years. They employ an aggressive domestic growth strategy with capital expenditures at a level of 6-7% and they market to affluent customers. Target’s two main competitors are Wal-Mart, who offers low cost goods and has 6,141 store locations, and Costco, who is a wholesale provider with a membership program that has a similar affluent customer base. The Capital Expenditure Committee is looking at 5 projects with $200 million in capital expenditure. Their growth strategy is to open 100 stores a year.

The first project is Stadium Remodel whose initial investment was $17,000,000. The store is owned by Target and has been in place since 1972. The store is located in an affluent market with a $65,931 median income and 42% of the market has 4+ years of college. This location is very strong given the amount of time it has been there and it is located in the highest median income area of all 5 projects. However, their NPV was low and the IRR is low as well when compared to the other projects. This project also does not help Target’s goal of opening new store locations.

The next location is The Barn which was a previously approved project that has been resubmitted and it has the lowest initial investment of all the projects at $13,000,000. This project has the second best NPV and the highest IRR. The location is in a small market, but the nearest location is 80-90 miles away. With this being a rural location, it...