Target

Temple University, Singapore EMBA |

Target Corporation |

An investment decision case study |

|

Germaine Wong, Peter Strucks, Pravin Nahete |

2/14/2014 |

Case study on the investment decision process of Target Corporation, in which the Capital Expenditure Committee (CEC) needs to make a decision on 5 investment proposals. |

Contents

Target Corporation; an industry comparison 3

Target’s capital budgeting process 4

Investment advice to Doug Scovanner, CFO 6

Financial Metrics & Ranking 7

Target Corporation; an industry comparison

In contrast to Wal-Mart’s focus on low prices, Target’s strategy was to consider customer’s shopping experience as a whole. Target strives to support the slogan “Expect more. Pay Less”, and focuses on creating a shopping experience that appeals to the profile of its customers. Its customers are mostly women with children, and college-educated. They are more affluent than the typical Wal-Mart customers.

Wal-Mart’s “Everyday Low Price” strategy yields high sales volumes, the main contributor to Wal-Mart’s strategic competitive success. Wal-Mart’s sales figures were way above the weighted average sales figures of Target and/or Costco. This makes Wal-Mart the biggest player in the industry and gives them a huge bargaining chip with their suppliers. Their wide range of no-frill products appeals to their cost-conscious customers.

Costco’s membership program helps Costco to generate high sales volumes and rapid inventory turnover by offering members very low prices on a limited selection of product lines and brands. Furthermore, the membership generates very specific data on customer demographics and shopping behaviour which Costco can turn into a competitive advantage. The operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities help keep operating costs low. Bulk purchasing gives Costco an edge in...