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Target Corporation Case Solution

Solution Id Length Case Author Case Publisher
1416 1055 Words (4 Pages) Kenneth Eades, David Ding, Saul Yeaton Darden School of Business : UV1057
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Both Target and Wal-Mart had different business models that were being used to attract customers to the stores. In Wal-Mart, the core focus of the organization was at low prices. Customers of Wal-Mart were only attracted because of the everyday low price strategy which Wal-Mart truly believed in and it was this strategy that had helped them gain sufficient market share in retail stores. On the other hand, Target adopted a slightly improved image where its target market was considered to be more affluent than that of Wal-Mart. Target focused on building good customer experiences while they shopped in the stores along with providing them with a price advantage. Various efforts were conducted by Target to differentiate its business model from Wal-Mart such as designing store décor, providing customers credit along with higher spending on brand building and marketing activities.

Following questions are answered in this case study solution

  1. How does Target’s business model differ from that of Wal-Mart? 

  2. Who performed better financially? What are some of the evidence?

  3. Do you think Ackman’s demands for strategic changes at Target are justified, given Target’s strategy and its financial track record? Comment on each of the proposed changes.

  4. Google search an example of how a hedge fund activist attempts to persuade a company to make drastic changes. Tell us who the activist is and what changes were requested. Were the changes carried out by the company?

Case Analysis for Target Corporation

2. Who performed better financially? What are some of the evidence?

Based on the data provided within the case and in particular within Exhibit 2, Wal-Mart seems to have performed better than Target in the reported period. Wal-Mart reports revenues of more than $315 billion whereas Target only has around $52 billion of revenues. This conclusion can be further improved by obtaining a ratio of dividing total sales of each company by the number of stores. Based on the simple ratio of per store average Wal-Mart makes around $0.05 billion whereas Target makes $0.037 billion. This shows that the strategy of Wal-Mart has been better in providing them higher returns as compared to a strategy of Target. From EPS perspective, Wal-Mart and Target are almost same. The debt rating of S&P shows the worth of company’s credit quality. Here, Wal-Mart is clearly better than Target. Wal-Mart has AA rating which is very good quality credit whereas Target has A+ rating which is lower than AA rating. So it can be said that from credit perspective too Wal-Mart is poised better than Target. Another indicator that shows Target at a lower position than Wal-Mart is the Beta factor. Beta denotes risk and sensitivity so higher beta means more risk. Here, Target has higher beta compared to Wal-Mart so it can be said that Target is a riskier stock than Wal-Mart from investor’s perspective. The market capitalization of Target was also significantly lower than Wal-Mart which shows that investors did not obtain required capital gains. All these evidence show Wal-Mart has performed better from the financial perspective.

3. Do you think Ackman’s demands for strategic changes at Target are justified, given Target’s strategy and its financial track record? Comment on each of the proposed changes.

Yes, there is a need for such changes to take place so that Target can improve its growth rate in different markets. Also, the comparison with Wal-Mart shows that company can improve its prospects by making certain changes and pursuing new projects. These drastic changes might also help Target to not only cater to increasing competition but also to change the way it conducts business in retail industry:

  • Gopher Place: This appears to be a decent investment prospect since the investment amount is low and would be sufficiently covered with base case NPV. Although the place has small population size, the growth potential is high which can lead to higher NPV in a time of implementation. Higher income levels also show more suitability for Target to locate there.

  • Whalen Court: Although the advantage of branding is present in this location, but the investment of $119 million for Target might be risky. Also, base case NPV stands to be very poor in case of sales decline by 10% based on available data. The project also has low IRR falling in last two positions within the five projects, so it would be better to avoid it.

  • The Barn: This location presented a different opportunity for Target because the company did not have a presence there so it might be able to get new customers. Also, the investment amount is very small which would be covered even with lower sales growth.

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