Lessons From Expansion Challenges

Executive Summary

The report analyses the strategic moves taken up by Target Corporation a retailing company popular within the United States in their entry into Canada. Target Corporation is the second largest retailing chain of stores within the US despite having operations only within the US. It is ranked after Wall Mart despite operating in a global scale. Despite Targets huge success within the United States, their first attempt at international expansion failed due to a wide range of strategic errors among them purchasing a wide chain of stores within a short period, which was subsequently impossible for them to effectively manage. Despite the move to Canada being a great opportunity for their business expansion strategy. lack of adequate planning considering the actual business plan to guide their debut international expansion led to a high profile failure that could have been avoided by a slight twist of strategies. Other than the fact that the stores purchased from Zellers in their localization business strategy aimed at ensuring geographical proximity of individual shoppers being in inadequate locations, considering the clientele related to target Corporation, the 124 stores proved to be a challenge when it comes to their management. As a result, empty shelves and higher prices than the original prices in the US led to the downfall of the company’s strategy at expansion in Canada. The analysis employs the use of a Porters 5 frame work in analyzing the strategy employed as well as the challenges faced by the company in the implementation of the strategy. The analysis reveals that Targets corporation entry failure can be addresses by developing a wide range of products to be able to control the supplier as well as the buyers bargaining power. Further developing a wide range of differentiated products gains the company a competitive advantage and minimizes on the threat of substitutes offered by other companies.

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Target Corporation
Overview

Target Corporation comes second in ranking of the general departmental store retailers in the US after Wall Mart. Despite its operations only within the United States, Wall Mart which is international based has been the only competition to Target Corporation over the years (Target.Com, 2018). It operates both on a physical scale through brick and mortar stores in different states all over the US and also has an online presence as well as digital channels from where the company also sells some of its products. According to Reuters (2018) the company is among the most diverse and successful departmental stores within the US boosting of a wide range of assets and brands such as Sutton and Dodge, Boots and Barkley, Art Class, Archer Farm and many others. The companies general merchandise stores offer an assortment of edited foods which include Dairy and frozen items, perishables as well as dry groceries.

According to Bloomberg (2018), the companies operates in up to 49 states within the US and has over 1800 stores within these states managed by an employee base of over 300,000 team members. It also hires up to 16,000 team members in its 37 distribution centers located in 22 states within the United States. Target.com (2018) outlines that despite the company’s physical presence being only in the US; it also has a digital presence and staff in India and sells its products digitally within the country. Target Corporation has the second largest market share of 2.4% within the United States as well as in the global rankings despite its physical operations being restricted only in the US (Mirzayez, 2018). While Wall Mart enjoys the larger market share of 11.4%, Stoffell (2016) highlights that Target Corporation is at present the most profitable retailer company above its major competitor Wall Mart in both gross profit margin and Net Profit margin. This highlights its great potential in being able to further grow and develop not only within the US but also within the International market despite the failure of their debut attempt.

Porters 5 Force Analysis

Target Corporation adopted a localization strategy for expansion into Canada through securing 124 stores from Zellers in an attempt to ensure geographic proximity to the stores for individual’s ease of shopping, language as well as cultural similarity and market familiarity with the Target brand. However the company’s failure to align their expansion strategy to their global strategy was the downfall and main factor leading to its failure and closure in Canada (Dahiloff, 2015). Other factors that contributed to its failure at international expansion include over ambitious launch of its stores leading to empty shelves, inadequate logistics as well as the failure of the company to meet its consumer’s expectations. Porters 5 force analysis highlights the major strengths and weaknesses in the strategy adopted by Target Corporation.

Threat of New Entrants

General merchandise retail is a large and widespread industry not only within the United States but also across the whole world (Hortacsu and Syverson, 2015). The sector has both small localized companies as well as larger companies that operate on a wider global scale. While the entry of new retailers into the industry may offer great threats to the existing companies by increasing the level of competition, only the small developing retail companies will be adversely affected by this competition. Target Corporation being one of the biggest retail companies in the world whose major competition is Wall Mart is therefore not likely to be greatly affected by new entrants into the market. The threat represented by new entrants is therefore relatively low (Pratap, 2017).

Bargaining Power of Suppliers

Target corporation represents one of the biggest retail companies in the globe and as such has developed a wide network of suppliers of different products which they sell under their company brand as well as several other associated brands. The company has a large network of supplier none of who are big enough to hold leverage over target and as such be able to dictate supply terms. Having this wide range of suppliers gives Target Corporation the advantage over its suppliers bargaining power as they can easily switch from one supplier to the other in case of any misunderstanding in supply rates and prices (Zao, Wu and Sha, 2015). This effectively reduces the pressure and the bargaining powers of the suppliers. The suppliers chosen by Target are therefore obligated to maintain the rules and conditions set by Target Corporation and adhere to their code of conduct (Pratap, 2017). The threat presented by the bargaining power of suppliers to target market is therefore low.

Bargaining Power of Buyers

The bargaining power of the buyers is effectively controlled by consumers who have the freedom of being able to purchase whatever they want at different prices. A range of factors including prices, quality of products, the availability of substitutes and a wide variety of products influence the individual buyers’ choices on the products to buy and not to buy. Consumers often want to purchase the best possible product at the least possible price as such their bargaining power can be effectively limited by offering a range of commodities at different prices to offer the various options. FernFort (2018) highlights a number of ways with which Target Corporation involves itself in controlling the bargaining power of its supplier including: developing a wider variety of innovative products and their substitutes to offer buyers a wide range to choose from and therefore prevent them from switching retailers. The company has also developed a wide customer base in up to 49 states within the United States enabling them a big market base which effects a positive growth of the company’s reputation thereby helping to protect its customer base (Pratap, 2017). The threat to the company offered by bargaining power of the buyers is therefore moderately low as well.

Threat of Substitutes

A wide range of products have quite a number of substitutes in addition to widely differentiated products from other brands which represent a variety of products for customers to choose from (Martin, 2014). The threat of substitutes in general merchandise is quite high therefore as the products sold are easily substituted and can be supplied by different companies other than Target Corporation. However given the reputation of Target Corporation, it’s only credible competition is Wall Mart as such the threat offered by any substitutes within the market is greatly diminished. However the wide scope of general retail now spreading to online platform such as electronic commerce sites may be able to greatly increase the threat by substitutes within the market. According to Pratap (2017) however Target is able to alienate these threats through various ways including developing and offering highly differentiated and quality products from the ones available in the market as well as offering quality products at slightly affordable prices compared to their major competitors. The threat represented by substitutes is therefore considerably low as well.

Level of Competitive Rivalry

The retail industry has a wide number of players both big and small companies who mount up a great level of competition within the industry, in addition Aranda, Martin and Santos (2015) highlight that retail industry represents the most fundamental aspect of business and as such a considerable amount of new entrants into the market are witnessed who further expound the competition within the industry. Further, within the current technological age development of electronic commerce sites which are used by individual for general retail have not only developed to increase the competition but also widened the competition to a global scale. However Target Corporation has been able to develop effective strategies in ensuring they maintain a competitive advantage above most of their rivals. FernFort (2018) highlights among these ways to include: developing quality, sustainable and highly differentiated products to maintain the companies name and brand and as such be ahead of the rivals as well as collaborating with other competitors to increase their market sizes and subsequently minimize the level of competition.

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Conclusion and Recommendation

Target Corporation is without a doubt one of the most successful retailers in the retail industry, with a wide range of assets that enable them competitive advantages as well as business strategies that maintains their edge in being able to effectively manage their growth and expansion. However a number of strategic errors led to the failure of their first attempt at international expansion including failure to align their business strategies with the expansion strategy leading to failure in the management of their new stores in Canada.

Recommendations

This report recommends the adjusting of their expansion strategy from localization to step by step expansion. In this way they can proceed with other ways of expansion including Franchising, joint ventures or even opening various distribution centers and subsidiaries in different countries while at the same time being involves in marketing and consumer management to further improve their levels of success in the subsequent international expansion. Other recommendations from the porters five analysis that highlight potentially helpful business strategies include:

Having a considerable number of suppliers.

This enables the business to control the bargaining power of its suppliers and ensure that the a wide range of inventory that potentially suits the customer’s needs are available at all times. This also enables the possible purchase of these products at the lowest prices possible to facilitate low price sales and subsequently attract more revenue.

Developing a wide range of product substitutes and differentiation

This strategy enables the offering of all the products as well as their substitutes and differentiated products that are likely to attract the customers and thereby help the organization control the bargaining power of the buyers. It also alleviates the threat of any substitutes of products that may be in the market thereby ensuring a loyal customer base that impact on revenue.

References

  • Aranda, E., Martín, V. and Santos, J. (2018). Competitive convergence in retailing. Economic Research-Ekonomska Istraživanja, 31(1), pp.206-227.
  • Bloomberg (2018). Target Corp. [online]. Bloomberg.com. Available at (Accessed 29 August 2018)
  • Dahilhoff D. (2015). Why Targets Financial Expansion Failed. [online]hbr.org. Available at (Accessed 29 August 2018)
  • Fern Fort University (2018). Target Corporation Porter Five Force Analysis. [online]fernfortuniversity.com. Available at (Accessed 29 August 2018)
  • Hortaçsu, Ali, and Chad Syverson. 2015. "The Ongoing Evolution of US Retail: A Format Tug-of-War." Journal of Economic Perspectives, 29 (4): 89-112.
  • Martin (2014). Porters Five Forces Model : Strategy Framework. [online] cleverism.com. Available at (Accessed 29 August 2018)
  • Mirzayez E. (2018). Targey Vs. Wall Mart: Whos winning the Big Box War? [online] investopiedia.com. Available at (Accessed 29 August, 2018 )
  • Pratap A. (2017). Target Five Force Analysis. [online]. Cheshnotes.com. Available at h (Accessed 29 August, 2018 )
  • Reuters (2018). Target Corporation (TGT). [online]. Reuters.com. Available at (Accessed 29 August, 2018)
  • Stofell B. (2016). Better buy: Wall Matt Stores, Inc. Vs. Target Corporation. [online] fool.com. Available at (Accessed 29 August, 2018)
  • Target.com (2018). Target Global Locations: USA, Canada, India | Target Corporate. [online] Target Corporate. Available at: [Accessed 29 Aug. 2018].
  • Target.com (2018). Target Global Locations: USA, Canada, India | Target Corporate. [online] Target Corporate. Available at: [Accessed 29 Aug. 2018].

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