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What s leading edge with today s leading mass volume retailers l.jpg

American Logistics Association

Exchange Roundtable

Whats Leading Edge With Todays Leading Mass Volume Retailers?

March 8, 2005

Dallas, TX

www.hoytnet.com

8912 East Pinnacle Peak Road Scottsdale, AZ 85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail: chrishoyt@hoytnet.com nancyswift@hoytnet.com


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Based on most recent research, the top 3 retailers shoppers rank as literally indispensable to their daily lives are Wal-Mart, Target and Costco:

  • Meyers Research: Retailers Consumers Could Not Live Without (Aug, 2004)

Source: Meyers Research, Aug, 2004


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Not coincidentally, Wal-Mart, Target and Costco are also the same retailers that consumers find the most fun to shop:

  • Specific Retailers Consumers Find Most Fun To Shop

Source: Meyers Research, Aug, 2004


Today l.jpg
Today: same retailers that consumers find the most fun to shop:

  • What is it about Wal-Mart and Target that makes them so successful, not only with shoppers, but from a business standpoint in general?

  • What lessons can Exchanges take away from this, given their objectives and the constrictions under which they operate?

  • Q&A


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The Leaders same retailers that consumers find the most fun to shop:Snapshot of Current Vital Statistics:

Source: Company 10Ks & 10Qs; Hoyt & Company, LLC, 2003 - 2004


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While Wal-Mart and Target are very different retailers, both share the same objectives as all other retailers specifically:

  • Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logistics functions on one or more of the following objectives:

    Exchanges

    • Increase customer count (new customers)X

    • Increase trip frequencies (current customers)Yes

    • Increase transaction size (current customers)Yes

    • Increase productivity (Human and Financial)Yes

    • Reduce costs (COGs and Operations)Yes

  • As you will see, the paths that Wal-Mart and Target have chosen to achieve these objectives represent todays industry Best Practices.


The 800 lb gorilla in every retailer s living room l.jpg
The 800 lb. Gorilla share the same objectives as all other retailers specifically:In Every Retailers Living Room!

$284B Largest company in the world greater than the GDPs of Austria, Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden, Switzerland, Ukraine and Vietnam

$20K in profit per minute!

13% WW CAGR projected to do $1 trillion by 2014

$233B U..S. sales CAGR of 9.9% to 2007

3,711 U.S. stores:

1,706 Super Centers

1,370 Discount

549 SAMs Clubs

86 Neighborhood Markets

500+ new stores/remodels planned for 2005

Objective is to become the largest retailer in every market in which it operates (now #1 in only two countries out of 10)


So what are the key growth drivers that enable wal mart to sustain the momentum of this juggernaut l.jpg
So what are the key growth drivers that enable Wal-Mart to sustain the momentum of this juggernaut?

  • Lets look at these from the standpoint of whats relevant to Exchanges in terms of:

    • Marketing and Merchandising

    • Buying

    • Logistics


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The key elements of the Wal-Mart marketing mix elegant and sophisticated way beyond just Always Low Prices:

1.EDLP made possible by EDLC Global buying and relentless pressure on COGs and operating costs

2.Use of consumables (food and non-edible CPG items) to drive traffic and transaction size

3.OPP/good/better/best merchandising ladder (private labels > national brands)

  • Localization Demographic assortments

    5.Ancillary businesses hearing aids, optics, stores within stores, etc.

    6.Consumer-centric versus supplier-centric business model all allowances are driven into price and not used to subsidize operating profits


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The key elements of the Wal-Mart marketing mix (contd) and sophisticated way beyond just Always Low Prices:

7.Shop-ability wide aisles, mucho signage, well lit, easy to navigate

8.Speed to market new items and promotions 24/7 + 48 hour turnaround

9.Community involvement parking lot extravaganzas, fishing contests, high school marching bands, etc.

10.Retail-tainment in-store TV sets, trendy promotions (Shrek 2 and Britney Spears)

11.EDLP reinforcement roll backs, action alley, special buys and multiple clearance items

12.Clicks and bricks synergy what you cant get in-store, you can get online

13.Store managers have broad discretion can tailor assortments, authorize local displays and recommend new distribution of local items


Wal mart strategy to drive trips provide one stop shopping convenience sell need read food items l.jpg
Wal-Mart strategy to drive trips/provide one-stop shopping convenience sell need (read food) items!

  • Wal-Marts March To The Top of the U.S. Food Chain: 2001 - 2010(Food & Drug Sales Only)

35%

2010

$195B

Bigger than Kroger, Albertsons, Safeway and Ahold combined

2007

$162B

+17.0%/Year Compounded

Vs. 4.0% For Supermarkets!

2004

$112B

Bigger than Kroger & Albertsons Combined

2003

$95B

2002

$82B

Surpasses Kroger as the nations #1 food retailer

2001

$63B

Source: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003


The wal mart merchandising ladder l.jpg
The Wal-Mart Merchandising Ladder convenience sell need (read food) items!

BEST = Typically National Brands

BETTER

GOOD

OPP =

Opening Price Point in the category(typically, Private Labels)

Source: MVI 10/28/2004


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Wal-Mart Buying What lies behind the glitz convenience sell need (read food) items!

  • Wal-Mart buyer responsibilities:

    • Development of innovative merchandising solutions

    • Understand customer needs and trends and set the pace of new product development & brand strategy

    • Management of a diverse supplier base from major brands to own label

    • Achievement of business plan targets

    • Development and delivery of the categorys trading strategy


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Wal-Mart Buying How Buyers are Measured convenience sell need (read food) items!

  • Sales

    • Units

    • Dollars

  • Profit dollars

  • Margin %

  • Turns

  • Markdowns (e.g., maintained margin)

  • In-stock

  • Comparable store sales growth (in certain categories)

  • Wal-Mart Buyer Key Performance Measures

  • Less tangible measures:

    • Respect for the individual

    • Service to customers

    • Strive for excellence


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To achieve their objectives, Wal-Mart buyers proactively utilize suppliers to help run their business:

  • Wal-Mart Buyer > Supplier Expectations

    • Annual plan -- rolling 12 months by month and quarter

      • New items

      • Tab ideas

      • Modular suggestions

      • MCAPS -- community store merchandising

    • Weekly monitoring:

      • Item P&Ls vs. plan

      • Sales, initial margin, markdowns, contribution margin

      • Problem stores/districts, as well as items

      • Competitive situations

    • Co-managed Inventory

      • Replenishment

      • New item/promotional

      • Economic order quantities

Source: MVI, Selling Wal-Mart 10/28/2004


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Sales Measurements utilize suppliers to help run their business:

Overall % Increase

Comps

Avg. Sales/Store

Sales at Full Price vs. Markdown

Markdown Measurements

Markups and Markdowns (Dollars, Units and %)

Prior and current retail price

Margin Measurements

Initial margin

Average retail price

Average cost

Gross profit at item level

Gross profit/item/store

Margin mix

Inventory Measurements

Replenishable store inventory

Non-replenishable store inventory

Warehouse inventory

Lost sales from OOS

Excess inventory

DC outs

Total owned inventory

Return Measurements

Customer defective returns

Store Claims

Wal-Mart Vendor ScorecardExtensive measurements for Wal-Mart and Suppliers

Source: Hoyt & Company Records


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Wal-Mart Logistics How does Wal-Mart stack up versus its leading competitors?

  • Wal-Mart has the highest inventory turns

  • Wal-Mart Turns vs. Kmart + Target: 1998 - 2003

Source: Company Reports; MVI, 10/28.2004


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Wal-Mart Logistics How does Wal-Mart stack up (contd) leading competitors?

  • and the lowest # of days sales on hand:

  • Wal-Mart vs. Leading Competitors: # Days Inventory On Hand: 1998 - 2003

Source: Company Records; MVI, 10/28/2004


Wal mart key inventory management drivers l.jpg
Wal-Mart Key Inventory Management Drivers: leading competitors?

  • Replenishment & Logistics

    • Co-managed/vendor managed inventory

    • Two-Tier Distribution (Replenishment vs. Promotional)

    • Collaborative Planning, Forecasting and Replenishment (CPFR) works with suppliers to determine appropriate levels

    • The Future: Radio Frequency IDs (RFID)

  • Systems

    • UCCnet

    • Internet EDI

  • Merchandising Systems

    • Modular-based merchandising

    • Modular Category Assortment Planning System (MCAPS) /Store of the Community


Why is wal mart so good at logistics l.jpg
Why is Wal-Mart so good at logistics? leading competitors?

  • Because the buyers open-to-buy is based on inventory management and supply chain movement:

  • Wal-Mart Buyer Open-To-Buy

  • What the buyer is able to order here

  • Depends on how much $ he/she has tied-up in these buckets

New Item

In The DC

In Transit

In Store

Promotions

  • PLUS

Replenishment

Seasonal

On Order

In Route

  • +

  • = why suppliers are so eager to work with Wal-Mart in helping to generate maximum sales off the lowest possible inventory base.


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Net on Wal-Mart: leading competitors?EFFICIENCY!

  • Consistent, clear positioning Always Low Prices everyone knows precisely what Wal-Mart stands for

  • Relentless focus on the fundamentals

  • Cost suppression and cost reduction is a mantra

  • Cooperation with suppliers to achieve mutual objectives

  • Combination of food (consumables) and traditional discount creates a low price one-stop shopping mecca

  • Lightning speed to shelf on new items/trendy promotions

  • Fun place to shop in-store TV, on trend promotions, parking lot extravaganzas and tie-ins with local community events

  • Fierce competitor will price comp anything, anywhere

  • Store manager discretion means stores can be traited and tailored demographically


Expect more pay less l.jpg
Expect More/Pay Less leading competitors?

$47.1B in 04 sales a 15.1% increase vs. 03 (less Mervyns and Fields)

8.9% CAGR between now and 2007 projected to do $61B versus todays $47B

1,313 stores 1,177 Targets + 136 Super Targets

Comparisons to Wal-Mart are dangerous:

Different business model

Different consumer

Different merchandising strategy

No attempt to compete on same basis

Is much more like an Exchange in assortment and operations:

Careful balance of high end vs. commodity merchandise PLs and exclusives are key

Limited CPG food representation (changing quickly)

Super centers are NOT the primary growth engine

Distinct department store heritage and orientation


Target challenges l.jpg
Target Challenges: leading competitors?

  • Narrow customer base:

    • 81% female

    • 50% between 30 and 44

  • Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!

  • Supercenters behind the curve

  • Too Department Store-y for a discounter:

    • Clean, uncluttered store policy sometimes perceived as sterile and boring

    • Too much emphasis on want vs. need merchandise not enough everyday consumables to drive trips, create excitement or get shoppers started on the merchandise ladder

  • Highly centralized operations Store Managers role is compliance and execution no local discretionary authority

= 71% of Trips and 80% of Spending


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Target Heavy Shopper Trip Frequencies Just Not Enough! leading competitors?

Source: IRI Panel Data 52 weeks ended Dec 31, 2003


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Being perceived as more Department Store-y than one-stop discount/convenience these days is not exactly on trend:

The U.S. Department Store Death Spiral: 1990 - 2010Department Store Share of Non-Auto Retail Sales

Source: Retail Forward, 2003


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Despite these seemingly core negatives, Target has consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyns and Marshall Fields in 2003

Target vs. Wal-Mart sales and comparable store growth 2004

Source: Company 10Qs and monthly financial reportsMVI, Dec 09, 2004


So what is target doing to achieve such exceptional results l.jpg
So what is Target doing to achieve such exceptional results? consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyns and Marshall Fields in 2003

  • Target keys to success:

    • Clear, concise, consistent positioning Expect More, Pay Less:

      • Not just words but the basis for all buying and merchandising decisions

      • The framework for Targets Merchandising Ladder

      • A short, simple slogan that shoppers can remember and relate-to

    • Non-price differentiation Through captive brands, designer exclusives, partnerships with other retailers, trendy P.L. merchandise, celebrity endorsements and Buzz Marketing

    • Emotional Connection with its customers My Target


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So what is Target doing to achieve such exceptional results, contd?

  • Heavy advertising Over $1B in 2004 to heighten awareness, sell promotions and build equity for the Target name

  • Quick response segmented merchandising To capitalize on the latest generational and lifestyle shifts expanded pharmacies (seniors), Hispanic advertising and Merchandising, One Spot (dollar sections), always on-trend merchandise (soft goods, apparel and housewares) and seasonal promotions

  • Rapidly adding everyday need consumables to drive trips and increase traffic significantly expanded food sections in all stores. Recently added extensive wine section.


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Target Positioning: Expect More, Pay Less contd?

EXPECT MORE

PAY LESS

Great quality at a low price makes Target merchandise a great value.

Really low prices are the number one reason to shop at Target.

Bright, clean stores and fast checkouts make shopping at Target easy and fun.

Were on top of trends so you will find the latest and greatest at Target.

STYLE

SERVICE

PRICE

QUALITY

  • Increase share of wallet

  • Platform for differentiation

  • Fashion/Want items

  • Drive trips/build traffic

  • Create low price impression

  • Consumables/Need items


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Targets Expect More/Pay Less Positioning has enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

  • Targets Positioning vs. Discount and Department Stores

  • Drive Value Focus

  • Drive Trend Focus

  • Discount Stores

    • Low Margins (23%)

    • Follow Trends

    • Price Sensitive

    • Price/Convenience

  • Moderate margins (32%)

  • Trend Seekers

  • Quality/Value Sensitive

  • Trend/Quality/Convenience

  • Department Stores

    • High Margins (50%)

    • Early Adopters

    • Quality Sensitive

    • Fashion/Selection

  • This positioning has become a major asset:

    • Enables Target to attract a wealthier shopper than traditional discount stores.

    • Improves sales per store, transaction size and gross margins (Targets are highest in the channel at 32.8%).


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Target Buying Key Levers enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

  • Trend Planning Crucial to Expect More:

    • Trend merchandisers travel to seek-out latest colors, fashions and designs

    • Research coordinated across departments

    • All items, color schemes, etc. are tested ahead of the season

  • Customization Pressure on suppliers to co-brand or custom-pack merchandise to reinforce Targets differentiation objectives

  • Competitive Line Reviews Basically auctions consisting of competitive bidding for line distribution or promotion support:

    • Target even calls these shoot outs

    • Series of elimination rounds

    • Contracts can be up to one year

  • Reverse Auctions Online competition to provide lowest cost for commodity items or private label consumables

  • Global Sourcing/Direct Imports Target is doing as much as it can to buy direct from lowest cost producers willing to meet product specs


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Target Buying Supplier Mandates enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

  • Reduce cycle timesallow for just in time inventory

  • Zero tolerance for orders delivered before/after scheduled time

  • One Purchase Order per Truckwhile trying to reduce overall # of POs

  • Tiered in-stock level requirements identify when Target begins to lose sales maintain in-stocks above this level

    • 97% in stock for top 2500 items

    • 92-95% in stock for remainder of items

  • Perfect match of invoice to receipt of product


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Target Supplier Report Card enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

  • Targets scorecard is the most complete of the three largest Discounters:


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Target Supply Chain/Logistics Initiatives enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:2005 and Beyond:

  • SKU Reduction To facilitate focus on fewer, more important items and be more important to fewer vendors

  • Automated Receiving Technology Electronic labeling system that utilizes real-time information about where product is needed:

    • Automatically labels each carton

    • Significantly accelerates the flow of goods

    • Eliminates time-consuming, labor intensive procedure

    • Rollout starting December, 2004

  • DPIA Direct Import, Pre-distro & Assortment Programs

    • Converts indirect imports (no middlemen) to direct

    • Have suppliers pack store-specific and store ready pallets, reducing DC workloads and storage space

    • Have suppliers combine multiple items in cartons to reduce the number of cartons sent to DCs in stores

    • Estimated savings of $71MM in 2005

  • RFID Mandatory for pallets and cases by spring, 2007


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Target From The Suppliers Standpoint: enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:

  • Multiple opportunities to tie-in with Targets marketing and merchandising initiatives

    • Expect More/Pay Less platform

    • Target community giving/cause-related sponsorships

    • Co-Marketing to build upon each others equity

    • Current, intense emphasis on Pay Less

  • Multiple vehicles Target TV and print advertising, circulars and website, etc.

  • Supplier Aids:

    • Partners On Line (POL) provides suppliers with same data that buyer has (like Wal-Marts Retail Link)

    • InfoRetriever Available to Category Captains and top vendors provides a deeper level of information on a more current basis + 2 years of back data


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Net on Target: enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:EMOTIONAL CONNECTION!

  • Non-price differentiation no attempt to compete with Wal-Mart on its own terms

  • Willing to settle for a piece of the pie rather than going after the whole enchilada:

    • Consumer target is not the universe but primarily women and young singles

  • Clear, precise, consistent positioning that enables Target to fill the void between commodity discounters and traditional department stores

  • Unique understanding of the needs, wants and aspirations of its target shopper:

    • Designer clothes, soft goods and housewares at great prices

    • Clean, uncluttered stores with contemporary colors and thematic consistency

    • Ancillary services that cater to Target shoppers lifestyles, needs and shopping proclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)


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Net on Target: enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:EMOTIONAL CONNECTION (contd)

  • Product assortments that cannot be purchased anywhere else designer exclusives and captive brands, etc.

  • Strong, centralized control to ensure uniformity and thematic consistency throughout all store presentations and activities

  • A conscious policy of transferring as many costs as possible to the supplier community while, at the same time, offering suppliers a strong upside through Targets aggressive advertising, merchandising and product exclusivity policies

  • Awareness of and willingness to react quickly to current issues for example, Targets current campaign to significantly increase its consumables representation to increase traffic and trip frequencies


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While Target and Wal-Mart have each chosen to walk different paths on route to their success, there are certain factors common to both of these retailers that make them leading edge vs. most others in the retail community.

  • Ten factors, as follows:

    1.Differentiation Through constant juggling of the following elements:

    • Price

    • Formats

    • Captive Brands

    • Designer Exclusives

    • Successful Private Label Programs

    • National Brand Supplier Customization

      2.Use of Consumables To build traffic and increase trip frequencies.

      3.Ancillary Departments To increase convenience and share of wallet.

      4.Fluid Merchandising (rapid ins and outs) To create excitement, build trip frequency and reinforce differentiation objectives


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Ten factors that separate the most successful from the rest, contd

5.OPP/Good/Better/Best Merchandise Ladders To trade shoppers up in almost every category.

6.Speed to Market Now more important than Bigness

7.Relentless Pressure on Costs and Productivity Both in general and store-specific

8.Willingness to Experiment New formats, ancillary businesses, stores within stores, partnerships, adjacencies, retail-tainment, etc.

9.Global Sourcing Now direct from the lowest cost producer no middle men.

10.Technological Innovation RFID, etc. to reduce costs/increase speed


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Moral of story: contd

  • Its not just price; its a combination of factors, carefully blended and balanced to satisfy a particular consumer need or aspiration. Each retailer has to search within its own strengths to find the right formula. There are no easy answers.



We appreciate the time and attention you have given us today l.jpg
We Appreciate The Time and Attention You Have Given Us Today for their time and hospitality . . .

  • Specifically, we want to thank Frank Jepson and the American Logistics Association for inviting us and P&G for sponsoring us and trust that this has been both fun and helpful.

www.hoytnet.com

8912 East Pinnacle Peak Road Scottsdale, AZ 85255 Phone (480) 513-0547 Fax (480) 513-0548 E-Mail: chrishoyt@hoytnet.com nancyswift@hoytnet.com


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Appendix for their time and hospitality . . .

Some particulars that may be of interest . . .


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Wal-Mart Corporation for their time and hospitality . . .

Wal-Mart US

Target Corporation

Kmart

$400

$300

$200

$100

1999

2000

2001

2002

2003

2004E

2005E

2006E

2007E

Target and Kmart U.S. Sales vs. Wal-Mart Relatively Small

  • Wal-Mart vs. Target and Kmart Sales & Growth Projections: 1999 - 2007E

$382.1B

$309.4B

$59.5B

$19.4B

Source: MVI 10/28/2004


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By mid 2004, Wal-Mart U.S. had achieved 86% household penetration almost 25 points more than its next largest competitor which translates to over 130MM shoppers per month

  • Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004

Source: IRI Panel Data (all shoppers - Total US)


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Not content with this, Wal-Mart plans an additional 500 new store openings plus remodels in 2005, driven primarily by new Supercenters:

  • Wal-Mart Domestic Expansion Plans For 2005 Total U.S.

Supercenters

Discount Stores

SAMs Clubs

Neighborhood Markets

Total New Stores

Remodels/Relocations

Grand Totals

+240 - 250

+40 - 45

+30 - 40

+25 - 30

335 - 365

160

500+

Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/2004 + 10/18/2004


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Wal-Marts store expansion strategy is carefully calculated to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:

  • Wal-Mart Format Expansion Strategy: Capturing Consumers at All Income Levels

    • Different formats:

      • Target the same consumer for different trips

      • Target new consumers

Consumer by HH income

Format

A

75K+

walmart.com

B

60-75K

SAMS

C

45-60K

N. Mkt

Discount

D

25-45K

Supercenter

E

<25K

Source: MVI 10/28/2004


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Wal-Marts latest and greatest calculated to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:

  • Stores within stores:

    • Kids Connection Candy, soda, clothes, toys

    • Personal Business Centers

    • Dollar Stores plastic bunnies, etc.

  • Increased focus on soft goods:

    • Coordinated lifestyles

    • Heavy focus on Wal-Mart brands

    • Integrated merchandising e.g., not just towels but everything for the bathroom

    • In-store TV support for How to decorate your home

  • Apparel:

    • Mary Kate and Ashley exclusives in-store and online

    • Levi Strauss 2003

    • The Wal-Mart George line men, women and children big push!

    • Carters line in infants

    • Trend alert partnership with Seventeen Magazine to offer teens cool picks in clothing and electronics


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Target SuperTarget Growth vs. Wal-Mart Supercenters Not exactly NASCAR competitive

Source: MVI, Selling Target, 12/9/2004


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Target Super Target Issues: exactly NASCAR competitive

  • Traditional Targets are Hi/Lo; Super Targets are EDLP:

    • Target dependent on supplier allowances to grow operating profits

    • Every time Target converts a traditional discount format to a Super Target, it loses the benefit of the allowance (which is thereby driven into price and not op. profits)

    • Building too many super centers too fast would severely impact Targets financials

  • Super Target trip frequencies do not support format productivity

  • Super Target layouts do not allow easy transition to the consumables section and cross-over shopping


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Expect More Implementation is all about non-replicable differentiation

  • Department store-like destination departments:

    • Apparel

    • Housewares

    • Shoes

  • Captive Brands:

    • Mossimo

    • Danskin

    • Philippe Starck

  • Exclusive Partnerships Fieldcrest, Boots (HBA and Cosmetics) and Amazon.com (powers the Target website)

  • Private Labels:

    • 50% of the store

    • Reinforce Targets brand equity all have either Wave or Bulls Eye

    • Key contributor to Targets 32% gross margin

  • Synergistic, complementary spin between stores and website:

    • Bridal registry, Target to a T custom made clothes

    • Red hot shop hot trendy items new every week

  • Greeting cards

  • Infants and toddlers

  • Seasonal items

  • Waverly Garden Room

  • Liz Lange Maternity

  • Hello Kitty


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Pay Less Implementation is all about driving trips and traffic:

  • Price comping 2002 - Target pledges to match Wal-Mart on price item for item throughout stores

  • Significant expansion of consumables and commodity items starting in Q3, 2003:

    • Based on new P2004 format

    • 50% greater space devoted to food, beverages and snacks

    • Consumables World department placed in front of store

    • 70 remodels in 2004 all remodels and new stores starting in 2005

  • Savings Spot In front of store, near registers, introduced 2004:

    • Club-like pack sizes

    • Paper, household cleaning supplies and pet foods

  • One-Spot (Dollar departments) now expanding beyond test:

    • Kitchen, storage containers, toys, baby products and stationery

    • Exceptional value and Treasure Hunt items

    • Managed by separate buying group

    • Does not cannibalize other items


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Target Ancillary Departments Return Trip and Transaction Size Drivers:

  • Pharmacies:

    • 71% of stores by YE 2003

    • Extended hours

    • Pharmacy rewards program tied to use of Target Visa card

  • Minute Clinics:

    • 135 sq. ft., staffed by a nurse practitioner

    • Treats about a dozen common health problems

    • Menu-priced most services $40 - $45, covered by insurance + co-pay

    • Now testing in 8 stores (BM) with plans to expand in metro areas

    • 95% of MC patients get prescriptions filled at Target

  • Other Services:

    • One hour photo labs

    • Optical departments

    • In-store restaurants Starbucks, Pizza Hut, Taco Bell

    • Lawn and Garden centers

    • Portrait studios

    • Bridal and baby gift registries


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Target aggressively advertises its benefits through multiple vehicles and is, in fact, the largest advertiser of the Big 3

  • Media Strategy:

    • TV is strongly seasonal/holiday oriented

    • Heavy print budget is targeted to women and young adults

    • Unmeasured is circulars and ROP

Source: LNA and MVI, 2003 - 2004


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Target Buyer Compensation Structure vehicles and is, in fact, the largest advertiser of the Big 3

  • 85% of buyer compensation:

    • Sales

    • Contribution Dollars

    • Contribution %

    • Inventory Turns

  • In-Stock % (10%) and personal objectives (5%) round out compensation

  • Senior Buyers are also eligible for a bonus plan that can represent up to 100% of their base compensation.

  • Goals are set every 6 months, not annually.

Including product flow costs


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