WSJ Research
 Table
of Contents
  
Target
Corporation's Principal Operating Strategy
1. Leung, Shirley. "Kmart to Miss Fiscal '01 Estimate, Posted 1% Drop in December Sales," Wall Street Journal. January 11, 2002: B8. Kmart
Corporation caught some off guard when it reported weaker than expected While other discount retailers, such as
Target,
have thrived recently Kmart suffered by the failure of their price cutting
strategy. However, Target Corporation's
discount unit had a 10% jump in sales which is more than Wal-Mart
Stores' reported 8% December same store sales. If Kmart does file
for bankruptcy this could mean even bigger sales percentages for Target.
After the terrorist attacks on September 11 and the "economy's fall into recession" many assumed that the retail business would have the worst Christmas in years. However, December sales has shed some hope that the consumer spending has not decreased has much as most suspected. Within the Retail group, consisting of discount retailers, department stores, apparel, and miscellaneous, discount retailers succeeded the most. Target
Corporation said "December sales were well above its plan, aided by
exceptional strength at its discount The public usually wants to know about a company's record on social and environmental responsibility in order to help decide who ones should buy from. However, philanthropy is not an easy aspect of business. Good deeds are sometimes profitable and other times they can backfire. According to the results of an annual corporate-reputation
survey conducted by the Reputation
Institute, a New York research group, with the market-research firm
Harris
Interactive Inc., Target ranked as number
13. The survey was done by 21,630 people in October. Target
came
in behind companies such as Johnson & Johnson and Wal-Mart. However,
being the 13th ranked company for social responsibility is something that
the Target
Corporation can be extremely proud of.
The online market research firm, Harris Interactive Inc., has performed a third annual corporate reputation survey. Customers are tired of poor service and it shows in their ratings of many of the world's most well known companies. "Exemplary service gave a boost to companies such as FedEx Corporation, United Parcel Service Inc., and Target Corporation". Sixty companies were ranked by 21, 630 people determining the best and worst companies by reputation. The results were first based on emotional
appeal, then by the quality of products and services. Most companies
failed in the quality of products and service aspect, such as Home
Depot. Target was number 21 for the year
2001. It was one of the top four companies to make the biggest leap from
the year 2000 to 2001, behind Hewlett-Packard
and Coca-Cola.
In the year 2000 Target was ranked as number
32. The company has jumped 11 spots within a year. It will
be interesting to see if Target can continue on this path in years to come.
Since Kmart Corporation is going through such rocking times it has driving away investors from "real-estate investment trusts that own community shopping centers". Investors in mall real-estate investment trusts were able to relax a little because the retail sales in December were better than expected. Discount Retailers, such as Wal-Mart Stores Inc., Bentonville Arkansas, and Target Corporation, Minneapolis had sales that were much better than expected. However, Kmart's bankruptcy is still going to hurt them. Kimco
Realty Corporation, New
Plan Excel Realty Trust, and Developers
Diversified Realty Corporation are all part of the community shopping-center
REITs with a connection to Kmart. As of Monday the stock price of
community shopping center REITs has fallen 0.2%. Each corporation
is down between 2.3% to 4%. It will be interesting to see if any
more corporation hit rock bottom and end up hurting the real-estate investment
trusts.
Kmart Corporation sought bankruptcy yesterday hoping to lend itself some time to pay back creditors while trying to reorganize its business. Kmart's Chief Executive Charles C. Conway said, "After considering a wide range of alternatives, it became clear that this course of action was the only way to truly resolve the company's most challenging problems". While in bankruptcy many believe that in
addition to closing stores, lowering costs and working on improving efficiency,
Kmart needs to discover and develop a new strategy in order
to make itself stand out against Wal-Mart. Target
Corporation does not try to offer the lowest prices because it knows
it could not compete with Wal-Mart. However, instead it prides itself
on a more fashionable line of merchandise. Therefore, while in bankruptcy
Kmart needs to discover a new strategy if it ever wants to be able to compete
with other Discount Retailers.
Kmart has a major decision to make of whether or not to file for chapter 11 bankruptcy in order to shut down poor performing stores and restructure about 4.7 billion dollars in debt. One of the leading causes for Kmart's problems began when Fleming Cos., the sole supplier of groceries to Kmart, announced that it was suspending shipments after Kmart stopped paying the weekly payments. If Kmart does file for Chapter 11 it is suspected that over 500 poor performing stores would need to be closed, about 25% of the total chain. Even if Kmart files for bankruptcy they
will have an even bigger question of how they plan on surviving.
The company has been competing with Wal-Mart
and Target ever since the three discount department
stores began in 1962. Kmart has been losing the market share ever
since because Wal-Mart captured the lower cost structure and financial
discipline allowing them to charge lower prices and Target
secured the high end discount area by selling trendier merchandise lines.
Even if Kmart files for Chapter 11 bankruptcy, their problem of survival
is far from over.
Now that Kmart has filed for Chapter 11 bankruptcy protection, the corporation wants to close as much as 25 % of the stores. By getting out of those stores and leases Kmart now has the opportunity to focus completely on the good stores that are left. The closing of such a high number of stores "brings additional retail footage to the market, which can put some downward market pressure on market rents", according to Joe Edens, chairman of Edens and Avant. Edens and Avant oversees more than 200 strip centers, and holds leases on many Kmart locations. Since the closing of a drastic number of
Kmart stores is coming soon, the vacancy rates in strip centers are estimated
to climb slowly to 7.3% at the end of next year. At this past year's
end the vacancy rate was at 6.7%. The Target
Corporation, along with other strong retailers, have taken advantage
of Kmart's bankruptcy by picking up some real-estate bargains.
One of Kmart's more successful locations is in Bridgehampton, New York. It is the place for the rich and famous. Everyone must go there on the off chance that they see Christie Brinkley or Caroline Kennedy Schlossberg. Wal-Mart Stores Inc.'s stores offer cheaper products and are more efficient and Target Corporation's stores are better marketed and more upscale. However, because of the strict local zoning laws on Long Island's South Fork Kmart is the company left with the advantage. The closest Target
is 54 miles away in South Setauket and the nearest Wal-Mart is 22 miles
away in Riverhead. This allows Kmart to keep the business of the
customers of the area, especially because it is located right on the Montauk
highway. However, many say that if there was a Wal-Mart or Target
near by then Kmart would have to compete for their business. There
is no loyalty to a certain store, just loyalty to good quality and low
prices.
Discount Retailers soared over Old Line Chains and Specialty Apparel Stores in the month of January. The Target division of Target Corporation did extremely well with a 5.8% rise in sales than the prior year. Shoppers are continuing to express their "enthusiasm for low prices, convenience and smart merchandising".
These better than expected results at many
discount chains, such as Target, has
started some speculation that the retail slump may be getting better.
The fact that Target continues to excel, whereas
stores such as Gap are taking a 16% decline and Ambercrombie and
Fitch are taking a 14% decline, shows that shoppers continue to vote for
good values with their pocketbooks.
There have been three separate complaints
by three plaintiffs against Target's hiring
tactics. Dennis McBride, the EEOC's senior trail attorney said, "Once
we started to see multiple charges, a picture started to emerge". The EEOC
claims that Target employees destroyed applications
of African Americans and people who attended "minority job fairs at two
Milwaukee area universities". The suit is seeking damages, including
the appropriate pay back with interest, as well as a permanent court order
stopping Target from discriminating against
an applicant because of their race.
Kmart's most recent plan is to try out
a new set of feel good television commercials. The corporation is
trying to win over some customer loyalty by claiming to be "the store that
understands what really matters in life". The 30 second spots began
to air last night contain a lot of emotion and not a lot of reference to
Kmart.
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Target's
Shares have been climbing ever since November. Currently they have
reached a high of $43. Target total sales
in the month of January were 2,542 million dollars. Granted this
can not compare with Wal-Mart's 15,399 million dollar sales, Target
is still ahead of other department, apparel, and miscellaneous stores by
almost 60%.
