Target Case Ananlysis

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Target Corporation|
Patrick Caine March 18, 2013|
BUS428A Seminar in Financial Management|

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RECOMMENDATION
After careful review and analysis of the five projects I would rank the projects in the following order of attractiveness: 1) The Barn 2) Whalen Court 3) Gopher Place 4) Stadium Remodel 5) Goldie’s Square. I came to this conclusion by taking into account the projects NPV and IRR given the size of the investment, opportunity market/growth, and with the overall goal of adding 100 new stores a year while maintaining. The Barn was my first choice because it had the highest IRR and second highest NPV given a not so large investment. Whalen Court has the highest NPV and offers favorable market share opportunities and demographics. These first two are considered good options to continue Targets growth. Gopher Place has attractive IRR and NPV comparable to the prototype, while giving Target market share. Also the population growth and median income demographics are favorable. The next opportunity is in the mediocre category, Stadium remodel, with the 3rd highest IRR and 4th NPV, but has higher risks as the store is deteriorating and has sales declines, which could hurt brand image. Also the stores have been remodeled twice already. This investment might be a good idea to keep the store afloat or it might have to be closed. Finally Goldie’s Square has the lowest NPV and IRR of the projects, declining market share, and the impact of the project won’t be seen till the third year.

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BACKGROUND
It is November 2006, and CFO Doug Scovanner has to review five projects along with other members of the Capital Expenditure Committee, after five projects have already been accepted. Targets management has an overarching goal to create 100 new stores a year while maintaining their strong brand image and reputation. The investment decisions should be ranked according to their value to Target, 1-5. The analysis should include review of P/L, NPV, IRR, demographics, market share, sensitivity and variance to the prototype. -------------------------------------------------

ANALYSE
Industry Analysis
| T.M.| Pricing Strategy| Buying Experience| Costs of Shopping| Target| Educated / savvy shopper| Expect more pay less| Just the right shopping| Slightly more| Wal-mart| Bargain hunter| Everyday low price| Barebones| Low-pricing| Costco| Bulk buyer| Discounts on bulk buying| Warehouse| Membership fee + low prices|

As the case states, the intense competition in the retail market and has led to prices being driven down to almost cost, resulting in very small margins. This causes the companies to focus on every part of their business, including how they want to brand themselves to consumers. This chart above gives a brief look at that picture. Sales growth stem from creation of new stores and organic growth through existing stores. Though new stores are expensive to build, they are needed to access new markets and represent profit potential. Walmart

Operates store formats similar to Target, and most Target stores operate in areas where one of more Walmart store is located. Also, the merchandising assortment overlaps on many of the same items, such as food, commodities, electronics, toys and sporting goods. The success of Walmart is attributed to the “every day low price” pricing strategy, which also drove local independent retailers out of business. Costco

Costco attracts a customer base that overlaps with Target’s core customer. However, there is less overlap with respect to trade area and merchandising between Costco and Target than Walmart and Target. Costco also requires a membership to shop in the store, where Target and Walmart do not. Costco provides discount pricing for its members who all buy in bulk for membership fees in return. In 2005 the fees equaled 2% of total revenue and 72.8%...
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