Business Model of Target Corporation
Target Corporation: An Introduction
Founded in 1902 as Dayton Dry Goods Company, Target started its first store in 1962 in Minnesota. Unlike Costco or Walmart, Target’s market is limited to the United States. However, the company has been ramping up its e-commerce capabilities and is experiencing faster growth in this area. Target is a general merchandise retailer that has its stores operational across the United States in all 50 states. The company had 1868 stores operational as of 2019. Due to the high density of Target stores in the US, around 75% of the residents have a Target store within their easy reach. There are 41 distribution centers to support the operation of 1868 Target stores within the United States.
Target has differentiated its business model from other retailers by creating its own range of private label brands. These company-owned brands and products account for around one-third of the total sales of the company. There are 41 brands owned by Target which are both a major source of revenue and a source of competitive advantage for the brand. While Target Corporation sources products from suppliers located all over the world, a large part of its merchandise is made up of the brands owned by the company. The company either produces them in company-owned facilities or gets them manufactured by external manufacturers according to the company guidelines. This has helped it differentiate its product line which drives higher demand for the company. The company generates substantially all of its revenue from the United States. Moreover, Target Corporation operates its entire business as one segment. Efficient supply chain management has also helped the company keep product prices low.
The retail industry in the United State has grown very competitive and that has led to a lot of price competition. The challenge before Target comes from Walmart and Costco who are the two leading retail players in the United States as well as the E-commerce leader Amazon. Apart from that, there are also several big and small players in the United States retail industry that compete with Target. The company employs an economy pricing model which is useful for the brands interested in keeping their overhead low.
However, Target does not employ a membership model which is the primary driver of sales and customer loyalty for Costco. Instead, it uses other channels and methods to drive customer loyalty and higher sales. The company offers products at discounted prices to attract customers in larger numbers. The discounted pricing strategy and a focus on customer experience have also helped the brand retain its competitive position in the retail industry.
Another method that the company utilizes to drive customer loyalty is the use of branded debit and credit cards. The branded debit and credit cards offered by Target are collectively known as Red cards. Apart from free shipping, the customers receive a discount of 5% on nearly all products sold at Target stores when they purchase using a Red card. The company also provides several more personalized offerings for the Red Card holders. They receive in-app coupons as well as 1% earning on every Target run nationwide for free.
Target Corporation Merchandising:
Target’s merchandise is limited when compared to Walmart and Costco but it mixes national brands that the customers in the US already know with the private label and company-owned brands. National brands are a major driver of sales and revenue for the company. Of the 41 brands that the company owns Target has launched around 20 since 2017. The company-owned and exclusive brands include the following:
Target Corporation Owned Brands
- A New Day
- Archer Farms Knox Rose
- Smith & Hawken
- Art Class
- Kona Sol
- Sonia Kashuk
- Ava & Viv
- Made By Design
- Boots & Barkley
- Market Pantry
- Sutton & Dodge
- Bullseye’s Playground
- Cat & Jack
- Original Use
- Universal Thread
- Cloud Island
- up & up
- Who What Wear
- Gilligan & O’Malley
- Project 62
- Wild Fable
- Goodfellow & Co.
- Room Essentials
- Wine Cube
- Shade & Shore
- Hyde & Eek! Boutique
- Simply Balanced
Target Corporation Exclusive Brands
- C9 by Champion
- Hand Made Modern
- Kid Made Modern
- DENIZEN from Levi’s
- Hearth & Hand with Magnolia
- Nate Berkus for Target
- Isabel Maternity by Ingrid & Isabel
- Oh Joy! for Target
- Genuine Kids from OshKosh
- Just One You made by carter’s
- Umbro for Target
The company also partners with designers and brands from time to time to launch an exclusive range for Target Corporation's customers. While this helps the company churn demand, it also works as a promotional method. Apart from these, the company deals in a wide range of food and grocery products and general merchandise. The merchandise range sold at Target Stores includes the following:
- Food & beverages
- Apparel & accessories for men, women, and kids
- Household essentials
- Home decor
- Patio & garden
- Kitchen & dining
- Musical instruments
- Movies, music, video games & books
- Sports & outdoors
- Personal care
- School & office supplies
- Party supplies
Target Corporation Marketing and Promotions:
Within a few years, a lot has changed in the retail industry with the rise of digital technology. While digital is driving a lot of sales and revenue, it has also emerged as a source of competitive advantage in the field of marketing for retailers. Retail companies now depend on paid digital promotions including in-app promotions to drive sales higher except Costco. This is an area where there is a major difference between the business model of Costco and Target Corporation. Costco is known for its no marketing business strategy. Instead of investing in marketing, the company focuses on strong branding and a strong social image which helps it drive demand higher and maintain customer loyalty. However, Target on the other hand invests in digital promotions, media advertising, and other advertising and promotional channels to grow sales and revenue. In 2019, it spent $1.65 billion on advertising compared to $1.5 billion in 2018 (Target form 10K). Apart from digital advertising and media broadcast, the company also spends on newspaper advertising for creating demand and generating sales. Social media is also an important promotional channel for Target corporation. Another important factor that affects sales in the retail industry in the US is the social image of the business. All the leading retailers maintain a heavy focus on their social image in order to maintain the loyalty of their customers. Target corporation also invests in CSR to maintain a strong social image.
Target Corporation Organizational Culture and HR management.
In the US retail industry, the social image and reputation of companies have also become important factors determining their sales and growth rate. While Costco is already a leader in this area, the other retail brands including Walmart have also increased their focus on how they manage their human capital. For Costco, its organizational culture is one of its fundamental strengths and a source of competitive advantage. Most business leaders recognize the importance of managing human capital since their people are the basic drivers of all the leading sources of competitive advantage for these businesses.
Target Corporation also focuses on managing its people so as to drive higher performance and productivity. Apart from offering them career growth through continuous training and the use of development programs, the company also offers several financial and health benefits that make working at Target an outstanding experience for the Target employees. The company also invests in inclusion and diversity to make its team stand out. Having a more diverse team helps retail businesses cater to the needs and preferences of their diverse customer base.
In terms of organizational culture and HRM while Costco is very successful and a leader in the retail industry, Target has also retained a heavy focus on HRM since it is a differentiating factor as well as a driver of competitive advantage for the company. Target’s organizational culture and HRM have also been hailed as outstanding industrywide. The company also appeared on the Forbes list of the best employers for diversity in 2020 in the 90th position.
Business and Growth strategy of Target
As a part of its new business growth strategy, the company has grown its focus on customer experience. Apart from an omnichannel shopping experience, the company is also offering its customers an outstanding shopping experience at the Target stores. The company has made several strategic investments over the past several years to build a durable operating and financial business model that differentiates Target further from its competitors in the US market. The company has done this in order to drive sustainable sales and profitable growth.
The investment strategy of the company over the past several years has focused on the following main areas:
- Over the past three years, Target Corporation has remodeled more than 700 stores. It remodeled around 300 stores in 2019 and plans to remodel 300 more in 2020.
- The company has been growing its store network. Now, it has more than 100 small format stores located in key urban markets and on college campuses.
- In order to provide better customer service, the company has redesigned its store operating model and redefines the roles for hundreds and thousands of team members working inside Target stores.
- To grow the performance and productivity of its human resources, the company has been growing its investment in its people. The starting wage (per hour) at Target is $13 and the company has committed to increasing it to $15 by 2020.
- The company is growing its assortment of products over the past few years. During the last new years, the company has introduced more than 25 new owned and exclusive brands. In 2019, the company launched its Good and Gather food and beverages brand which it expects to become its largest company-owned brand in the longer term.
- The company has been growing its fulfillment capabilities to make e-commerce more attractive and profitable. Same-day fulfillment options drove around 70% of the comparable digital sales growth at Target. The same day fulfillment options at Target include: Order Pickup, Drive Up, and delivery via Shipt. (Target form 10K 2019)
Main Sources of competitive advantage for Target Corporation
Large sales and distribution network:
One of the main factors supporting the fast growth of Target Corporation in the United States is its extensive nationwide presence. Target has established a large network of company-owned stores throughout the United States. It operates its business throughout the 50 states of the country. According to Target, more than 75% of the nation’s population lives within close proximity of a Target store. However, the company has grown its focus on e-commerce to grow its presence and penetration of the US market. There are 41 distribution centers that support the operations of 1,868 Target stores in the United States. The company has also increased the fulfillment options for digital shoppers.
Quality and Pricing:
Product quality and competitive pricing are also among leading drivers of demand and competitive advantage for Target Corporation. Apart from the competitive pricing of its products and running regular discounts and deals, the company also offers more attractive deals through branded credit and debit cards for its loyal customers. Other benefits include free shipping and a 5% discount for Red cardholders on around all products.
Human resource management is also an important source of competitive advantage for the company and it places heavy focus upon employee management to improve their performance and productivity. The retail industry has grown very competitive and companies are investing in human resource management to strengthen their competitive advantage. Target has also introduced a large number of health and financial benefits for its employees. This has helped the company maximize employee satisfaction as well as grow employee productivity.
Marketing is also an important source of competitive advantage for retail brands in the United States. Retail companies except Costco invest heavy sums in advertising and promotions to grow their sales and customer loyalty. Target invested around $1.65 billion in advertising during 2019. Its advertising expenses grew by around $150 million in 2019 compared to the previous year.
The company utilizes both digital and traditional channels for promotions and advertising. Apart from that, it maintains a heavy focus on branding to maintain its competitive position in the market. It has achieved strong brand recognition in the United States owing to consistent branding and a heavy focus on customer experience. In the last three years, it has made several efforts to redesign the in-store experience for its customers.
Private label and exclusive brands:
Another important source of competitive advantage for the company is its large range of private label and exclusive brands. The company generated around a third of its total sales in 20109 from company-owned and exclusive brands. In 2019, it also introduced its own food and beverage brand called Good and Gather. The company expects it to become the largest company-owned brand in the longer term. Of its total 41 owned and exclusive brands, the company introduced more than 25 new ones in the last year. The private and exclusive brands are a driver of demand as well as a competitive advantage for the company.
Brand equity has become an important factor affecting popularity and sales in the retail industry. Brand recognition, social image, and reputation affect demand, popularity, and sales to a large extent in the retail industry. Apart from that brand equity also helps maintain customer loyalty in the retail industry.
Target enjoys strong brand equity which is because of consistent focus on branding and customer experience.
Financial Performance of Target Corporation over the past two years:
The strategic investments that Target made in its business over the past several years have started to translate into growth and reflected in its performance during the latest fiscal.
Revenue of the brand climbed by 3.6% in 2019 compared to the previous year and reached $78.1 billion from $75.4 billion in 2018. Retail sales drove most of the growth for Target. Net retail sales of the brand in 2019 reached $77.1 billion while the company generated around $1 billion from the other sources of revenue. During 2018, net sales of the company were $74.4 billion while the company generated $923 million from other sources of revenue.
GAAP Earnings per share from continuing operations in 2019 - $6.34.
Adjusted earnings per share from continuing operations in 2019 - $6.39.
Target corporation’s comparable sales grew by 3.4% in 2019, driven by a 2.7% increase in traffic. While the comparable store sales grew by 1.4% in 2019, digital channel sales increased by 29%, leading to a growth of 1.9% in comparable sales. The operating income of the company grew by 13.3% in 2019 reaching $4.7 billion.
Target Corporation’s operating cash flow provided by continuing operations reached $7.1 billion for 2019, an increase of $1.13 billion, or 18.9 percent, from $5.97 billion for 2018.
Sales from digital channels grew in 2019. Digital sales accounted for 8.8% of the net sales of the brand compared to 7.1% in 2018.
Gross Margin rate was 28.9% in 2019 and 28.4% in 2018.
Analysis of Target Corporation's Operations Based on the 4Vs Model.
Operations and operational processes are like the fundamental building blocks of organizations that decide the productivity of the organization and the quality of their output as well. Focusing on operational efficiency helps businesses find faster domestic and international growth as well as maximize output. Many times, if the efficiency of processes is low then it is because the company has adopted a poor operational design. Processes across business organizations and industries can have major differences and that is why business processes need to be managed according to the needs of the organization or the products it makes and sells.
Some of the leading differences between various processes are due to the types of technologies and know-how involved. Different processes require different production equipment as well as different skills and know-how. However, apart from these things, the difference also lies in the nature of the demand for the products and services these processes produce. There are four particular characteristics of demand that have a significant impact on process management and which are as follows:
- The volume of the products and services produced
- Variety of products and services produced
- Variation in the demand for products and services.
- Degree of visibility that customers have of the production of products and services.
Volume of products and services:
Does the concerned business produce a large amount of the same products and services or many different items in smaller volumes? If the volume of output is very high and the range of products being produced lower, it indicates repeatability or high-level familiarity of the process. Many times, since a large business produces more and more of the same item, it helps the business gain significant expertise in a particular area. The company may also acquire a significant competitive advantage compared to the smaller ones. Companies develop special technologies to create more of the same products and to gain production efficiency. When the volume of the product being produced is large, companies do not just gain production efficiency but the fixed costs being the same profits can be higher. On the other hand many times, companies make various products in smaller volumes which may required specialized technologies, as well as skills and know-how, and therefore the variable costs may grow for the business. Costs may also show strong fluctuations for the companies that make many types of products in smaller volumes. In the retail industry, companies mostly source products they sell from external suppliers. Some retail brands also own private label brands.
Target Corporation is among the leading US-based physical retailers that sell a large range of products in various categories. It owns 41 private label and company-owned brands. However, the company does not produce these products. External suppliers manufacture these products according to Target's specifications. These private labels and company-owned brands are leading drivers of sales and revenue for Target. By outsourcing production, the company has been able to reduce operating expenses and grow operating efficiency. So, the company does not experience a severe fluctuation in costs. On the suppliers' side, the volume of orders to be produced is high. This allows them to gain economies of scale and maintain lower costs.
Variety of Processes as well as products and services produced:
Variety denotes the various types of operational activities being performed by a company. The level of operational complexity can be higher in the case of the mixed model manufacturers that have to keep switching between various processes. In that case, apart from a large range of inputs required for producing the output, the company would have to deal with the additional complexity of matching customer requirements to the products or services. The high variety processes are more costly as compared to the low variety processes. However, several businesses employ both high and low variety processes. Many times production of some major parts may require the use of low variety processes where each part goes through the same process before the final assembly. However, to produce some specific parts, the company may have to utilize high variety processes. The retail industry also relies on both low and high complexity processes. However, the growing use of digital technology and IoT to manage critical business processes like warehouse and supply chain management as well as customer service has allowed physical retail brands also to grow operational efficiency and achieve superior overall performance.
Target Corporation is a US based retail brand and one of the leading players in the retail industry. Its portfolio includes 41 private label and company owned brands that account for a large part of its revenue. In order to keep operational complexity under control, Target has outsourced the production to external manufacturers. They produce the products under the company's private label brands according to the standards prescribed by Target. This allows the company to focus on other aspects of its business operations like store operations, supply chain management, inventory management, e-commerce, and fulfilment among others. Over the previous few years, the company has also acquired strong growth in e-commerce sales. Target has acquired higher operational efficiency through investment in digital technology and automation or processes over the previous several years.
Variation in demand of products and services:
In fact, this is one of the most challenging aspects of business operations. It is easier for businesses to manage the processes when the level of demand is constant. However, when there are significant fluctuations then managing processes becomes a lot more complex. If demand is constant according to the predictions of the business, it is easier to gear resources to cater to the existing demand with higher efficiency. Moreover, businesses can plan operational activities including marketing and sales or after-sales services in advance. In some industries, there can be severe demand variations. There are many industries that depend on seasonal sales. The sales of soft drinks remain higher in summer. Gift products sell more during the holiday seasons.
If the level of demand undergoes significant variation or can be quite variable or unpredictable, then resources need to be adjusted over time. If demand soars all of a sudden against the company's predictions, extra resources need to be devoted to the process to gain higher capacity and absorb the extra demand. Let’s take an example of seasonal variations in e-commerce and physical retail. Demand for a large range of products surges during the festive season including gifts, electronics, home decor products as well as fashion products. Businesses like Amazon or Walmart need to remain ready to cater to the surge in demand during the festive season. Like retail, fashion products also enjoy higher demand during the holiday season.
Target being a leading retail brand experiences demand fluctuations that can be caused by different factors. For example, while demand for certain products can vary with season, the demand for certain products can also rise due to marketing campaigns run by the brands or by changes in the market environment. People shop more during the holiday season when Target experiences extra demand for a large range of products including gift items and fashion products. Coronavirus has also caused a change in demand patterns. People went to buy groceries and other products of general use like toilet paper in larger volumes due to the panic caused by the pandemic. The pandemic also caused demand to tilt in the favor of e-commerce players. However, with the reopening of the US economy, people are back at the retail stores. Consumers are shopping with more caution and the demand for essential products has grown.
Visibility of processes:
This is also a rather complex aspect of business operations to grasp. It denotes that aspect of business operations that are visible to the customers. The businesses that work face to face with consumers may have more visible processes. For example, the healthcare and retail industry have more visible processes. However, the same is not true about an automobile business. Customers do not have a very clear view of the production and distribution processes of automobile brands. They cannot peep into everything that goes on before the finalized cars reach the showrooms. This is the one aspect of automobile operations that they are most familiar with. It is also true about businesses like Apple inc. However, when it comes to businesses like Amazon or even Facebook, these are customer-facing businesses or customers have very high visibility into a large part of their operations. These are also some businesses for which transparency and accountability matters a lot but it also matters for retail brands. Walmart, Costco, Target as well as other retail brands maintain their focus on product quality so as to retain customer trust. However, any brand needs to exercise extra caution when it comes to the more visible aspects of its business operations including retail stores and marketing due to its direct influence on the image of the business among the public.
Store operations are the most visible aspect of the business operations of Target Corporation. As of 2019, the company operated 1,868 stores as well as 41 warehouses. However, in case of physical retail, customer experience has a special importance. Most large retail businesses in the United States employ multiple store formats to serve customers. These retail stores are large, well designed and modern spaces that allow customers to shop as well as spend quality time. American shoppers like to spend the weekend with their families shopping at one of these retail stores. Another visible aspect of the business operations of retail brands like Target is their marketing operations. Target employs many different promotional channels and mainly digital channels like online promotions, social media promotions as well as its own website. These channels have helped the company gain higher visibility in its domestic market. Digital technology is driving enormous gains in operational efficiency for retail brands. The company's own website is also a critical pillar of its digital marketing strategy. Focusing on the most visible aspects of the business operations and designing them in a manner to offer a superior customer experience helps retail brands develop stronger customer relationships . Target strives to provide superior customer service to its customer to maximize customer satisfaction and to retain them for longer.
Analysis of Target Corporation on Five Operational Performance Objectives.
To run an organization, a well-defined set of operations performance objectives is essential. There are five basic performance objectives applicable to all types of business operations. These five basic operations objectives include cost, dependability, flexibility, quality, and speed. There are both internal and external implications of these five performance objectives. Moreover, the internal effects of these performance objectives has a definite impact on cost.
Quality is the first important operational performance objective. Your customer’s expectations are your best measure of quality. Companies set standards so that they can continue performing according to their customers' expectations. Quality also has a direct and significant effect on customer satisfaction. However, what quality implies for a business varies by the industry the business it operates in. For example, quality acquires a different meaning for an automobile business than for a technology business. The same quality standards do not apply to the two businesses. Quality can acquire different meanings in different settings or industry environments. While in some industries, staff friendliness, hospitality, and customer service are the main measures of quality, product quality and performance are the main indicators of quality for another. However, no matter whatever industry a business belongs to, customers appreciate quality everywhere.
Quality bears a direct and major influence on not just customer satisfaction but also on organizational performance. Nevertheless, quality is also related to a company’s image and apart from making certain things easier for businesses like customer acquisition, it can also increase an organization’s profitability. Moreover, given the level of competition in today's industry environment, quality has become indispensable for businesses. Growth for any business is not possible without quality and compromising on quality in most cases erosion of customer base and financial performance. It is true about nearly every industry including fashion and retail as well as manufacturing and education industries.
Target corporation is a leading retail organization. However, increased competition in the retail industry has also grown the focus of the retail companies on quality since it is a major driver of sales and popularity. Apart from quality of the products sold by the brand, in other areas of operations too quality matters. For retail businesses like Target Corporation, consistent focus on customer experience is extremely important since it affects customer satisfaction and retention rate. Target trains its employees to provide superior customer service. It sells a large range of products including its private label and company owned brands. However, the focus always remains on selling good quality products at competitive prices. The company has outsourced production of the private label and owned brands to external suppliers. They manufacture these products according to the company's specifications and the quality standards developed by Target. By focusing on quality in all aspects including sales, marketing and customer service, the company has been able to maintain a strong image among its customers and grow its customer base.
Speed has also become an important factor affecting organizational performance. The growth of digital technology has led to higher focus on both speed and efficiency. The speed at which products and services are delivered has become an important factor that affects customers' perception of a brand. Speed has become a central concern like product quality, prices and operational efficiency for nearly every industry. A large range of services are being bought and consumed online. People order products including food products online and some companies like Domino's have also used speed as a pillar of their marketing strategy. Not just in manufacturing or services industries but in the other industries too speed matters more than ever. It is because companies need to deliver their products or services to the consumers in a timely manner.
While speed may not be as important in the case of fashion businesses as the technology businesses, it is still an important aspect of its business operations. There are various aspects of operations including manufacturing and supply chain where speed is important. It is an era of fast fashion and even established shoe and apparel brands are feeling challenged by the rise of the fast fashion brands. It is why Nike as well as more rivals have focused on bringing more speed to their business processes so that ideas can be transformed into products and brought to the shelves faster. In this way, by speeding up things, Nike is able to increase its profitability apart from production efficiency. The same is true to some extent about marketing where the company has to focus on keeping its customers engaged so as to avoid losing market share. Speed is a sign of efficiency and agility is important not only for the automobile businesses but also for the other businesses whether in the tech industry, retail industry or the fashion industry.
Target Corporation being a leading retailer in the United States market has also focused on synchronizing its operations and value chain in a manner to achieve higher operational efficiency and speed. Supply chain and warehouse management are two critical aspects of the business operations of retail brands where speed is important. To grow the efficiency of their business operations, apart from inward and outward logistics, companies need to focus on how well they are managing their inventory. Target uses modern tools and methods like barcodes and product scanning to manage their inventory. Products have to be moved in and out faster in the retail industry and therefore both logistics and inventory management require extra focus to cater to customer demand more efficiently.
Dependability also implies reliability or trust that customers place in a business. Brand equity is a leading strength for any business and companies take it more seriously than anything else in order to find market growth. How dependable your business is or how much your customers trust your business decides your overall influence in the industry as well as the markets where your business operates. There are a large number of factors that affect reliability or dependability in each industry.
For example, it is the quality of the product and its efficiency that matters in one industry, in the other it is the product design apart from product quality as well as how well a company markets itself that affect dependability. Brands must only make promises that they can keep since if your product or services fall below their expectations, it will hurt your brand image and reduce your dependability. The kind of customer experience that you offer to your customers also affects your customer experience. especially, when a large number of products and services are being sold online and the level of human interaction between customers and sellers has reduced, customer experience has a significant and direct impact on dependability of businesses. Moreover, focus on dependability must also remain due to the fact that the level of competition in most industries is very high.
For the retail brands dependability means popularity, customer engagement, brand equity, customer trust and many more things. How dependable a brand is can be understood to some extent from its popularity and overall influence in the market. The most dependable brands are also the most influential brands in their respective industries. People consider several things before they trust a retail brand like prices, product quality, customer service, brand image, as well as overall customer experience. However, Target's large customer base and popularity in the US are signs of its dependability. Retail brands in the US are investing in CSR activities to strengthen their public image and grow their overall influence in the market. Target has also focused on maintaining a strong image in the US market and invests in CSR activities. Its marketing efforts have also driven its popularity higher. The higher the trust of customers in a brand, the stronger will be its market position as well as bargaining power.
Flexibility means the ability to change what, how, and when operations do. There are four types of flexibility in general that are applicable to business operations. They include product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility. Product/ service flexibility means the ability to introduce new or customized products or services. Mix flexibility means the ability to widen the product/services mix to cater to the customer needs better. Volume flexibility denotes the ability to change the output level to produce different quantities of products/services over time. Delivery flexibility on the other hand means the ability to change the timing of delivery. Overall, flexibility is an important aspect of operational performance and superior flexibility also denotes superior performance. Flexibility can also acquire different meanings in different industrial environments. For example, in a healthcare environment, the ability to introduce new types of treatment and to widen the range of available treatments or the ability to adjust more patients and reschedule appointments can all be a sign of flexibility. However, in the case of the automobile or retail industry or even fashion or shoe, flexibility can mean different things.
Flexibility is also a sign of adaptability in the modern era. Companies organize their business operations and value chain in a manner that helps them achieve higher efficiency and reduce costs. In the retail industry too, companies are focusing on making their value chains resilient and flexible since it is critical for growth in operational efficiency and productivity. The importance of flexibility for retail brands has also grown due to the rise in e-commerce. Target has also been investing in e-commerce for last few years. In February, Target was listed among the top ten ecommerce sellers in the United States. Apart from its investment in digital technology, the reason is the flexibility of its operations that the company has tasted success in the e-commerce market. According to Tech Crunch, by the end of 2020, the company could be ahead of Costco in the US e-commerce market.
Costs in terms of operations performance mean the operating expenses incurred by businesses. However, the proportion of various operating costs can vary from industry to industry. For example, staffing costs may represent the largest costs for a transportation company but the costs of raw material may be the largest group of operating costs for an automobile brand. In the case of most companies, if their operating expenses are low, they can also keep the prices low for their customers. Not all companies compete in the market on the basis of price.
Some companies compete on product quality, other companies compete on the basis of customer service and others on the basis of marketing or all of these factors. However, even the companies that do not compete on the basis of prices, they too are interested in keeping their operational costs low. If a company reduces its operating expenses that will help it increase its profits because a penny saved is equal to a penny gained. The way in which operations need to be managed in order to keep operating expenses low requires focusing on areas where the company incurs the highest operating expenses.
For the retail brands, the biggest expenses are their cost of sales. Target Corporation's cost of sales have also grown over the last three years as its sales have grown. According to the annual report of the company for 2018, the cost of sales of the retail brand touched $53.3 billion in 2018 compared to $51.1 billion in 2017 and $49.15 billion in 2016. Another major category of operating expenses for Target is the selling, general and administrative expenses. In fiscal 2018, the S,G&A expenses of the company reached $15.7 billion compared to $15.1 billion in 2017. However, the company has managed its value chain in a manner that keeps operating costs low. Apart from that the company also uses its bargaining power to keep cost of sales under control. Net earnings of target remained $2.94 billion in 2018 (around the same as the previous year).
One last word about the business model of Target:
Despite the intense competitive rivalry in the retail industry in the United States, Target has maintained a strong competitive position. It continues to find growth in sales and its customer base. The company is also investing in technology to grow its e-commerce sales. Apart from that, the company is focusing on strengthening its fulfillment network to grow the demand for online sales. Target Corporation has established a strong business model that is supported by quality products and a competitive pricing strategy. All of this has resulted in impressive growth for the brand. The company is also enjoying an impressive gross margin. Over the past several years, the company has kept investing in key areas to strengthen its operating and financial business model. The company owns a large number of private label brands and exclusive brands that are also among its drivers of sales and revenue. However, another key area where strategic investment has helped Target grow its influence is HR management. Overall, Target is in a strong position in the United States retail industry and will sustain its growth momentum in the future. The impact of Covid-19 has been felt by all retailers alike. However, at this time, the importance of digital sales channels has also grown a lot since a larger number of customers are shopping from their homes. Having a large sales and delivery network is going to prove profitable for retail brands like Target Corporation.
Other sources: Target Corporation Form 10K 2019.