COMPANY Case Target: From “Expect More” to “Pay Less” ‘When you hear the term discount retail, two names that usually ‘come to mind: Winart nd Targct."Te two have been. ‘so much that the press rarely covers one without at least mention- ing the other. The reasons forthe comparson ae fay obvio.s. ‘These corporations are two ofthe largest decountretalesin the United States. Category for category, they offer very similar mer- chandise. They tend to build their stores in dose proximity to one Shothor evan facing each other across mjd boulevares. ut eren with such tong silat, sk consumersif theres a difference between the two, and they wan't even hesitate. Walmart isall about low prices; Target is about style and fashion. The “cheap Chic” label applied by consumers and the media over the years per- feclly captures the longstanding company positioning: "Expect ‘More. Pay Loss.” With its numerous designer product lines, Target hasbeen so sucessful wit its brand postioning tht fr anumber cof yeas it har Soul chipped aaay at Walmar’s massive markot share. Granted, the iflrance in the scao forthe two companies has always been huge. Walmart’s most recent annual revenues of ‘$408 billion are more than six times those of Target. But for many ‘years, Target's business grew at a much faster pace than Walmart’. In fact, as Walmart's same-store sales began to:lag in the mid 2000s, the worid’s largest retailer unabashedly attempted tobecome more like Target. It spruced up its store environment, added more ‘ashonsble thing and howsawares andstocked organic and gour- mat producsin ts grocery aes. Walmart even exparmerted with houry brands. tte 19 years of promoting the sagan, “Aways Low Breas. Away.” Walmart replaced ft wth tho very Target esque tagline, “Save Money. Live Better.” None of those efforts seemed to ‘speed up Walmart’s revenue growth or slow down Target’. ut oh what a difference a year or two can make. As the global ‘recession began to tighten its grip on the world’s retailers in 2008, the ‘Syramics betwecn tho two ret giants reversed almost overnight. AS unemployment rose and consumers began pinching their pennies, Weinert familar price “rolbads" resonated with consumers, While Targets mage of ighly better stuf for sight higher pics cid not. Taget$ wol-cultvated “upscale discount” mage was turing away -customners who believed that its fashionable products and trendy ad- vertising mesnt steeper prices. By mid-2008, Target had experienced ‘three straight quarters of flat same-store sales growth and a sight dip instore trafic Atthe some time, Walmart war defying the cconomic londown, posting quarteriy increases in same-store sales of dose to 5 pereent along with substantial jumps in profits. ‘SAME SLOGAN, DIFFERENT EMPHASIS In fall 2008, Target acknowledged the side and announced its in- tentions to do something about it. Target CEO Gregg Steinhafel succinctly summarized the company’s new strategy: “The cus- ‘tomer is very cash strapped right now. And in some ways, our ‘greatest strength has become somewhat of a challenge. $0, we're ‘ill trying to define and find the night balance between ‘Expect More. Pay Less." The current environment means that the focus is ‘squarely on the ‘Pay Less’ side of i.” In outlining Target's new strategy, company executives made it ‘dear that Walmart was the new focus. Target would make certain ‘that its prices were in line with Walmarts. Future promotions ‘would communicate the “pay less” message to consumers, while also highiighting the fact that Target i every bit the convenient ‘one-stop shopping destination as its Larger rival. ‘The new communications program included massive changes ‘tainstore signage. instead of in-store images and messages high- lighting trendy fashion, store visitors were greeted with large signs ‘boasting price points and value messages. Similary, weekly news- ‘Paper Grculars featured strong value headlines, fewer products, and dearly labeled price points. In fact, Target’ ads began looking ‘very much lke those of Walmart or even Kmart Further recogni2- ing the consumer trend toward thrftiness, Target increased the ‘ernphasis on its own store brands of food and home goods. ‘While making the shift toward “Pay Loss,” Target was careful ‘to reassure customers that it would not compromise the “Expect More" partof its brand. Target has always been known for having more dosigner partnerships than ary other retailer. From the ‘Michael Graves line of housewares to lsaac Mizrahi's cothing line, “Target boasts more than a dozen product lines created exclusively for Target by famous designers. Kathryn Tosia, Target's executive vice president of merchandising, assured customers that not only ‘would Target continue these relationships but also add several ‘Rew designer partnerships in the apparel and beauty categories MOUNTING PRESSURE Although Steinhafel’s “Pay Lass” strategy was aggressive, Target's financials were slow to respond. In fact, things intially got worse with sales at one point cropping by 10 percent from the previous year. Target's profitssuffered even more. Itcidn't help matters that ‘Walmart bucked the recessionary retail trend by posting revenue ingeases. When confronted with this fac, Steinhafel responded‘that consumers held perceptions that Target's value proposition was not as strong 2s that of its biggest rival. He urged investors to ‘be patient, that its value message would take time to resonate with consumers. Given that Waimart had a decades-long lead in ‘building ts cost structure 25 a formative competitive advantage, Steinhafel couldnt stress that point encugh. ‘While Target continued to struggle with ths turn-around chal lenge, it recatved a new threat in the form of one of its largest in vestors. Activist shareholder Wiliam Ackman, whose company had invested $2 bilion in Target only to lose 85 percent of it, was holding the retailers fect to the fire. Actman openly chided Target ‘or failing to deal effectively with the economic downturn. He ‘charged that Target's board of directors lacked needed experience ‘and sought to take control of five of the board seats. “Target is not Gucci,” he said ina letter to investors. “It should be a business ‘that does wel, even in tough economic times.” “Making the changes that Ackman and others were caling for was ‘eaact what Steinhafel was tying todo. Steinhafel refused toglve up ‘on his strategy. instead, he intensified Targets “Pay Less” emphasis. In addition to aggressive newspaper advertsing. Target unvaled a new set of televsion spots. Each ad playedtto a catchy tune with are- _assuring woice singing, “Thisis abrand now day. And its geting bet- ‘er every single day” Ads showed ordinary people consuming ‘commonly purchased retail products but with a unique twist Inonead, a couple was shown drinking coffeein what appeared ‘tobea fancy coffee house with the caption, “The new coffee spot.” But the camera pulled back to reveal that the couple was sting in ‘their own kitchen, with a coffee pat on the stove. The caption con- firmed: “Espresso mater, $24.99." In another segment af the ad headlined "Thenew salon trip." a-glamorous woman with flowing red hair appeared to bein an upscale salon. The camera angle then shifted to show her in her own modest bathroom, revealing a small bbottlesiting onthe ink withthe caption, “Hai col, $8.49.” Every ‘ad repeated this same theme mutipie times. with tates Such 25 “Thenew carwash,” “The new movie night,” and “Thenew gym.” In addition to the new promotional efforts, Target made two significant operational changes. First, it began converting corner of its department stores into mini-grocery stores carrying anarrow selection of 90 percent of the food categories found in fullsize ‘grocery stores, including ‘resh produce. One shopper’ reaction ‘Was just what Target was hoping for. A Wisconsin housewife and mother of two stopped by her local Target to buy deodorant and laundry detergent before heading to the local grocery store. But as she worked her way through the fresh food aisles, she found everything on her lst. “I'm done,” she said, as she grabbed ‘90-cent green pepper “I just saved myself a tp.” While the min-grocery test stores showed promising resus, ‘groceries ao represented a low-margin expansion. Walmart was seeing mast ofits gains in higher margin discretionary goods like ‘becding, traditionally Targets stronghold. But in a second opera- tional change, Target surprised many analysts by urweling 3 new ‘package for its main store brand... .one without the familiar Tar- ‘get bull-eye! That is, the packages discard the bulls-eye, replacing it with big, colorful, upward-pointing arrows on 2 white back ‘ground, with the new brand name, “up & up.” Coniining to address the trend of higher store brand sales, Tesia stated, "We believe that it wll stand out on the shel, and it isso distinctive that wal get new quests that will want to try that maybe didn’t even notie the Target brand before." Up & up prod- ucts are priced about 20 percent lower than comparable name ‘brand products. Target began promoting the store brand in its cir- ‘culars and planned to expand the total number of products under the label from 720 to 800. While initial results showed an increase in store brand sales for products with the new design, its unclear just how many of those sales came atthe expense of name brand products, SIGNS OF LIFE Target’ journey over the past few years demonstrates that chang- ing the direction ofa large corporation islite trying to reverse amo- ing reght tain. Things have to iow down before they can go the other way.Butatter 18 months of aggressvechange, it appears that ‘consumers may have finally gotten the message. During the fist half of 2010, sles rose by as much as 5 percent with profits up a whopping 54 percent. Both spending per vist and the number of store vis increased. Al this couldbe aitrbuted tothe fact that the ‘effects of the recession were staring to loosen up and consumer ‘confidence was stabilizing. ut in 2 sign that Target’ efforts were truly paying off, Walmart’ sales growth was slowing curing this same period and even showing signs of decine. Customer percep- tions of Target’ value were indeed on there, Steinhafel made it ery dear thatthe new signs of Ife at Target ‘were being met with cautious optimism, “Clearly the economy and ‘consumer sentiment have improved since their weakest point in 12008," ssid the Target CEO. “But we balowe that both are stl Somewhat urstabieand fragile and wil lial continuoto emaronce ‘occasional setbacks asthe year progresses.” Steinhafl’scomments reflected an understanding that even asthe economy showed sions ‘of recovery, research indicated that consumers everywhare were adopting newfound sense of rugalty and monetary responsi. ‘Target’ “Pay Less” strategy has continued forward without wavering. Pricing seems to have found the sweat spot as Stein- hafel announced that few adjustments are needed. Ads continue {to emphasize low prices on everyday items, And the expansion of ‘groceries and store brands has continued. Infact for 2010, Target planned just 10 tore openings, the lowestin its history. “will long time before we approach the development pace of several years ago,” said Doug Scovanner, Target’ chief financial fice Instead, Target is putting its money into remodeling existing stores to better accommodate the shifts in inventory. Some Wall Street analysts have expressed concern that Targets recent value strategy may weaken the brand as customers lose sight ofthe distinctive features that set it apart from Walmart. But ‘the words of one shopper ae a good indication that Target may stillbe retaining the “Expect More” part of its image, despite hav ing emphasized “Pay Les." "Target isa nice place to go. Walmart may have good prices, but | wouid rather tell my fiends that | ‘came back from shopping at Target.” ‘Questions for Discussion 11. What microcrvironmental factors have affected Targets performance over the past few years? 2. What macroenvironmental factors have affected Target's performance during that period? 3. By focusing on the "Pay Less” part of ts logan, has Target pursued the best strategy? Why er whiy not” ‘4. What alternative strategy might Target have folowed in responding tothe fist signs of decining revenues and profits? 5. Ghvon Target’ current stution, what recommendations ‘would you make to Steinhafel for his companys future? Sources: Karen alley. “Target oft iss on Stag Sls, proved rect (Card Operations.” Wal Steet louml May 20, 2010, sees at hts! cniesnsjcor ohn Kl nd Karen Tle “Targets Pott Ra 5836 00| Higher Sales, Improved Margins," Wal Steet Journal, Febuary 24,2010, acted at spoke waco Natale Zc, “Target 0 Fut More Fo- cus on Value,” Adreisng Age, August 19, 2008, accessed at itp adage ‘com, Aan Zemmerman, Target Belewes 3 Rebound Recpe fn Grocery ‘ie Wal Stet Journal, May 12 2003, p. BI; Neve Meet “Taret Revers is arget Bran as ‘Up & Up,” Reus, May 19, 2009, acess