Chapter 5

Selecting Business-Level Strategies

Learning Objectives

After reading this chapter, you should be able to understand and answer the following questions:

  1. Why is an examination of generic strategies valuable?
  2. What are the four main generic strategies?
  3. What is a best-cost strategy?
  4. What does it mean to be “stuck in the middle”?

 

The Competition Takes Aim at Target

Archery Target
Figure 5.1: As retail competition evolves, will Target be the arrow or the bull’s-eye?

 

On January 13, 2011, Target Corporation announced its intentions to operate stores outside the United States for the first time. The plan called for Target to enter Canada by purchasing existing leases from a Canadian retailer (Zellers) and then opening 100 to 150 stores in 2013 and 2014 (Target, 2011). The chain already includes more than 1,700 stores in forty-nine states. Given the close physical and cultural ties between the United States and Canada, entering the Canadian market seemed to be a logical move for Target.

In addition to making its initial move beyond the United States, Target had several other sources of pride in 2013. The company claimed that 96 percent of American consumers recognized its signature logo, surpassing the percentages enjoyed by famous brands such as Apple and Nike. Target was ranked number 22 on Fortune’s 2013 World’s Most Admired Companies list, DiversityInc placed it at number 20 on its Top 50 Companies for Diversity list, and Fast Company named Target number 10 on its list of the 50 Most Innovative Companies.

However, entering the Canadian retail market has not gone as well for Target as they had hoped. By early 2014, their operating losses in Canada topped US$1.52 billion since stores started opening in spring 2013. Also in early 2014, the company abruptly fired its Canadian president and its CEO. Sales at Canadian stores saw a huge year-on-year acceleration, jumping fourfold from the same time the previous year to $393 million. But Target had only about one-fifth of its 124 Canadian stores open during that time, and there were complaints about low stock in the stores. A hugely embarrassing data breach compromised the credit card and personal information of millions of customers and exposed big security flaws. This had a negative impact on sales.  However, Target said that revenues had rebounded shortly after the public disclosure (D’Innocenzio, 2014).

Concern also surrounded Target’s possible vulnerability to competition within the retail industry. Perhaps the most tangible reflection of Target’s upscale position among large retailers is the tendency of some customers to jokingly pronounce its name as if it were a French boutique: “Tar-zhay.” Indeed, a variety of competitors seemed to be taking aim at Target. Retail chains such as Old Navy offer fashionable clothing at prices similar to Target’s. Discounters like Winners offer designer clothing and chic household goods for prices that often are lower than Target’s. Closeout stores such as Liquidation World and outlet stores offer a limited selection of electronics, apparel, and household goods but at deeply discounted prices. All these stores threaten to target the same Canadian customers Target is trying to attract.

Walmart was perhaps Target’s most worrisome competitor. After some struggles in the 2000s, the mammoth retailer’s performance was strong enough that it ranked well above Target on Fortune’s list of the World’s Most Admired Companies (eleventh vs. twenty-second). Walmart also was much bigger than Target. The resulting economies of scale meant that Walmart could undercut Target’s prices anytime it desired. Just such a scenario had unfolded before. A few years ago, Walmart’s victory in a price war over Kmart led the latter into bankruptcy.

One important difference between Kmart and Target is that Target is viewed by consumers as offering relatively high-quality goods. But this difference might not be enough to fully protect Target. Although Walmart’s products tended to lack the chic appeal of Target’s, Walmart had recently begun offering better, upscale products in an effort to expand its customer base. If Walmart executives choose to match Target’s quality while charging lower prices, Target could find itself without a unique appeal for customers. As Target entered the Canadian market, the question remains: Will Target maintain its unique appeal or niche to customers or would the competitive arrows launched by Walmart and others force Target’s executives to quiver?

References

D’Innocenzio, A. (2014). Target’s Canadian Losses top $1.5 Billion. Huffington Post. Retrieved from http://www.huffingtonpost.ca/2014/05/21/target-canada-loss_n_5364027.html?utm_hp_ref=target-canada

Target Corporation. (2011, January 13). Target Corporation to acquire interest in Canadian real estate from Zellers Inc., a subsidiary of Hudson’s Bay Company, for C$1.825 billion. Retrieved from http://pressroom.target.com/pr/news/target-corporation-to-acquire-real-estate.aspx

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