Target Corporation: Maintaining Relevance in the 21st Century Gaming Market

Abstract

Target Corporation is concerned that the company might be left out of one of its most lucrative and attractive product categories, video games and game players, as these products increasingly migrate to digital distribution models. What steps should the company take to maintain its relevance and build sustainable competitive advantage as these trends play out? What are the implications for the company’s multi-channel online and offline format portfolio going forward?

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: Target.com, the Virtual Storefront

Figure

Exhibit 2: Target Corporation Financial Results, 2003–2008

Financial Summary: Continuing Operations

2008

2007

2006a

2005

2004

2003

FINANCIAL RESULTS ($ IN MILLIONS)

Sales

62,884

61,471

57,878

51,271

45,682

40,928

Credit card revenues

2,064

1,896

1,612

1,349

1,157

1,097

Total revenues

64,948

63,367

59,490

52,620

46,839

42,025

Cost of sales

44,157

42,929

40,366

35,788

32,226

29,057

Selling, general, and administrative expenses0

12,954

12,670

11,852

10,324

9,016

7,989

Credit card expenses

1,609

837

707

776

737

722

Depreciation and amortization

1,826

1,659

1,496

1,409

1,259

1,098

Earnings from continuing operations before interest expense and income taxesc

4,402

5,272

5,069

4,323

3,601

3,159

Net interest expense

866

647

572

463

570

556

Earnings from continuing operations before income taxes

3,536

4,625

4,497

3,860

3,031

2,603

Provision for income taxes

1,322

1,776

1,710

1,452

1,146

984

Earnings from continuing operations

2,214

2,849

2,787

2,408

1,885

1,619

PER SHARE

Basic earnings per share

$2.87

$3.37

$3.23

$2.73

$2.09

$1.78

Diluted earnings per share

$2.86

$3.33

$3.21

$2.71

$2.07

$1.76

Cash dividends declared

$0.62

$0.54

$0.46

$0.38

$0.31

$0.27

FINANCIAL POSITION ($ IN MILLIONS) Total assets

44,106

44,560

37,349

34,995

32,293

27,390

Capital expenditures

3,547

4,369

3,928

3,388

3,068

2,738

Long-term debt, including current portion

18,752

16,590

10,037

9,872

9,538

11,018

Net debtd

18,562

15,238

9,756

8,700

7,806

10,774

Shareholders’ investment

13,712

15,307

15,633

14,205

13,029

11,132

RETAIL SEGMENT FINANCIAL RATIOS

Comparable-store sales growth

(2.9)%

3.0%

4.8%

5.6%

5.3%

4.4%

Gross margin rate (% of sales)

29.8%

30.2%

30.3%

30.2%

29.5%

29.0%

SG&A rate (% of sales)e

20.4%

20.4%

20.3%

19.9%

19.6%

19.4%

EBIT margin rate (% of sales)

6.5%

7.1%

7.4%

7.5%

7.2%

7.0%

OTHER

Common shares outstanding (in millions)

752.7

818.7

859.8

874.1

890.6

911.8

Cash flow provided by operations (in millions)

$4,430

$4,125

$4,862

$4,451

$3,808

$3,188

Revenues per square footf, g

$301

$318

$316

$307

$294

$287

Retail square feet (in thousands)

222,588

207,945

192,064

178,260

165,015

152,563

Square footage growth

7.0%

8.3%

7.7%

8.0%

8.2%

8.8%

Total number of stores

1,682

1,591

1,488

1,397

1,308

1,225

General merchandise

1,443

1,381

1,311

1,239

1,172

1,107

SuperTarget

239

210

177

158

136

118

Total number of distribution centers

34

32

29

26

25

22

a Consisted of fifty-three weeks.

b Also referred to as SG&A.

c Also referred to as EBIT.

d Including current portion and short-term notes payable, net of domestic marketable securities of $190, $1,851, $281, $1,172, $1,732, and $244, respectively. Management believes this measure is a more appropriate indicator of Target’s level of financial leverage because marketable securities are available to pay debt maturity obligations.

e New account and loyalty rewards redeemed by Target shoppers reduce reported sales. The retail segment charges these discounts to the credit card segment, and the reimbursements of $117 million, $114 million, $109 million, $98 million, $80 million, and $67 million, respectively, are recorded as a reduction to SG&A within the retail segment.

f Thirteen-month average retail square feet.

g In 2006 revenues per square foot were calculated with fifty-two weeks of revenues (the fifty-third week of revenues was excluded) because management believes that these numbers provide a more useful analytical comparison to other years. Using revenues for the fifty-three-week year under generally accepted accounting principles, 2006 revenues per square foot were $322.

Source: Target Corporation.

Exhibit 3: Target Stores Productivity Analysis

Analysis of Ten Illustrative Categories at Target (Indexed to Average For Group)

Square Footage

Total Sales

Sales Per Foot

Contribution Per Foot

Interactive entertainment

0.94

1.54

1.55

1.30

Carbonated beverages

0.23

0.37

1.51

1.06

Movies

1.17

1.54

1.25

1.81

Dairy

0.53

0.52

0.92

0.77

Personal care

1.58

1.50

0.90

1.01

Perishables

0.79

0.71

0.85

0.53

Audio electronics

1.25

1.04

0.79

1.30

Baby

1.39

1.14

0.78

0.17

Candy

1.26

0.98

0.74

0.95

Cameras

0.87

0.66

0.72

1.09

Average for these ten categories

1.00

1.00

1.00

1.00

Source: Target Corporation.

Exhibit 4: New Retail Model? Game Console Sales Platforms (Illustrative)

Figure

Exhibit 5: New Retail Model? Smartphone Sales Platform (Illustrative)

Figure

Exhibit 6: New Retail Model? Streaming Inet Game Sales Platform (Illustrative)

Figure

Exhibit 7: New Game Product Review (Illustrative)

Early Review of Avatar: The Game (December 2009)
Fighting an Enemy Crisis With Very Little Energy

Seth Schiesel, New York Times, 12/18/09 [edited for reduced length]

It always helps to be beautiful, but good looks really can only get you so far in life. Even among the professionally ogled, it seems that some measure of intelligence, attitude, and depth is what distinguishes the compelling elite from the merely attractive. In that sense James Cameron’s Avatar: The Game is like an aspiring model who will never make it on a big-time runway. It is extremely easy on the eyes and is certainly well put-together, but it is also thoroughly vapid, wholly generic in its sensibility, and utterly devoid of any emotional or intellectual engagement.

The new Avatar game is not offensively bad, but it also does nothing particularly to engage players besides throwing pretty pictures of jungles at them. Mr. Cameron appeared to want the Avatar game to stand on its own as a top-end interactive entertainment experience. It does not. I haven’t seen the film “Avatar,” but I’m hoping that it is built around interesting, even moderately complex characters exploring a varied, diverse world as part of a nuanced, provocative story line. Because none of those elements exist in the Avatar game.

The game allows you to play through two separate campaigns as either a human or Na’vi warrior, a great idea. But the game completely botches the execution of that idea by forcing the player to choose a side very early in the game before any of the stakes, in terms of either story or the game, have been established.

To begin, the voice acting is some of the worst I’ve heard in a game this year—stilted, mechanical, and straight from cliché central. Are the actors in the film voicing the game? The two campaigns feature quite different game-play styles, with different weapons and vehicles and special skills, but the controls are imprecise, and the basic combat systems are thin.

Almost all of the missions consist of the same rote commands: go here, kill everything in your way, retrieve the shiny doodad, come back. [The] actual outdoor environments are poorly designed in terms of actually letting you move around. In other words, you can’t see where you’re supposed to be going half the time. Technically, the game is solid. But solid is not sufficient.

Figure

It is worth recalling how Mr. Cameron touted the game in 2007. “For the movie ‘Avatar’ we are creating a world rich in character, detail, conflict, and cultural depth. It has the raw material for a game that the more demanding gamers of today will want to get their hands on—one that is rich in visuals and ideas, and challenging in play. I told the Ubisoft team I wanted them to be free to do their very best work, and not think of this as a movie-based game. They responded with a fully realized presentation, which captured the soul of the world and the characters, while promising to be a knockout game on its own terms. Their passion inspired my confidence that they are going to do something transcendental.”

Far, far from it. All this game does is stand around and look good.

Exhibit 8: Brick-and-Mortar Video Game Retailer—Best Buy

Figure

Exhibit 9: Brick-and-Mortar Video Game Retailer—GameStop

Figure

Exhibit 10: Online Video Game Retailer—Amazon

Figure

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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