Case
Supplementary Resources
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
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)
Exhibit 5: New Retail Model? Smartphone Sales Platform (Illustrative)
Exhibit 6: New Retail Model? Streaming Inet Game Sales Platform (Illustrative)
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.
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
Exhibit 9: Brick-and-Mortar Video Game Retailer—GameStop
Exhibit 10: Online Video Game Retailer—Amazon
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