Presentation on theme: "What’s Leading Edge With Today’s Leading Mass Volume Retailers?"— Presentation transcript:
1What’s Leading Edge With Today’s Leading Mass Volume Retailers? American Logistics AssociationExchange RoundtableWhat’s Leading Edge With Today’s Leading Mass Volume Retailers?March 8, 2005Dallas, TX8912 East Pinnacle Peak Road • Scottsdale, AZ Phone (480) • Fax (480) • •
2Based on most recent research, the top 3 retailers shoppers rank as literally “indispensable” to their daily lives are Wal-Mart, Target and Costco:Meyers Research: “Retailers Consumers Could Not Live Without” (Aug, 2004)Base: Among those who shop the storeWal-Mart31%Costco17%Target13%BJ's11%Kroger9%Albertson'sSafeway8%Sam's Club7%CVS5%7-Eleven3%Dollar GeneralWalgreensRite Aid2%KmartSource: Meyers Research, Aug, 2004
3Specific Retailers Consumers Find Most Fun To Shop Not coincidentally, Wal-Mart, Target and Costco are also the same retailers that consumers find the “most fun to shop”:Specific Retailers Consumers Find Most Fun To ShopBase: Among those who shop the storeTarget30%CostcoWal-Mart28%SAM’s Club20%BJ’s11%Dollar General6%Albertson’s4%Kmart3%WalgreensCVS2%KrogerFamily Dollar1%SafewayRite AidSource: Meyers Research, Aug, 2004
4Today:What is it about Wal-Mart and Target that makes them so successful, not only with shoppers, but from a business standpoint in general?What lessons can Exchanges take away from this, given their objectives and the constrictions under which they operate?Q&A
5The Leaders – Snapshot of Current Vital Statistics: Wal-MartTargetSales (U.S. $B)$232.9$47.1# Stores (U.S.)3,7111,313Gross Margin23.9%32.8%Operating Expenses18.4%22.4%Proj. CAGR, ‘04 - ‘079.9%8.9%Positioning“Always Low Prices”“Expect More/ Pay Less”HH Penetration86%62%Sales/Sq. Foot439289Inventory Turns7.76.3Days Sales In Net Inventory2112Merchandising StrategyEDLPHi/LoSource: Company 10Ks & 10Qs; Hoyt & Company, LLC,
6While Wal-Mart and Target are very different retailers, both share the same objectives as all other retailers– specifically:Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logistics functions on one or more of the following objectives:ExchangesIncrease customer count (new customers) XIncrease trip frequencies (current customers) YesIncrease transaction size (current customers) YesIncrease productivity (Human and Financial) YesReduce costs (COG’s and Operations) YesAs you will see, the paths that Wal-Mart and Target have chosen to achieve these objectives represent today’s industry Best Practices.
7The 800 lb. Gorilla In Every Retailer’s Living Room! $284B – Largest company in the world – greater than the GDPs of Austria, Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden, Switzerland, Ukraine and Vietnam$20K in profit per minute!13% WW CAGR – projected to do $1 trillion by 2014$233B U..S. sales – CAGR of 9.9% to 20073,711 U.S. stores:1,706 Super Centers1,370 Discount549 SAM’s Clubs86 Neighborhood Markets500+ new stores/remodels planned for 2005Objective is to become the largest retailer in every market in which it operates (now #1 in only two countries out of 10)
8So what are the key growth drivers that enable Wal-Mart to sustain the momentum of this juggernaut? Let’s look at these from the standpoint of what’s relevant to Exchanges in terms of:Marketing and MerchandisingBuyingLogistics
9The key elements of the Wal-Mart marketing mix – elegant and sophisticated – way beyond just “Always Low Prices”:1. EDLP made possible by EDLC – Global buying and relentless pressure on COGs and operating costs2. Use of consumables (food and non-edible CPG items) to drive traffic and transaction size3. “OPP/good/better/best” merchandising ladder (private labels –> national brands)Localization – Demographic assortments5. Ancillary businesses – hearing aids, optics, stores within stores, etc.6. Consumer-centric versus supplier-centric business model – all allowances are driven into price and not used to subsidize operating profits
10The key elements of the Wal-Mart marketing mix (cont’d) 7. Shop-ability – wide aisles, mucho signage, well lit, easy to navigate8. Speed to market – new items and promotions – 24/ hour turnaround9. Community involvement – parking lot extravaganzas, fishing contests, high school marching bands, etc.10. Retail-tainment – in-store TV sets, trendy promotions (Shrek 2 and Britney Spears)11. EDLP reinforcement – roll backs, action alley, special buys and multiple clearance items12. Clicks and bricks synergy – what you can’t get in-store, you can get online13. Store managers have broad discretion – can tailor assortments, authorize local displays and recommend new distribution of local items
11Wal-Mart strategy to drive trips/provide one-stop shopping convenience – sell need (read “food”) items!Wal-Mart’s March To The Top of the U.S. Food Chain: (Food & Drug Sales Only)2010$195B35%Bigger than Kroger, Albertsons, Safeway and Ahold combined2007$162B+17.0%/Year CompoundedVs. 4.0% For Supermarkets!2004$112BBigger than Kroger & Albertsons Combined2003$95B2002$82BSurpasses Kroger as the nation’s #1 food retailer2001$63BSource: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003
12The Wal-Mart Merchandising Ladder BEST = Typically National BrandsBETTERGOODMost of our brands tend to be positioned between upscale good and moderate premium.The merchandise ladder at WM is changing shape in a way that’s I interesting.premium – trying to be biggerOPP - becoming biggerless good and betterAdd dynamic merch. Slides here.Q; is pl always the opening price point. A: For WM, not apparel yes.OPP =Opening Price Point in the category (typically, Private Labels)Source: MVI 10/28/2004
13Wal-Mart Buying – What lies behind the glitz Wal-Mart buyer responsibilities:Development of innovative merchandising solutionsUnderstand customer needs and trends and set the pace of new product development & brand strategyManagement of a diverse supplier base – from major brands to own labelAchievement of business plan targetsDevelopment and delivery of the category’s trading strategy
14Wal-Mart Buying – How Buyers are Measured Wal-Mart Buyer – Key Performance MeasuresSalesUnitsDollarsProfit dollarsMargin %TurnsMarkdowns (e.g., maintained margin)In-stockComparable store sales growth (in certain categories)Less tangible measures:Respect for the individualService to customersStrive for excellence
15Wal-Mart Buyer –> Supplier Expectations To achieve their objectives, Wal-Mart buyers proactively utilize suppliers to help run their business:Wal-Mart Buyer –> Supplier ExpectationsAnnual plan -- rolling 12 months by month and quarterNew itemsTab ideasModular suggestionsMCAPS -- community store merchandisingWeekly monitoring:Item P&Ls vs. planSales, initial margin, markdowns, contribution marginProblem stores/districts, as well as itemsCompetitive situationsCo-managed InventoryReplenishmentNew item/promotionalEconomic order quantitiesSource: MVI, Selling Wal-Mart 10/28/2004
16Wal-Mart Vendor Scorecard Extensive measurements for Wal-Mart and Suppliers Sales MeasurementsOverall % IncreaseCompsAvg. Sales/StoreSales at Full Price vs. MarkdownMarkdown MeasurementsMarkups and Markdowns (Dollars, Units and %)Prior and current retail priceMargin MeasurementsInitial marginAverage retail priceAverage costGross profit at item levelGross profit/item/storeMargin mixInventory MeasurementsReplenishable store inventoryNon-replenishable store inventoryWarehouse inventoryLost sales from OOSExcess inventoryDC outsTotal owned inventoryReturn MeasurementsCustomer defective returnsStore ClaimsSource: Hoyt & Company Records
17Wal-Mart Turns vs. Kmart + Target: 1998 - 2003 Wal-Mart Logistics – How does Wal-Mart stack up versus its leading competitors?Wal-Mart has the highest inventory turns…Wal-Mart Turns vs. Kmart + Target:Source: Company Reports; MVI, 10/
18Wal-Mart Logistics – How does Wal-Mart stack up (cont’d) …and the lowest # of days sales on hand:Wal-Mart vs. Leading Competitors: # Days Inventory On Hand:Source: Company Records; MVI, 10/28/2004
19Wal-Mart – Key Inventory Management Drivers: Replenishment & LogisticsCo-managed/vendor managed inventoryTwo-Tier Distribution (Replenishment vs. Promotional)Collaborative Planning, Forecasting and Replenishment (CPFR) – works with suppliers to determine appropriate levelsThe Future: Radio Frequency IDs (RFID)SystemsUCCnetInternet EDIMerchandising SystemsModular-based merchandisingModular Category Assortment Planning System (MCAPS) /Store of the Community
20Why is Wal-Mart so good at logistics? Because the buyer’s open-to-buy is based on inventory management and supply chain movement:Wal-Mart Buyer Open-To-BuyWhat the buyer is able to order hereDepends on how much $ he/she has tied-up in these “buckets”New ItemIn The DCIn TransitIn StorePromotions– PLUS –ReplenishmentSeasonalOn OrderIn Route+= why suppliers are so eager to work with Wal-Mart in helping to generate maximum sales off the lowest possible inventory base.
21Net on Wal-Mart: EFFICIENCY! Consistent, clear positioning – “Always Low Prices” – everyone knows precisely what Wal-Mart stands forRelentless focus on the fundamentalsCost suppression and cost reduction is a mantraCooperation with suppliers to achieve mutual objectivesCombination of food (consumables) and traditional discount creates a low price one-stop shopping meccaLightning speed to shelf on new items/trendy promotions“Fun place to shop” – in-store TV, on trend promotions, parking lot extravaganzas and tie-ins with local community eventsFierce competitor – will price comp anything, anywhereStore manager discretion means stores can be traited and tailored demographically
22“Expect More/Pay Less” $47.1B in ‘04 sales – a 15.1% increase vs. ‘03 (less Mervyn’s and Fields)8.9% CAGR between now and 2007 – projected to do $61B versus today’s $47B1,313 stores – 1,177 Targets Super TargetsComparisons to Wal-Mart are dangerous:Different business modelDifferent consumerDifferent merchandising strategyNo attempt to compete on same basisIs much more like an Exchange in assortment and operations:Careful balance of high end vs. commodity merchandise – PLs and exclusives are keyLimited CPG food representation (changing quickly)Super centers are NOT the primary growth engineDistinct department store heritage and orientation
23Target Challenges: Narrow customer base: 81% female 50% between 30 and 44Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!Supercenters behind the curveToo “Department Store-y” for a discounter:Clean, uncluttered store policy sometimes perceived as sterile and boringToo much emphasis on “want” vs. “need” merchandise – not enough everyday consumables to drive trips, create excitement or get shoppers started on the merchandise ladderHighly centralized operations – Store Manager’s role is compliance and execution – no local discretionary authority= 71% of Trips and 80% of Spending
24Target Heavy Shopper Trip Frequencies – Just Not Enough! Source: IRI Panel Data 52 weeks ended Dec 31, 2003
25Being perceived as more “Department Store-y” than “one-stop discount/convenience” these days is not exactly on trend:The U.S. Department Store Death Spiral: Department Store Share of Non-Auto Retail SalesSource: Retail Forward, 2003
26Target vs. Wal-Mart sales and comparable store growth – 2004 Despite these seemingly core negatives, Target has consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyn’s and Marshall Fields in 2003Target vs. Wal-Mart sales and comparable store growth – 2004Source: Company 10Qs and monthly financial reports—MVI, Dec 09, 2004
27So what is Target doing to achieve such exceptional results? Target keys to success:Clear, concise, consistent positioning – “Expect More, Pay Less”:Not just words but the basis for all buying and merchandising decisionsThe framework for Target’s Merchandising LadderA short, simple slogan that shoppers can remember and relate-toNon-price differentiation – Through captive brands, designer exclusives, partnerships with other retailers, trendy P.L. merchandise, celebrity endorsements and “Buzz Marketing”Emotional Connection with its customers – “My Target”
28So what is Target doing to achieve such exceptional results, cont’d? Heavy advertising – Over $1B in 2004 – to heighten awareness, sell promotions and build equity for the Target nameQuick response segmented merchandising – To capitalize on the latest generational and lifestyle shifts – expanded pharmacies (seniors), Hispanic advertising and Merchandising, “One Spot” (dollar sections), always on-trend merchandise (soft goods, apparel and housewares) and seasonal promotionsRapidly adding everyday “need” consumables to drive trips and increase traffic – significantly expanded food sections in all stores. Recently added extensive wine section.
29Target Positioning: “Expect More, Pay Less” We’re on top of trends so you will find the latest and greatest at Target.Bright, clean stores and fast checkouts make shopping at Target easy and fun.Really low prices are the number one reason to shop at Target.Great quality at a low price makes Target merchandise a great value.STYLESERVICEPRICEQUALITYIncrease share of walletPlatform for differentiationFashion/“Want” itemsDrive trips/build trafficCreate low price impressionConsumables/”Need” items
30Target’s Positioning vs. Discount and Department Stores Target’s “Expect More/Pay Less” Positioning has enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:Target’s Positioning vs. Discount and Department StoresDrive Value FocusDrive Trend FocusDiscount StoresLow Margins (23%)Follow TrendsPrice SensitivePrice/ConvenienceModerate margins (32%)Trend SeekersQuality/Value SensitiveTrend/Quality/ConvenienceDepartment StoresHigh Margins (50%)Early AdoptersQuality SensitiveFashion/SelectionThis positioning has become a major asset:Enables Target to attract a wealthier shopper than traditional discount stores.Improves sales per store, transaction size and gross margins (Target’s are highest in the channel at 32.8%).
31Target Buying – Key Levers Trend Planning – Crucial to “Expect More”:Trend merchandisers travel to seek-out latest colors, fashions and designsResearch coordinated across departmentsAll items, color schemes, etc. are tested ahead of the seasonCustomization – Pressure on suppliers to co-brand or custom-pack merchandise to reinforce Target’s differentiation objectivesCompetitive Line Reviews – Basically auctions consisting of competitive bidding for line distribution or promotion support:Target even calls these “shoot outs”Series of elimination roundsContracts can be up to one yearReverse Auctions – Online competition to provide lowest cost for commodity items or private label consumablesGlobal Sourcing/Direct Imports – Target is doing as much as it can to buy direct from lowest cost producers willing to meet product specs
32Target Buying – Supplier Mandates Reduce cycle times—allow for “just in time inventory”Zero tolerance for orders delivered before/after scheduled timeOne Purchase Order per Truck—while trying to reduce overall # of POsTiered in-stock level requirements – identify when Target begins to lose sales – maintain in-stocks above this level97% “in stock” for top 2500 items92-95% “in stock” for remainder of itemsPerfect match of invoice to receipt of productIncreased flow-through distribution—automated receiving tech. should facilitateWill impose penalties/finesCheckIn-stocks are important. Notion of Presentation Minimums—minimum in-store presence. A couple of issue:In-store sell-through is captured in store, but given batch processing to InfoRetriever, may be disconnect with what Bus. Analyst sees.Pres. Mins are also tweaked by store cluster, so can be differences among stores. Part of trade-offs. Can take Pres Mins down to reduce inventory, but OOS result. Efficiency vs. effectiveness.
33Target Supplier Report Card Target’s scorecard is the most complete of the three largest Discounters:BuyingLogisticsSell ThroughAdministrationOrder fill rateTurns – warehouse (store?)Out of stocks – warehouse and store lost salesForecast accuracyPercent orders with changes (customer)On-time delivery rateOrderDamage ratesLost timeMissed windowsBackhaul earnedBar code violationsPercent of plan – $s and unit salesNew itemsEstablished itemsMarketsNew/old storesGMROIShare of space, advertising, merchandisingFacings (slots)AdsDisplayMultiple locationsSignagePerfect order rateAccurate invoiceDeductionsPricingAdvertisingOtherEDITransmit ratesTarget has one of the most extensive vendor scorecards in the industry. Scorecard elements can be monitored and measured through POL.Scorecard covers all of the elements of in-bound logistics to store sell-through and administration.Work with buyer/BA to determine areas of focus, esp. in conjunction with THEIR compensation.
34Target Supply Chain/Logistics Initiatives – 2005 and Beyond: SKU Reduction – To facilitate focus on fewer, more important items and be “more important to fewer vendors”Automated Receiving Technology – Electronic labeling system that utilizes real-time information about where product is needed:Automatically labels each cartonSignificantly accelerates the flow of goodsEliminates time-consuming, labor intensive procedureRollout starting December, 2004DPIA – Direct Import, Pre-distro & Assortment ProgramsConverts indirect imports (no middlemen) to directHave suppliers pack store-specific and store ready pallets, reducing DC workloads and storage spaceHave suppliers combine multiple items in cartons to reduce the number of cartons sent to DCs in storesEstimated savings of $71MM in 2005RFID – Mandatory for pallets and cases by spring, 2007
35Target From The Supplier’s Standpoint: Multiple opportunities to tie-in with Target’s marketing and merchandising initiatives“Expect More/Pay Less” platformTarget community giving/cause-related sponsorshipsCo-Marketing to build upon each other’s equityCurrent, intense emphasis on “Pay Less”Multiple vehicles – Target TV and print advertising, circulars and website, etc.Supplier Aids:Partners On Line (POL) – provides suppliers with same data that buyer has (like Wal-Mart’s Retail Link)InfoRetriever – Available to Category Captains and top vendors – provides a deeper level of information on a more current basis + 2 years of back data
36Net on Target: EMOTIONAL CONNECTION! Non-price differentiation – no attempt to compete with Wal-Mart on its own termsWilling to settle for a piece of the pie rather than going after the whole enchilada:Consumer target is not the universe but primarily women and young singlesClear, precise, consistent positioning that enables Target to fill the void between commodity discounters and traditional department storesUnique understanding of the needs, wants and aspirations of its target shopper:Designer clothes, soft goods and housewares at great pricesClean, uncluttered stores with contemporary colors and thematic consistencyAncillary services that cater to Target shoppers lifestyles, needs and shopping proclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)
37Net on Target: EMOTIONAL CONNECTION (cont’d) Product assortments that cannot be purchased anywhere else – designer exclusives and captive brands, etc.Strong, centralized control to ensure uniformity and thematic consistency throughout all store presentations and activitiesA conscious policy of transferring as many costs as possible to the supplier community while, at the same time, offering suppliers a strong upside through Target’s aggressive advertising, merchandising and product exclusivity policiesAwareness of and willingness to react quickly to current issues – for example, Target’s current campaign to significantly increase its consumables representation to increase traffic and trip frequencies
38Ten factors, as follows: While Target and Wal-Mart have each chosen to walk different paths on route to their success, there are certain factors common to both of these retailers that make them leading edge vs. most others in the retail community.Ten factors, as follows:1. Differentiation – Through constant juggling of the following elements:PriceFormatsCaptive BrandsDesigner ExclusivesSuccessful Private Label ProgramsNational Brand Supplier Customization2. Use of Consumables – To build traffic and increase trip frequencies.3. Ancillary Departments – To increase convenience and share of wallet.4. Fluid Merchandising (rapid ins and outs) – To create excitement, build trip frequency and reinforce differentiation objectives
39Ten factors that separate the most successful from the rest, cont’d 5. “OPP/Good/Better/Best” Merchandise Ladders – To trade shoppers up in almost every category.6. Speed to Market – Now more important than “Bigness”7. Relentless Pressure on Costs and Productivity – Both in general and store-specific8. Willingness to Experiment – New formats, ancillary businesses, stores within stores, partnerships, adjacencies, retail-tainment, etc.9. Global Sourcing – Now direct from the lowest cost producer – no middle men.10. Technological Innovation – RFID, etc. to reduce costs/increase speed
40Moral of story:It’s not just price; it’s a combination of factors, carefully blended and balanced to satisfy a particular consumer need or aspiration. Each retailer has to search within its own strengths to find the right formula. There are no easy answers.
42A Special Thanks to Sylvia Harris and Cathy Ely of Luke AFB for their time and hospitality . . .
43We Appreciate The Time and Attention You Have Given Us Today Specifically, we want to thank Frank Jepson and the American Logistics Association for inviting us and P&G for sponsoring us and trust that this has been both fun and helpful.8912 East Pinnacle Peak Road • Scottsdale, AZ Phone (480) • Fax (480) • •
44Some particulars that may be of interest . . . AppendixSome particulars that may be of interest . . .
45Target and Kmart U.S. Sales vs. Wal-Mart – Relatively Small Wal-Mart vs. Target and Kmart Sales & Growth Projections: E$100$200$300$400199920002001200220032004E2005E2006E2007EWal-Mart CorporationWal-Mart USTarget CorporationKmart$382.1B$309.4B$59.5B$19.4BSource: MVI 10/28/2004
46Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004 By mid 2004, Wal-Mart U.S. had achieved 86% household penetration – almost 25 points more than its next largest competitor – which translates to over 130MM shoppers per monthWal-Mart vs. Leading Competitor Household Penetration, Mid 2004Source: IRI Panel Data (all shoppers - Total US)
47Wal-Mart Domestic Expansion Plans For 2005 – Total U.S. Not content with this, Wal-Mart plans an additional 500 new store openings plus remodels in 2005, driven primarily by new Supercenters:Wal-Mart Domestic Expansion Plans For 2005 – Total U.S.SupercentersDiscount StoresSAM’s ClubsNeighborhood MarketsTotal New StoresRemodels/RelocationsGrand Totals160500+Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/ /18/2004
48Wal-Mart’s store expansion strategy is carefully calculated to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:Wal-Mart Format Expansion Strategy: Capturing Consumers at All Income LevelsDifferent formats:Target the same consumer for different tripsTarget new consumersConsumer by HH incomeFormatA75K+walmart.comB60-75KSAM’SC45-60KN. MktDiscountD25-45KSupercenterE<25KSource: MVI 10/28/2004
49Wal-Mart’s latest and greatest Stores within stores:Kid’s Connection – Candy, soda, clothes, toysPersonal Business CentersDollar Stores – plastic bunnies, etc.Increased focus on soft goods:Coordinated lifestylesHeavy focus on Wal-Mart brandsIntegrated merchandising – e.g., not just towels but everything for the bathroomIn-store TV support for “How to decorate your home”Apparel:Mary Kate and Ashley exclusives – in-store and onlineLevi Strauss – 2003The Wal-Mart “George” line – men, women and children – big push!Carter’s line in infantsTrend alert – partnership with Seventeen Magazine to offer teens “cool picks” in clothing and electronics
50Target SuperTarget Growth vs Target SuperTarget Growth vs. Wal-Mart Supercenters – Not exactly NASCAR competitiveSource: MVI, Selling Target, 12/9/2004
51Target Super Target Issues: Traditional Targets are Hi/Lo; Super Targets are EDLP:Target dependent on supplier allowances to grow operating profitsEvery time Target converts a traditional discount format to a Super Target, it loses the benefit of the allowance (which is thereby driven into price and not op. profits)Building too many super centers too fast would severely impact Target’s financialsSuper Target trip frequencies do not support format productivitySuper Target layouts do not allow easy transition to the consumables section and cross-over shopping
52Expect More – Implementation is all about non-replicable differentiation Department store-like destination departments:ApparelHousewaresShoesCaptive Brands:MossimoDanskinPhilippe StarckExclusive Partnerships – Fieldcrest, Boots (HBA and Cosmetics) and Amazon.com (powers the Target website)Private Labels:50% of the storeReinforce Target’s brand equity – all have either “Wave” or “Bulls Eye”Key contributor to Target’s 32% gross marginSynergistic, complementary spin between stores and website:Bridal registry, “Target to a T – custom made clothes”Red hot shop – hot trendy items – new every weekGreeting cardsInfants and toddlersSeasonal itemsWaverly Garden RoomLiz Lange MaternityHello Kitty
53Pay Less – Implementation is all about driving trips and traffic: Price comping – Target pledges to match Wal-Mart on price item for item throughout storesSignificant expansion of consumables and commodity items starting in Q3, 2003:Based on new P2004 format50% greater space devoted to food, beverages and snacks“Consumables World” department placed in front of store70 remodels in 2004 – all remodels and new stores starting in 2005“Savings Spot” – In front of store, near registers, introduced 2004:Club-like pack sizesPaper, household cleaning supplies and pet foods“One-Spot” (Dollar departments) now expanding beyond test:Kitchen, storage containers, toys, baby products and stationeryExceptional value and “Treasure Hunt” itemsManaged by separate buying groupDoes not cannibalize other items
54Target Ancillary Departments – Return Trip and Transaction Size Drivers: Pharmacies:71% of stores by YE 2003Extended hoursPharmacy rewards program tied to use of Target Visa card“Minute Clinics”:135 sq. ft., staffed by a nurse practitionerTreats about a dozen common health problemsMenu-priced – most services $40 - $45, covered by insurance + co-payNow testing in 8 stores (BM) with plans to expand in metro areas95% of MC patients get prescriptions filled at TargetOther Services:One hour photo labsOptical departmentsIn-store restaurants – Starbucks, Pizza Hut, Taco BellLawn and Garden centersPortrait studiosBridal and baby gift registries
55Target aggressively advertises its benefits through multiple vehicles and is, in fact, the largest advertiser of the Big 3VehicleTargetWal-MartKmartTV$288$426$86Print$293$40$95Outdoor$19$14$8Unmeasured$483$198$223$1,083$678$413Index(100)(63)(38)Media Strategy:TV is strongly seasonal/holiday orientedHeavy print budget is targeted to women and young adults“Unmeasured” is circulars and ROPSource: LNA and MVI,
56Target Buyer Compensation Structure 85% of buyer compensation:SalesContribution DollarsContribution %Inventory TurnsIn-Stock % (10%) and personal objectives (5%) round out compensationSenior Buyers are also eligible for a bonus plan that can represent up to 100% of their base compensation.Goals are set every 6 months, not annually.Including product flow costs…Target is very sophisticated in terms of buyer measurement.Lots of trade-offs—margin vs. velocity—so each buyer will work through trade-offs differently. Making money on buy vs. sell. Key is to understand each buyer’s thinking around the trade-offs.Margin vs. turns (big buy up front); inventory vs. OOS; gross vs. contribution margin--Product flow-through costs (contribution), ABC are also incorporated—so opp. To work with Target in this area. Contribution adjusted by flow through costs from DC to back door and probably vendor dollars.--Buyers who hit all bonus measures are considered “golden”Tiered contribution margins—high, medium, low—important to ask buyer what the charges are in order to move up tiers and affect contribution; may be small tweeks such as pallet weight; moving to a different level can change margin for buyers;