Target Corporation



MEMO

To: Bobby C. Vaught, Ph.D. Date: July 11, 2000
Professor of Management
From: John Schindele
Subject: Target Corporation (Formerly Dayton Hudson)

The main issue facing Target Corporation is what it should do with its department store and Mervyn’s divisions. The company has considered closing or selling the divisions several times over the past few decades. Although both divisions continue to make a profit, the company could be better off focusing all of its attention on the Target stores. On the other hand, maybe the company needs to take a different approach with the divisions and try to make them more successful to generate greater profits.

Target Corporation is going to have to sell its department store and Mervyn’s divisions if they do not show significant improvements in next year after the new strategy goes into affect. These two divisions are holding Target back and depleting some of its much-needed resources. In the short run the other two divisions are going to start conducting business in the same fashion as the Target stores. If after a year the new strategy, which is making the other two divisions more like the target division, has not produced more profit for the company, it will be time to either sell or close the companies. Target would much rather sell the companies, but that can only happen if another company is willing to buy.

The goal for the new change is that within a few months the change will be in full swing. After a year the companies should be making not only more revenue but also more profit. Unfortunately, if the changes do not work as planned, Target Corporation will not be able to keep the businesses.












Background
Dayton Hudson Corporation changed its name to Target Corporation in January this year. The origins of the company date back to 1891 when Joseph Hudson opened a men’s clothing store in Detroit. In 1903 George Dayton opened Dayton Dry Goods Company, which changed its name to The Dayton Company in 1910. The Dayton Company entered the discount merchandise retail industry in 1962 when it opened its first Target store. The two companies merged and formed Dayton Hudson Corporation in 1969. The company continued to expand by purchasing Mervyn’s in 1978 and Marshall Field’s in 1990. By 1979 Target had become the corporation’s top revenue producer.
In the past three years the company has changed significantly. Besides changing its name, it has also attempted to diversify by acquiring two more companies. In 1998 it bought Rivertown Trading Company and The Associated Merchandising Corporation. The acquisition of Rivertown Trading Company showed that the company was willing to try something new by entering the major catalog market. The Associated Merchandising Corporation was already a supplier for many of the companies products, so it was very convenient for it to take over operations. As recently as 1999, the company launched its e-commerce capability with store brand web sites.
When the company claimed the Target Corporation name in January this year, it was acknowledging its dependency on the success of its Target stores. The Target stores and the e-commerce focus appear to hold the future of Target Corporation’s Success. The department store and Mervyn’s divisions still play a major role in generating revenue for the company, but the future of those divisions is less predictable.
SWOT – Situation Analysis
External Industry Analysis
Prospects for Volume and Profit – Industry Wide
Target Corporation is in the general merchandise retailing industry, sometimes called the discount retailing industry. Its store brands include Target, Dayton’s, Marshall Field’s, Hudson’s and Mervyn\'s California. Selected information on the stores in the three divisions is given in Exhibit 1 through 4. The acquisition of Rivertown Trading Company marked Target Corporation’s first entry into a major catalog business. Rivertown and Target’s e-commerce team have combined to make one business called target.direct. This creation allows Target Corporation to strengthen its capabilities in the direct marketing retail channel and Internet retailing.
The general merchandise industry has experienced significant growth of 15.8% annually in the past five years due partly to the strong economy. The industry accounted for $346 billion dollars in 1998. Experts project that it will increase this year and next year by 19.6% and 18.8% respectively. The five-year projection for the industry shows an annual increase of 18%. Selected information on the industry is given in Exhibit 5