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Market Segments and Distribution Channels

Categories Business, Business Management, Corporation, Economy

Essay, Pages 4 (817 words)

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Essay, Pages 4 (817 words)

Target Corporation operates within a broad market of general merchandised goods. Their wide range of products are distributed mostly through physical in-store sales, though approximately thirty percent of total revenue can be attributed to digital sales on the internet. With over 1850 stores across the nation, Target plans to develop smaller formatted stores focused in urban areas. Said urban areas are believed to contain untapped potential consumers who may bite on the differentiated products Target wants to win over competition with.

Walmart Incorporated is the biggest fish in the large pond of general merchandising, and they own the numbers to back it up.

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Walmart’s low pricing is nearly impossible to compete with in the market, as their perishable selection provides 60% of total sales and drives much of their in-store traffic. This in-store traffic is strong across more than 11,000 stores worldwide. Walmart also continues to strengthen its already powerful internet sales and has purchased several sites to push this cause. Most recently, Walmart purchased 77% of Flipkart, the Indian equivalent of Amazon and Alibaba.

In the Industry, Target must also compete with the ultra low-priced Dollar General. Dollar General also focuses on physical stores, but locates in thinly populated areas that are unable to support multiple retailers. They also have adopted digital retail, with the creation of a mobile app that features digital coupons, which continues to drive in-store traffic.

Efficiency/Productivity

Tables 1-3 below show several key efficiency ratios of Target, Walmart, and Dollar General. Notice that Walmart owns the highest inventory turnover rate over the previous three years, with turnover of approximately eight times per year.

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Target sits in the middle, hovering around six times per year, and Dollar General trails with only four times per year. It is no surprise that Walmart owns the best numbers in this area, as their advanced inventory system is highly efficient. Only products that are high in demand are sold. Sales are constantly recorded and help mold the necessary inventory.

The value of the three recorded companies’ revenues relative to the value of their assets can be seen in the asset turnover ratio in tables 1-3 below. Again, Walmart is the leader in this department with a ratio in the mid-two’s over the previous three years. Dollar General takes the second spot in this category just edging out Target. This shows that Target must more efficiently use their assets to generate higher revenue.

When looking at accounts receivable turnover, Target’s higher numbers show that it owns a conservative credit policy and an aggressive collections department. Customers must be high quality so that debts can be paid on time. This is converse to Walmart’s low accounts receivable turnover, which shows a less aggressive approach to receivables. Walmart feels that their constantly high cash flow can protect them from risk of debt becoming too high.

Business Strategy

With industry giants Walmart and Amazon constantly in the rearview mirror, Target must attempt to remain relevant to consumers. Target does not have the ability to compete on a price or production level with Walmart or Amazon, which means that they must differentiate by offering signature categories such as style, children, baby, and wellness. Such categories currently represent almost one-third of total sales and can be connected to faster growth rates than Target’s general merchandise sectors.

In comparison with the industry leaders, Target is lacking in online sales, giving them a negative future outlook if things remain unchanged. The upward trend of internet sales in the market will likely hurt the sales of signature categories, as such items rely heavily on in-store consumer contact. While Target brought in nearly $4 billion in internet sales last year, industry leader Walmart earned more than six times that, with almost $24 billion in internet sales.

In addition to beefing up internet sales, Target intends to continue the promotion of their store credit card REDcard. The REDcard offers special benefits to Target customers with the hope of maintaining heavy in-store traffic. Store traffic continues to be promoted, as $2 billion in cost savings from the previous year has been reinvested with this in mind.

Economic Moat/Competitive Forces

According to the analyst report offered on Morningstar, Target Corporation does not possess an economic moat in comparison to the other companies in its strategic and industry groups. Walmart, however, does carry a competitive edge, as it holds price advantage over other players in the market. Walmart’s ability to procure directly from suppliers and vendors allows them to drive prices down to low levels that are difficult to match. They have been able to build a model that delivers low prices, convenience, and one-stop shopping, despite the low switching costs currently seen in retail across the board.

Walmart’s inventory system also plays a large role in their ability to drive profits and cut unnecessary holding costs. Their efficient system keeps stores convenient with relevant products that consumers want and need.

Cite this essay

Market Segments and Distribution Channels. (2019, Dec 10). Retrieved from https://studymoose.com/market-segments-and-distribution-channels-essay

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