Strategy Final Assignment

VS.

Shai Zamir
Dan Saguy

The Discount Retail Arena

Founded 1902
Over 1800 stores
49 States, now expanding into
Canada

Competition

Founded 1916
Over 1000 stores
50 U.S. states, Puerto Rico

Porters 5 Forces analysis

Rivalry/competition
Competition is intense. Many rivals with similar
products and services.

Threat of new Entrants

Large capital is necessary for operating (big
workforce, chain of stores, etc.). Difficulty of
creating reliable suppliers and distribution
channels. Threat of new entrants is rather low.
Substitutes
Shopping in brand name stores for a certain item,
rather than going into a huge store with
everything. Relatively low threat
Shopping online. Both Kmart and Target have an
online store.

Porters 5 Forces analysis

Power of buyers
Buyer power is high. Many competitors available,
stores as well as online.
For Kmart, bargaining power is high, since the
Kmart brand is going through difficulties for the
last decade.
For Target: target market is perceived to be more
sophisticated- also high.

Power of Suppliers
The companies rely on suppliers to deliver quality
products. But both companies sell nationwide and
offer store locations in prime shopping locations.
Suppliers are abundant.
The power of the suppliers in the industry is fair.
Kmarts supplier power will be higher because of

Porters 5 Forces analysis

Summary
Same market
Similar products.
Similar performance.
Differences exist, mainly due to Kmarts
difficulties and struggles to develop its brand,
which is reflected in the higher bargaining power
of both suppliers and buyers.

Analysis

Key Resource 1: IT competence

Valuable
Just in time inventories
Intelligent IT spending
Rarity: Competence in information technology is also an
asset of other competitors (Wal-mart, Amazon.com,
Costco, to name some), The resource is not rare.

Rare
Also an asset of other competitors
The resource is not rare.

Key Resource 2: Distribution Channels

Valuable
Both brands operate in an arena that requires a
nationwide and diversified net of suppliers. The resource
of a distribution network is absolutely essential to thrive
for both companies. Valuable.

Rare
The distribution network, selling so many different
products to millions of different customers throughout
the country, is a vast network, and one of the key
resources in the discount retail industry. There are
other nationwide brands like Gap, Barns&Noble,
StopnShop, etc. but they sell a smaller line of
products, and not necessarily discounted. Therefore
we consider it as being rare.

Key Resource 2: Distribution Channels

Inimitable
Very difficult to imitate due to the cost
disadvantage that competitors will face in
acquiring or substituting this resource

Organization
The corporation has the organizational capability to
exploit the resource that they developed, capture more
share of the market and grow.
Kmart, on the contrary, had some difficulties with
supplier relations, along its history of financial disorders.

Competitive advantage
Performance Above norma

Key Resource 3: Brand Name

Valuable
Target: Known as providing quality products for low
price, brand is related to a positive, even fun experience:
result of Target's intensive investment in the shopping
experience. Their mission statement focuses great guest
service, clean stores and speedy checkouts.
Kmarts brand name is related to the lowest prices. It is
highly popular with minorities groups, especially afroAmericans and Hispanics. Both brand names are
valuable.

Rare
Target's brand represents quality and low prices,
along with an enjoyable shopping experience. The
slogan is "expect more, pay less", and they live up to
it. The combination is rare.
In Kmart's case for example, the brand represents
very low prices, but of lesser quality. Kmart strategy
focuses mostly on pricing, and has not differentiated
itself from Walmart's strategy. Kmart's brand is not
rare.

Key Resource 3: Brand Name

Inimitable
Target's brand name is hard to imitate. A significant
cost disadvantage in acquiring/substituting the
resource (advertising, customer service, product
diversification, etc).

Organization
Target has successfully incorporated the resource into
their organization. Target's brand recognition is hugely
important to success. The firm identified that this
resource is a competitive advantage.
.

Competitive advantage
Performance Above norma

Key Resource 4: Human Capital

Valuable
Target understands that low wages never equal a
satisfied employee which can reflect negatively on the
company.
While Kmart also invests in human capital, its payrolls
are usually smaller and the workforce is not as qualified,
shorter training program. Kmart's resource is not
valuable.

Rare
Many companies recognise the importance of human
capital, and this resource is not rare for Target.

Key Resource 5: Location

Valuable
Target Corporation operates 1,750 stores in 49 U.S.
states and the District of Columbia. Further, it offers
general merchandise products through its Website,
Target.com.
Kmart, operates a total of 1,205 stores (as of December
2011). Kmart stores are across 49 states, Guam, Puerto
Rico, and the U.S. Virgin Islands, and through its ecommerce shopping site, www.kmart.com. Both
companies are operating on a nationwide level- valuable
resource.

Rare

Unlike any of Target's competition, many stores have

been placed in accordance with trendy malls. This
gives and advantage of convenience.
Kmart stores are located in easily accessible areas,
especially in urban areas where they are able to get a
large multi-cultural consumer group. We conclude
that the resource is rare for both companies.

Key Resource 5: Location

Inimitable
Many big players in the arena (like Walmart, Costco)
can shift their stores from one location to another. It
may generate costs but this will not create a great
cost disadvantage. Resource is imitable.

Competitive Advantage 1:
Diversity of Products
Imitation
Size economies: Both companies operate on a
nationwide level and reaching customers with
products that appeal to different needs.
Management of inventory and distribution
channels requires knowhow (private
information).
Inventory management and trend predicting is
constantly being upgraded.

Competitive Advantage 1:
Diversity of Products
Substitution
The substitutes are the brand name stores that
sell specific items (like buying a toy in Toys R'
Us). Target and Kmart are not responding to the
threat - it's not a risking the value that the
diversity of products generates for Target and
Kmart.

Holdup

The large scale of products has allowed the

companies to contract a wide range of suppliers,
giving high bargaining power, creating stable,
trustful relationships with long term contracts,
and a holdup advantage.

Competitive Advantage 1:
Diversity of Products
Slack
Target is doing a better job in exploiting this
valuable advantage. It is utilizing technology and
implementing it into its information systems, to
control inventory stock, checkout systems, etc.
One of its strength is its ability to anticipate the
demands of the customers ahead of time. Target
is exploiting and maximizing fully its competitive
advantage and continue to show growing sales.

Competitive
Advantage:
Imitation
Quality in Retail
Size economies
Private informationDiscount
Target is doing an excellent
job with technology and improving the inventory
system, as well as analyzing their clients
preferences
Switching costs, the quality products at low
prices policy makes it difficult for competitors to
compete..

Substitution

Buying in regular brand name stores: normally

price will be higher. Target is defending by
offering its clients upscale trendy innovative
products which keeps their customers returning.
It is also recombining: Top designers have
signed agreements with Target to sell their items
at affordable prices, for example: Victoria's Secret

Competitive
Advantage:
Quality in Retail
Holdup
Target's large scaleDiscount
has allowed it to contract with
a great range of suppliers, with extraordinary
bargaining power. It has built mutual
dependence with long term suppliers who offer
quality products, developed trust to create
stable cooperative relationships, giving it a
holdup advantage.

Slack

Target has been depicted as "the discount store

with attitude where department store
customers feel very comfortable shopping". This
has created loyal returning customers, and
continually makes the business become a tough
competitor among its rival. Very limited slack.

Competitive
Advantage:
Pricing
Slack
Amazon is investing many efforts in penetrating
new markets and adopting new products and
processes, allowing a wide range of products and
lowering the price for each. Also, Amazon sells
used products that make the price even lower.
Thus, Amazon has limited slack in terms of
discount retailing.

Competitive
Advantage:
Pricing
Slack
Amazon is investing many efforts in penetrating
new markets and adopting new products and
processes, allowing a wide range of products and
lowering the price for each. Also, Amazon sells
used products that make the price even lower.
Thus, Amazon has limited slack in terms of
discount retailing.

Competitive Advantage :
Distribution Network
Imitation
Private information- analyzing the retail
process: how orders are made, packaging,
shipping, inventory management etc.
Switching Costs- the delivery costs and service
of other companies will be higher
Size Economy- Amazon is a gorilla in the online
selling market

Substitution
Not responding- the reasonable substitution:
going to a physical store.`

Competitive Advantage :
Distribution Network
Holdup
Amazon has contracts with numerous suppliers,
and has extraordinary bargaining power. It has
built mutual dependence with the suppliers,
developed trust to create stable cooperative
relationships with long term contracts, giving it
a holdup advantage.

Slack

Limited slack. Amazon exploits its distribution

potential by sending millions of products to
millions of customers all over the globe, and
pooling resources (a customer buying a book, can
also add other products to his shipment).

Competitive Advantage :
Customer Service
Imitation
Private information- understanding the needs
of its customers, investing resources and effort in
ongoing improvement of its customer service
(ranked one of the top companies in this field).
High switching costs- customers dont not
want to switch to a different company.
Upgrading and constantly Improving

Substitution
Customer service does not have an efficient
substitute (maybe sophisticated software) Amazon
is not responding to this threat.

Holdup

Competitive Advantage :
Customer Service

Constantly improving customer service, to build

mutual dependence of clients, develop trust
and cooperation. Its long term relations and
contracting with suppliers, allows it to efficiently
address customer service issues regarding a
specific supplier or product.

Slack
Amazon uses online surveys to improve and
monitor its customer service. limited slack.
Amazon also has an outstanding return policy.

Summary
The discount retailing industry in the U.S is
mainly controlled by three "gorillas": Wall-Mart,
Target and Kmart. The market characteristics
leave no room for strategic mistakes.
In terms of external threats, the buyers &
suppliers power among with the rivalry is the
main threats to pay attention to and while Target
made significant moves in order to differentiate
itself from the rivals and lowering the bargaining
power of suppliers and buyers, Kmart
experienced stagnation in terms of business
development, focusing mainly on pricing and
target market.

Summary
Internal analysis:
Target develops its resources and capabilities,
primarily focusing on its brand name and
collaborations, as well as innovative technology
to control store management that gave it
competitive advantages
Kmart had poor performance according to the
VRIO analysis. The company did not respond or
defend itself from other threats and lost the
advantages that it had.
This is a death sentence for Kmart in the long
run if it will not change its strategy.