ala2005r3-final with pics march 8 2005

8/8/2019 ALA2005R3-FINAL With Pics March 8 2005

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8912 East Pinnacle Peak Road Scottsdale, AZ 85255Phone (480) 513-0547 Fax (480) 513-0548 E-Mail: [email protected] [email protected]

www.hoytnet.com

What¶s Leading Edge With Today¶s Leading Mass VolumeWhat¶s Leading Edge With Today¶s Leading Mass VolumeRetailers?Retailers?

What¶s Leading Edge With Today¶s Leading Mass VolumeWhat¶s Leading Edge With Today¶s Leading Mass VolumeRetailers?Retailers?

March 8, 2005

Dallas, TX

American Logistics AssociationExchange Roundtable



2ALA2005R3.ppt

Based on most recent research, the top 3 retailers shoppers rank as literallyBased on most recent research, the top 3 retailers shoppers rank as literally³indispensable´ to their daily lives are Wal³indispensable´ to their daily lives are Wal--Mart, Target and Costco:Mart, Target and Costco:

Base: Among those who shop the storeBase: Among those who shop the store

WalWal--MartMart 31%31%

CostcoCostco 17%17%

TargetTarget 13%13%

BJ'sBJ's 11%11%Kroger Kroger 9%9%

Albertson's Albertson's 9%9%

SafewaySafeway 8%8%

Sam's ClubSam's Club 7%7%

CVSCVS 5%5%

77--ElevenEleven 3%3%

Dollar GeneralDollar General 3%3%

WalgreensWalgreens 3%3%

Rite AidRite Aid 2%2%

KmartKmart 2%2%

69%

31%

Total respondents

ould live¡

ithout any

specific

retailer

ould notlive

¡

ithout«

Meyers Research: ³Retailers onsumers ould Not Live Without´Meyers Research: ³Retailers

onsumers ould Not Live Without´ (Aug, 2004)(Aug, 2004)

Source: Meyers Research, Aug, 2004



3ALA2005R3.ppt

Not coincidentally, WalNot coincidentally, Wal--Mart, Target and Costco are also the same retailers thatMart, Target and Costco are also the same retailers thatconsumers find the ³most fun to shop´:consumers find the ³most fun to shop´:

Base: Among those who shop the storeBase: Among those who shop the store

TargetTarget 30%30%

CostcoCostco 30%30%

WalWal--MartMart 28%28%

SAM¶s ClubSAM¶s Club 20%20%BJ¶sBJ¶s 11%11%

Dollar GeneralDollar General 6%6%

Albertson¶s Albertson¶s 4%4%

KmartKmart 3%3%

WalgreensWalgreens 3%3%

CVSCVS 2%2%

Kroger Kroger 2%2%

Family Dollar Family Dollar 1%1%

SafewaySafeway 1%1%

Rite AidRite Aid 1%1%

Total respondents

Do not findany specific

retailer fun

to shop

Find« mostfun to shop

85%

15%

Specific Retailers Consumers Find Most Fun To ShopSpecific Retailers Consumers Find Most Fun To Shop

Source: Meyers Research, Aug, 2004



4ALA2005R3.ppt

Today:Today:

jj What is it about WalWhat is it about Wal--Mart and Target that makes them so successful, not only withMart and Target that makes them so successful, not only withshoppers, but from a business standpoint in general?shoppers, but from a business standpoint in general?

jj What lessons can Exchanges take away from this, given their objectives and theWhat lessons can Exchanges take away from this, given their objectives and theconstrictions under which they operate?constrictions under which they operate?

jj Q&AQ&A



5ALA2005R3.ppt

The LeadersThe Leaders ± ±Snapshot of Current Vital Statistics:Snapshot of Current Vital Statistics:

WalWal--MartMart TargetTarget

Sales (U.S. $B)Sales (U.S. $B) $232.9$232.9 $47.1$47.1

# Stores (U.S.)# Stores (U.S.) 3,7113,711 1,3131,313

Gross MarginGross Margin 23.9%23.9% 32.8%32.8%

Operating ExpensesOperating Expenses 18.4%18.4% 22.4%22.4%

Proj. CAGR, µ04Proj. CAGR, µ04 -- µ07µ07 9.9%9.9% 8.9%8.9%

PositioningPositioning ³Always Low Prices´³Always Low Prices´ ³Expect More/ Pay Less´³Expect More/ Pay Less´

HH PenetrationHH Penetration 86%86% 62%62%

Sales/Sq. FootSales/Sq. Foot 439439 289289

Inventory TurnsInventory Turns 7.77.7 6.36.3

Days Sales In Net InventoryDays Sales In Net Inventory 2121 1212

Merchandising StrategyMerchandising Strategy EDLPEDLP Hi/LoHi/Lo

Source: Company 10Ks & 10Qs; Hoyt & Company, LLC, 2003 - 2004



6ALA2005R3.ppt

While WalWhile Wal--Mart and Target are very different retailers, both share the same objectives asMart and Target are very different retailers, both share the same objectives asall other retailersall other retailers± ± specifically:specifically:

Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logisticsGrow profitable sales by aligning and focusing all marketing, merchandising, buying and logisticsfunctions on one or more of the following objectives:functions on one or more of the following objectives:

ExchangesExchanges

jj Increase customer count (new customers)Increase customer count (new customers) XX

jj Increase trip frequencies (current customers)Increase trip frequencies (current customers) YesYes

jj Increase transaction size (current customers)Increase transaction size (current customers) YesYes

jj Increase productivity (Human and Financial)Increase productivity (Human and Financial) YesYes

jj Reduce costs (COG¶s and Operations)Reduce costs (COG¶s and Operations) YesYes

As you will see, the paths that Wal As you will see, the paths that Wal--Mart and Target have chosen to achieve these objectivesMart and Target have chosen to achieve these objectivesrepresent today¶s industry Best Practices.represent today¶s industry Best Practices.



7ALA2005R3.ppt

The 800 lb. GorillaThe 800 lb. Gorilla

In Every Retailer¶s Living Room!In Every Retailer¶s Living Room!

The 800 lb. GorillaThe 800 lb. Gorilla

In Every Retailer¶s Living Room!In Every Retailer¶s Living Room!jj $284B $284B ± ± Largest company in the worldLargest company in the world ± ± greater than the GDPs of Austria,greater than the GDPs of Austria,

Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden,Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden,Switzerland, Ukraine and VietnamSwitzerland, Ukraine and Vietnam

jj $20K in profit$20K in profit per minuteper minute!!

jj 13% WW CAGR13% WW CAGR ± ± projected to do $1 trillion by 2014projected to do $1 trillion by 2014

jj $233B U..S. sales$233B U..S. sales ± ± CAGR of 9.9% to 2007CAGR of 9.9% to 2007

jj 3,711 U.S. stores:3,711 U.S. stores: 1,706 Super Centers1,706 Super Centers 1,370 Discount1,370 Discount

549 SAM¶s Clubs549 SAM¶s Clubs 86 Neighborhood Markets86 Neighborhood Markets

jj 500+ new stores/remodels planned for 2005500+ new stores/remodels planned for 2005

jj Objective is to become the largest retailer in every market in which it operates (nowObjective is to become the largest retailer in every market in which it operates (now#1 in only two countries out of 10)#1 in only two countries out of 10)



8ALA2005R3.ppt

So what are the key growth drivers that enable WalSo what are the key growth drivers that enable Wal--Mart to sustain theMart to sustain themomentum of this juggernaut?momentum of this juggernaut?

Let¶s look at these from the standpoint of what¶s relevant to Exchanges inLet¶s look at these from the standpoint of what¶s relevant to Exchanges interms of:terms of:

jj Marketing and MerchandisingMarketing and Merchandising

jj BuyingBuying

jj LogisticsLogistics



9ALA2005R3.ppt

The key elements of the WalThe key elements of the Wal--Mart marketing mixMart marketing mix ± ± elegant and sophisticatedelegant and sophisticated ± ± waywaybeyond just ³Always Low Prices´:beyond just ³Always Low Prices´:

1.1. EDLP made possible by EDLCEDLP made possible by EDLC ± ± Global buying and relentless pressure on COGsGlobal buying and relentless pressure on COGsand operating costsand operating costs

2.2. Use of consumablesUse of consumables (food and non(food and non--edible CPG items) to drive traffic andedible CPG items) to drive traffic andtransaction sizetransaction size

3.3. ³OPP/good/better/best´³OPP/good/better/best´ merchandising ladder (private labelsmerchandising ladder (private labels ± ±> national brands)> national brands)

4.4. LocalizationLocalization ± ± Demographic assortmentsDemographic assortments

5.5. Ancillary businesses Ancillary businesses ± ± hearing aids, optics, stores within stores, etc.hearing aids, optics, stores within stores, etc.

6.6. Consumer Consumer--centric versus supplier centric versus supplier--centric business modelcentric business model ± ± all allowances areall allowances aredriven into price and not used to subsidize operating profitsdriven into price and not used to subsidize operating profits



10ALA2005R3.ppt

The key elements of the WalThe key elements of the Wal--Mart marketing mix (cont¶d)Mart marketing mix (cont¶d)

7.7. ShopShop--abilityability ± ± wide aisles, mucho signage, well lit, easy to navigatewide aisles, mucho signage, well lit, easy to navigate8.8. Speed to marketSpeed to market ± ± new items and promotionsnew items and promotions ± ± 24/7 + 48 hour turnaround24/7 + 48 hour turnaround

9.9. Community involvementCommunity involvement ± ± parking lot extravaganzas, fishing contests, high schoolparking lot extravaganzas, fishing contests, high schoolmarching bands, etc.marching bands, etc.

10.10. RetailRetail--tainmenttainment ± ± inin--store TV sets, trendy promotions (Shrek 2 and Britney Spears)store TV sets, trendy promotions (Shrek 2 and Britney Spears)

11.11. EDLP reinforcementEDLP reinforcement ± ± roll backs, action alley, special buys and multiple clearance itemsroll backs, action alley, special buys and multiple clearance items

12.12. Clicks and bricks synergyClicks and bricks synergy ± ± what you can¶t get inwhat you can¶t get in--store, you can get onlinestore, you can get online

13.13. Store managers have broad discretionStore managers have broad discretion ± ± can tailor assortments, authorize local displayscan tailor assortments, authorize local displaysand recommend new distribution of local itemsand recommend new distribution of local items



11ALA2005R3.ppt

WalWal--Mart strategy to drive trips/provide oneMart strategy to drive trips/provide one--stop shopping conveniencestop shopping convenience ± ±sell need (read ³food´) items!sell need (read ³food´) items!

Source: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003

2001$63B

2002

$82B

2003$95B

2004$112B

2007$162B

2010$195B

35%35%

Bigger than

Kroger,Albertsons,

Safeway andAhold combined

Bigger than

Kroger,Albertsons,

Safeway andAhold combined

Bigger than Kroger & Albertsons

Combined

Bigger than Kroger & Albertsons

Combined

Surpasses Kroger as thenation¶s #1 food retailer Surpasses Kroger as thenation¶s #1 food retailer

WalWal--Mart¶s March To The Top of the U.S. Food Chain: 2001Mart¶s March To The Top of the U.S. Food Chain: 2001 -- 20102010

(Food & Drug Sales(Food & Drug Sales Only)Only)



12ALA2005R3.ppt

OPP =Opening Price Point in the category

(typically, Private Labels)

GOOD

BETTER

BEST = Typically National Brands

The WalThe Wal--Mart Merchandising Ladder Mart Merchandising Ladder

Source: MVI 10/28/2004



13ALA2005R3.ppt

WalWal--Mart BuyingMart Buying ± ± What lies behind the glitzWhat lies behind the glitz

WalWal--Mart buyer responsibilities:Mart buyer responsibilities:

jj Development of innovative merchandising solutionsDevelopment of innovative merchandising solutions

jj Understand customer needs and trends and set the pace of new product development &Understand customer needs and trends and set the pace of new product development &brand strategybrand strategy

jj Management of a diverse supplier baseManagement of a diverse supplier base ± ± from major brands to own labelfrom major brands to own label

jj Achievement of business plan targets Achievement of business plan targets

jj Development and delivery of the category¶s trading strategyDevelopment and delivery of the category¶s trading strategy



14ALA2005R3.ppt

WalWal--Mart BuyingMart Buying ± ± How Buyers are MeasuredHow Buyers are Measured

jj SalesSales

UnitsUnits

DollarsDollars

jj Profit dollarsProfit dollars

jj Margin %Margin %

jj TurnsTurns

jj Markdowns (e.g., maintained margin)Markdowns (e.g., maintained margin)

jj InIn--stockstockjj Comparable store sales growth (in certainComparable store sales growth (in certain

categories)categories)

jj Less tangible measures:Less tangible measures:

Respect for the individualRespect for the individual

Service to customersService to customers

Strive for excellenceStrive for excellence

WalWal--MartB

uyer MartB

uyer ± ± Key Performance MeasuresKey Performance Measures



15ALA2005R3.ppt

To achieve their objectives, WalTo achieve their objectives, Wal--Mart buyers proactively utilize suppliersMart buyers proactively utilize suppliersto help run their business:to help run their business:

WalWal--MartB

uyer MartB

uyer ± ±> Supplier Expectations> Supplier Expectationsjj Annual plan Annual plan ---- rolling 12 months by month and quarter rolling 12 months by month and quarter

New itemsNew items

Tab ideasTab ideas

Modular suggestionsModular suggestions

MCAPSMCAPS ---- community store merchandisingcommunity store merchandisingjj Weekly monitoring:Weekly monitoring:

Item P&Ls vs. planItem P&Ls vs. plan

Sales, initial margin, markdowns, contribution marginSales, initial margin, markdowns, contribution margin

Problem stores/districts, as well as itemsProblem stores/districts, as well as items

Competitive situationsCompetitive situations

jj CoCo--managed Inventorymanaged Inventory

ReplenishmentReplenishment

New item/promotionalNew item/promotional

Economic order quantitiesEconomic order quantitiesSource: MVI, Selling Wal-Mart 10/28/2004



16ALA2005R3.ppt

WalWal--Mart Vendor ScorecardMart Vendor ScorecardExtensive measurements for WalExtensive measurements for Wal--Mart and SuppliersMart and Suppliers

jj Sales MeasurementsSales Measurements

Overall % IncreaseOverall % Increase

CompsComps

Avg. Sales/Store Avg. Sales/Store

Sales at Full Price vs. MarkdownSales at Full Price vs. Markdown

jj Markdown MeasurementsMarkdown Measurements

Markups and Markdowns (Dollars, UnitsMarkups and Markdowns (Dollars, Unitsand %)and %)

Prior and current retail pricePrior and current retail price

jj Margin MeasurementsMargin Measurements

Initial marginInitial margin

Average retail price Average retail price

Average cost Average cost

Gross profit at item levelGross profit at item level

Gross profit/item/storeGross profit/item/store

Margin mixMargin mix

jj Inventory MeasurementsInventory Measurements

Replenishable store inventoryReplenishable store inventory

NonNon--replenishable store inventoryreplenishable store inventory

Warehouse inventoryWarehouse inventory

Lost sales from OOSLost sales from OOS

Excess inventoryExcess inventory

DC outsDC outs Total owned inventoryTotal owned inventory

jj Return MeasurementsReturn Measurements

Customer defective returnsCustomer defective returns

Store ClaimsStore Claims

Source: Hoyt & Company Records



17ALA2005R3.ppt

WalWal--Mart LogisticsMart Logistics ± ± How does WalHow does Wal--Mart stack up versus itsMart stack up versus itsleading competitors?leading competitors?

WalWal--Mart has the highest inventory turnsMart has the highest inventory turns

WalWal--Mart Turns vs. Kmart + Target: 1998Mart Turns vs. Kmart + Target: 1998 -- 20032003

6.3

4.1

6.76.9

4.1

6.3

7.2

4.4

6.3

7.7

4.9

6.3

8.1

4.9

6.4

7.7

4.4

6.3

0

1

2

3

4

5

6

7

8

9

Wal-Mart Kmart Target

1998 1999 2000 2001 2002 2003

Source: Company Reports; MVI, 10/28.2004



18ALA2005R3.ppt

WalWal--Mart LogisticsMart Logistics ± ± How does WalHow does Wal--Mart stack up (cont¶d)Mart stack up (cont¶d)

and the lowest # of days sales on hand:and the lowest # of days sales on hand:

WalWal--Mart vs. Leading Competitors: # Days Inventory On Hand: 1998Mart vs. Leading Competitors: # Days Inventory On Hand: 1998 -- 20032003

58

90

5453

88

5851

83

58

47

74

58

45

74

57

47

83

58

0

10

20

30

40

50

60

7080

90

100

Wal-Mart mart Target

1998 1999 2000 2001 2002 2003

Source: Company Records; MVI, 10/28/2004



19ALA2005R3.ppt

WalWal--MartMart ± ± Key Inventory Management Drivers:Key Inventory Management Drivers:

Replenishment & LogisticsReplenishment & Logisticsjj CoCo--managed/vendor managed inventorymanaged/vendor managed inventory

jj TwoTwo--Tier Distribution (Replenishment vs. Promotional)Tier Distribution (Replenishment vs. Promotional)

jj Collaborative Planning, Forecasting and Replenishment (CPFR)Collaborative Planning, Forecasting and Replenishment (CPFR) ± ± works with suppliers toworks with suppliers todetermine appropriate levelsdetermine appropriate levels

jj The Future: Radio Frequency IDs (RFID)The Future: Radio Frequency IDs (RFID)

SystemsSystems

jj UCCnetUCCnet

jj Internet EDIInternet EDI

Merchandising SystemsMerchandising Systems

jj Modular Modular--based merchandisingbased merchandising

jj Modular Category Assortment Planning System (MCAPS) /Store of the CommunityModular Category Assortment Planning System (MCAPS) /Store of the Community



20ALA2005R3.ppt

Why is WalWhy is Wal--Mart so good at logistics?Mart so good at logistics?

B

ecause the buyer¶s openB

ecause the buyer¶s open--toto--buy is based on inventory management and supply chain movement:buy is based on inventory management and supply chain movement:WalWal--Mart Buyer OpenMart Buyer Open--ToTo--BuyBuy

In The DC In Transit In Store

On Order In Route

± ± PLUSPLUS ± ±

++

New Item

Promotions

Replenishment

Seasonal

What the buyer is ableWhat the buyer is ableto order hereto order here

Depends on how much $ he/she has tiedDepends on how much $ he/she has tied--up in these ³buckets´up in these ³buckets´

= why suppliers are so eager to work with Wal= why suppliers are so eager to work with Wal--Mart in helping toMart in helping togenerate maximum sales off the lowest possible inventory base.generate maximum sales off the lowest possible inventory base.



21ALA2005R3.ppt

Net on WalNet on Wal--Mart:Mart: EFFICIENCY!EFFICIENCY!

jj

Consistent, clear positioningConsistent, clear positioning ± ± ³Always Low Prices´³Always Low Prices´ ± ± everyone knows precisely what Waleveryone knows precisely what Wal--Mart stands for Mart stands for

jj Relentless focus on the fundamentalsRelentless focus on the fundamentals

jj Cost suppression and cost reduction is a mantraCost suppression and cost reduction is a mantra

jj Cooperation with suppliers to achieve mutual objectivesCooperation with suppliers to achieve mutual objectives

jj Combination of food (consumables) and traditional discount creates a low price oneCombination of food (consumables) and traditional discount creates a low price one--stopstopshopping meccashopping mecca

jj Lightning speed to shelf on new items/trendy promotionsLightning speed to shelf on new items/trendy promotions

jj ³Fun place to shop´³Fun place to shop´ ± ± inin--store TV, on trend promotions, parking lot extravaganzas and tiestore TV, on trend promotions, parking lot extravaganzas and tie--insinswith local community eventswith local community events

jj Fierce competitor Fierce competitor ± ± will price comp anything, anywherewill price comp anything, anywhere

jj Store manager discretion means stores can be traited and tailored demographicallyStore manager discretion means stores can be traited and tailored demographically



22ALA2005R3.ppt

³Expect More/Pay Less´³Expect More/Pay Less´³Expect More/Pay Less´³Expect More/Pay Less´

jj $47.1B in µ04 sales$47.1B in µ04 sales ± ± a 15.1% increase vs. µ03 (less Mervyn¶s and Fields)a 15.1% increase vs. µ03 (less Mervyn¶s and Fields)

jj 8.9% CAGR between now and 20078.9% CAGR between now and 2007 ± ± projected to do $61B versus today¶s $47Bprojected to do $61B versus today¶s $47B

jj 1,313 stores1,313 stores ± ± 1,177 Targets + 136 Super Targets1,177 Targets + 136 Super Targets

jj Comparisons to WalComparisons to Wal--Mart are dangerous:Mart are dangerous: Different business modelDifferent business model

Different consumer Different consumer

Different merchandising strategyDifferent merchandising strategy

No attempt to compete on same basisNo attempt to compete on same basis

jj Is much more like an Exchange in assortment and operations:Is much more like an Exchange in assortment and operations:

Careful balance of high end vs. commodity merchandiseCareful balance of high end vs. commodity merchandise ± ± PLs and exclusives are keyPLs and exclusives are key Limited CPG food representation (changing quickly)Limited CPG food representation (changing quickly)

Super centers are NOT the primary growth engineSuper centers are NOT the primary growth engine

Distinct department store heritage and orientationDistinct department store heritage and orientation



23ALA2005R3.ppt

Target Challenges:Target Challenges:

jj

Narrow customer base:Narrow customer base: 81% female81% female

50% between 30 and 4450% between 30 and 44

jj Low trip frequencies vs. WalLow trip frequencies vs. Wal--Mart, Costco and even Dollar Stores!Mart, Costco and even Dollar Stores!

jj Supercenters behind the curveSupercenters behind the curve

jj Too ³Department StoreToo ³Department Store--y´ for a discounter:y´ for a discounter:

Clean, uncluttered store policy sometimes perceived as sterile and boringClean, uncluttered store policy sometimes perceived as sterile and boring

Too much emphasis on ³want´ vs. ³need´ merchandiseToo much emphasis on ³want´ vs. ³need´ merchandise ± ± not enough everydaynot enough everyday

consumables to drive trips, create excitement or get shoppers started on theconsumables to drive trips, create excitement or get shoppers started on themerchandise ladder merchandise ladder

jj Highly centralized operationsHighly centralized operations ± ± Store Manager¶s role is compliance and executionStore Manager¶s role is compliance and execution ± ± no localno localdiscretionary authoritydiscretionary authority

= 71% of Trips and 80% of Spending



24ALA2005R3.ppt

Target Heavy Shopper Trip FrequenciesTarget Heavy Shopper Trip Frequencies ± ± Just Not Enough!Just Not Enough!

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S$

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lu&

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ollar Stores

( ) ) 0 ( ) ) ( ( ) ) 1

Source: IRI Panel 2 ata 3 ( weeks en 4 e 4 2 ec 1 0 , ( ) ) 1



25ALA2005R3.ppt

5.5%5.

5 %

5. 6 %5. 7 % 8

. 9 %8

. @ % 8

.A % 8

.5% 8

.5 %

8

.B %

5 . C %5 .5%

5 . 5 %5 . B %

6 . 9 %6 .

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6 . A %6 .5%

6 .8

%6 . 5 %

6 .

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D E E F D E E D D E E G D E E H D E E

I

D E E 5 1996 1997 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Being perceived as more ³Department StoreBeing perceived as more ³Department Store--y´ than ³oney´ than ³one--stop discount/convenience´stop discount/convenience´these days is not exactly on trend:these days is not exactly on trend:

The U.S. Department Store Death Spiral: 1990 - 2010

Department Store Share of Non-Auto Retail Sales

Source: Retail Forward, 2003



26ALA2005R3.ppt

Despite these seemingly core negatives, Target has consistently outDespite these seemingly core negatives, Target has consistently out--paced Walpaced Wal--Mart inMart inboth sales and comps ever since it jettisoned Mervyn¶s and Marshall Fields in 2003both sales and comps ever since it jettisoned Mervyn¶s and Marshall Fields in 2003

14.5% 14.5%13.9%

12.7%

8.7%

9.9%

8.5%

12.8% 12.8%

9.0%

12.6% 12.3%

10.5%

11.7%

8.3%

9.3%

7.0%

9.4% 9.4%

6.6%

8.0% 7.8%

6.2% 5.8%

4.1%

1.8%

4.7%

0.1%

2.0%2.2%

3.2%

6.0%5.6%

0.3%

3.6%

1.3%

2.4% 2.4%

6.0% 5.6%

0%

5%

10%

15%

20%

Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Sales Growth Sales Growth

Comp Growth Comp Growth

Target vs. Wal-Mart sales and comparable store growth ± 2004

Source: Company 10Qs and monthly financial reports²MVI, Dec 09, 2004



27ALA2005R3.ppt

So what is Target doing to achieve such exceptional results?So what is Target doing to achieve such exceptional results?

Target keys to success:Target keys to success:jj Clear, concise, consistent positioningClear, concise, consistent positioning ± ± ³Expect More, Pay Less´:³Expect More, Pay Less´:

Not just words but the basis for all buying and merchandising decisionsNot just words but the basis for all buying and merchandising decisions

The framework for Target¶s Merchandising Ladder The framework for Target¶s Merchandising Ladder

A short, simple slogan that shoppers can remember and relate A short, simple slogan that shoppers can remember and relate--toto

jj NonNon--price differentiationprice differentiation ± ± Through captive brands, designer exclusives,Through captive brands, designer exclusives,partnerships with other retailers, trendy P.L. merchandise, celebrity endorsementspartnerships with other retailers, trendy P.L. merchandise, celebrity endorsementsand ³Buzz Marketing´and ³Buzz Marketing´

jj

Emotional Connection with its customersEmotional Connection with its customers ± ± ³My Target́³My Target´



28ALA2005R3.ppt

So what is Target doing to achieve such exceptional results,So what is Target doing to achieve such exceptional results,cont¶d?cont¶d?

jj

Heavy advertisingHeavy advertising ± ± Over $1B

in 2004Over $1B

in 2004 ± ± to heighten awareness, sell promotions andto heighten awareness, sell promotions andbuild equity for the Target namebuild equity for the Target name

jj Quick response segmented merchandisingQuick response segmented merchandising ± ± To capitalize on the latest generationalTo capitalize on the latest generationaland lifestyle shiftsand lifestyle shifts ± ± expanded pharmacies (seniors), Hispanic advertising andexpanded pharmacies (seniors), Hispanic advertising andMerchandising, ³One Spot´ (dollar sections), always onMerchandising, ³One Spot´ (dollar sections), always on--trend merchandise (softtrend merchandise (soft

goods, apparel and housewares) and seasonal promotionsgoods, apparel and housewares) and seasonal promotionsjj Rapidly adding everyday ³need´ consumables to drive trips and increase trafficRapidly adding everyday ³need´ consumables to drive trips and increase traffic ± ±

significantly expanded food sections in all stores. Recently added extensive winesignificantly expanded food sections in all stores. Recently added extensive winesection.section.



29ALA2005R3.ppt

Target Positioning: ³Expect More, Pay Less´Target Positioning: ³Expect More, Pay Less´

PAY LESSEXPECT MORE

We¶re on top of trendsso you will find the

latest and greatest atTarget.

Bright, clean storesand fast checkouts

make shopping atTarget easy and fun.

Really low prices arethe number one reason

to shop at Target.

Great quality at a lowprice makes Target

merchandise a greatvalue.

STYLE SERVICE PRICE QUALITY

Increase share of wallet Platform for differentiation Fashion/³Want´ items

Drive trips/build traffic Create low price impression Consumables/´Need´ items



30ALA2005R3.ppt

Target¶s ³Expect More/Pay Less´ Positioning has enabled Target to place itself squarely betweenTarget¶s ³Expect More/Pay Less´ Positioning has enabled Target to place itself squarely betweencommodity discounters and traditional department stores and avoid competing with either on their commodity discounters and traditional department stores and avoid competing with either on their terms:terms:

Target¶s Positioning vs. Discount and Department StoresTarget¶s Positioning vs. Discount and Department Stores

Discount StoresDiscount Stores

jj Low Margins (23%)Low Margins (23%)

jj Follow TrendsFollow Trends

jj Price SensitivePrice Sensitive

jj Price/ConveniencePrice/Convenience

Department StoresDepartment Stores

jj High Margins (50%)High Margins (50%)

jj Early AdoptersEarly Adopters

jj Quality SensitiveQuality Sensitive

jj Fashion/SelectionFashion/Selection

Drive Value FocusDrive Value Focus Drive Trend FocusDrive Trend Focus

This positioning has become a major asset:This positioning has become a major asset:

jj Enables Target to attract a wealthier shopper than traditional discount stores.Enables Target to attract a wealthier shopper than traditional discount stores.

jj Improves sales per store, transaction size and gross margins (Target¶s are highest in the channelImproves sales per store, transaction size and gross margins (Target¶s are highest in the channelat 32.8%).at 32.8%).

jj Moderate margins (32%)Moderate margins (32%)

jj Trend SeekersTrend Seekers

jj Quality/Value SensitiveQuality/Value Sensitive

jj Trend/Quality/ConvenienceTrend/Quality/Convenience



31ALA2005R3.ppt

Target BuyingTarget Buying ± ± Key LeversKey Levers

jj Trend PlanningTrend Planning ± ± Crucial to ³Expect More´:Crucial to ³Expect More´:

Trend merchandisers travel to seekTrend merchandisers travel to seek--out latest colors, fashions and designsout latest colors, fashions and designs

Research coordinated across departmentsResearch coordinated across departments

All items, color schemes, etc. are tested ahead of the season All items, color schemes, etc. are tested ahead of the season

jj CustomizationCustomization ± ± Pressure on suppliers to coPressure on suppliers to co--brand or custombrand or custom--pack merchandise to reinforcepack merchandise to reinforceTarget¶s differentiation objectivesTarget¶s differentiation objectives

jj Competitive Line ReviewsCompetitive Line Reviews ± ± Basically auctions consisting of competitive bidding for lineBasically auctions consisting of competitive bidding for linedistribution or promotion support:distribution or promotion support:

Target even calls these ³shoot outs´Target even calls these ³shoot outs´

Series of elimination roundsSeries of elimination rounds

Contracts can be up to one year Contracts can be up to one year

jj Reverse AuctionsReverse Auctions ± ± Online competition to provide lowest cost for commodity items or privateOnline competition to provide lowest cost for commodity items or privatelabel consumableslabel consumables

jj Global Sourcing/Direct ImportsGlobal Sourcing/Direct Imports ± ± Target is doing as much as it can to buy direct from lowestTarget is doing as much as it can to buy direct from lowestcost producers willing to meet product specscost producers willing to meet product specs



32ALA2005R3.ppt

Target BuyingTarget Buying ± ± Supplier MandatesSupplier Mandates

jj Reduce cycle timesReduce cycle times²²allow for ³just in time inventory´allow for ³just in time inventory´

jj Zero tolerance for orders delivered before/after scheduled timeZero tolerance for orders delivered before/after scheduled time

jj One Purchase Order per TruckOne Purchase Order per Truck²²while trying to reduce overall # of POswhile trying to reduce overall # of POs

jj Tiered inTiered in--stock level requirementsstock level requirements ± ± identify when Target begins to lose salesidentify when Target begins to lose sales ± ± maintain inmaintain in--stocks above this levelstocks above this level

97% ³in stock´ for top 2500 items97% ³in stock´ for top 2500 items

9292--95% ³in stock´ for remainder of items95% ³in stock´ for remainder of items

jj Perfect match of invoice to receipt of productPerfect match of invoice to receipt of product



33ALA2005R3.ppt

Target Supplier Report CardTarget Supplier Report Card

Target¶s scorecard is the most complete of the three largest Discounters:Target¶s scorecard is the most complete of the three largest Discounters:

BuyingBuying LogisticsLogistics Sell ThroughSell Through Administration Administration

jj Order fill rateOrder fill ratejj TurnsTurns ± ± warehousewarehouse

(store?)(store?)jj Out of stocksOut of stocks ± ±

warehouse and storewarehouse and storelost saleslost sales

jj Forecast accuracyForecast accuracyjj Percent orders withPercent orders with

changes (customer)changes (customer)

jj OnOn--time delivery ratetime delivery ratejj Order Order jj Damage ratesDamage ratesjj Lost timeLost timejj Missed windowsMissed windowsjj Backhaul earnedBackhaul earnedjj Bar code violationsBar code violations

jj Percent of planPercent of plan ± ± $s$sand unit salesand unit sales

New itemsNew items

Established itemsEstablished items MarketsMarkets New/old storesNew/old stores

jj GMROIGMROIjj Share of space,Share of space,

advertising,advertising,merchandisingmerchandising

Facings (slots)Facings (slots) Ads Ads DisplayDisplay Multiple locationsMultiple locations SignageSignage

jj Perfect order ratePerfect order ratejj Accurate invoice Accurate invoicejj DeductionsDeductions

PricingPricing Advertising Advertising Other Other

jj EDIEDIjj Transmit ratesTransmit rates



34ALA2005R3.ppt

Target Supply Chain/Logistics InitiativesTarget Supply Chain/Logistics Initiatives ± ±2005 and Beyond:2005 and Beyond:

jj SKU ReductionSKU Reduction ± ± To facilitate focus on fewer, more important items and be ³more importantTo facilitate focus on fewer, more important items and be ³more importantto fewer vendors´to fewer vendors´

jj Automated Receiving Technology Automated Receiving Technology ± ± Electronic labeling system that utilizes realElectronic labeling system that utilizes real--timetimeinformation about where product is needed:information about where product is needed:

Automatically labels each carton Automatically labels each carton

Significantly accelerates the flow of goodsSignificantly accelerates the flow of goods

Eliminates timeEliminates time--consuming, labor intensive procedureconsuming, labor intensive procedure

Rollout starting December, 2004Rollout starting December, 2004

jj DPIADPIA ± ± DDirectirect IImport,mport, PPrere--distro &distro & A Assortment Programsssortment Programs

Converts indirect imports (no middlemen) to directConverts indirect imports (no middlemen) to direct

Have suppliers pack storeHave suppliers pack store--specific and store ready pallets, reducing DC workloads andspecific and store ready pallets, reducing DC workloads andstorage spacestorage space

Have suppliers combine multiple items in cartons to reduce the number of cartons sentHave suppliers combine multiple items in cartons to reduce the number of cartons sentto DCs in storesto DCs in stores

Estimated savings of Estimated savings of $71MM$71MM in 2005in 2005

jj RFIDRFID ± ± Mandatory for pallets and cases by spring, 2007Mandatory for pallets and cases by spring, 2007



35ALA2005R3.ppt

Target From The Supplier¶s Standpoint:Target From The Supplier¶s Standpoint:

jj Multiple opportunities to tieMultiple opportunities to tie--in with Target¶s marketing and merchandising initiativesin with Target¶s marketing and merchandising initiatives

³Expect More/Pay Less´ platform³Expect More/Pay Less´ platform

Target community giving/causeTarget community giving/cause--related sponsorshipsrelated sponsorships

CoCo--Marketing to build upon each other¶s equityMarketing to build upon each other¶s equity

Current, intense emphasis on ³Pay Less´Current, intense emphasis on ³Pay Less´

jj Multiple vehiclesMultiple vehicles ± ± Target TV and print advertising, circulars and website, etc.Target TV and print advertising, circulars and website, etc.

jj Supplier Aids:Supplier Aids:

Partners On Line (POL)Partners On Line (POL) ± ± provides suppliers with same data that buyer has (like Walprovides suppliers with same data that buyer has (like Wal--Mart¶s Retail Link)Mart¶s Retail Link)

InfoRetriever InfoRetriever ± ± Available to Category Captains and top vendors Available to Category Captains and top vendors ± ± provides a deeper provides a deeper level of information on a more current basis + 2 years of back datalevel of information on a more current basis + 2 years of back data



36ALA2005R3.ppt

Net on Target:Net on Target: EMOTIONAL CONNECTION!EMOTIONAL CONNECTION!

jj NonNon--price differentiationprice differentiation ± ± no attempt to compete with Walno attempt to compete with Wal--Mart on its own termsMart on its own terms

jj Willing to settle for a piece of the pieWilling to settle for a piece of the pie rather than going after the whole enchilada:rather than going after the whole enchilada:

Consumer target is not the universe but primarily women and young singlesConsumer target is not the universe but primarily women and young singles

jj Clear, precise, consistent positioningClear, precise, consistent positioning that enables Target to fill the void between commoditythat enables Target to fill the void between commoditydiscounters and traditional department storesdiscounters and traditional department stores

jj Unique understanding of the needs, wants and aspirations of its target shopper:Unique understanding of the needs, wants and aspirations of its target shopper: Designer clothes, soft goods and housewares at great pricesDesigner clothes, soft goods and housewares at great prices

Clean, uncluttered stores with contemporary colors and thematic consistencyClean, uncluttered stores with contemporary colors and thematic consistency

Ancillary services that cater to Target shoppers lifestyles, needs and shopping Ancillary services that cater to Target shoppers lifestyles, needs and shoppingproclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)proclivities (pharmacies, Minute Clinics, photo, Starbucks and Pizza Hut, etc.)



37ALA2005R3.ppt

Net on Target:Net on Target: EMOTIONAL CONNECTIONEMOTIONAL CONNECTION (cont¶d)(cont¶d)

jj Product assortments that cannot be purchased anywhere elseProduct assortments that cannot be purchased anywhere else ± ± designer exclusives anddesigner exclusives andcaptive brands, etc.captive brands, etc.

jj Strong, centralized controlStrong, centralized control to ensure uniformity and thematic consistency throughout all storeto ensure uniformity and thematic consistency throughout all storepresentations and activitiespresentations and activities

jj A conscious policy of transferring as many costs as possible to the supplier community A conscious policy of transferring as many costs as possible to the supplier community while,while,at the same time, offering suppliers a strong upside through Target¶s aggressive advertising,at the same time, offering suppliers a strong upside through Target¶s aggressive advertising,merchandising and product exclusivity policiesmerchandising and product exclusivity policies

jj Awareness of and willingness to react quickly to current issues Awareness of and willingness to react quickly to current issues ± ± for example, Target¶sfor example, Target¶scurrent campaign to significantly increase its consumables representation to increase trafficcurrent campaign to significantly increase its consumables representation to increase trafficand trip frequenciesand trip frequencies



38ALA2005R3.ppt

While Target and WalWhile Target and Wal--Mart have each chosen to walk different paths on route to their success, there are certainMart 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.factors common to both of these retailers that make them leading edge vs. most others in the retail community.

Ten factors, as follows:Ten factors, as follows:

1.1. DifferentiationDifferentiation ± ± Through constant juggling of the following elements:Through constant juggling of the following elements:

PricePrice

FormatsFormats

Captive BrandsCaptive Brands

Designer ExclusivesDesigner Exclusives

Successful Private Label ProgramsSuccessful Private Label Programs

National Brand Supplier CustomizationNational Brand Supplier Customization

2.2. Use of ConsumablesUse of Consumables ± ± To build traffic and increase trip frequencies.To build traffic and increase trip frequencies.

3.3. Ancillary Departments Ancillary Departments ± ± To increase convenience and share of wallet.To increase convenience and share of wallet.

4.4. Fluid Merchandising (rapid ins and outs)Fluid Merchandising (rapid ins and outs) ± ± To create excitement, build trip frequency andTo create excitement, build trip frequency andreinforce differentiation objectivesreinforce differentiation objectives



39ALA2005R3.ppt

Ten factors that separate the most successful from the rest, cont¶dTen factors that separate the most successful from the rest, cont¶d

5.5. ³OPP/Good/Better/Best´ Merchandise Ladders³OPP/Good/Better/Best´ Merchandise Ladders ± ± To trade shoppers up in almost everyTo trade shoppers up in almost everycategory.category.

6.6. Speed to MarketSpeed to Market ± ± Now more important than ³Bigness´Now more important than ³Bigness´

7.7. Relentless Pressure on Costs and ProductivityRelentless Pressure on Costs and Productivity ± ± Both in general and storeBoth in general and store--specificspecific

8.8. Willingness to ExperimentWillingness to Experiment ± ± New formats, ancillary businesses, stores within stores,New formats, ancillary businesses, stores within stores,partnerships, adjacencies, retailpartnerships, adjacencies, retail--tainment, etc.tainment, etc.

9.9. Global SourcingGlobal Sourcing ± ± Now direct from the lowest cost producer Now direct from the lowest cost producer ± ± no middle men.no middle men.

10.10. Technological InnovationTechnological Innovation ± ± RFID, etc. to reduce costs/increase speedRFID, etc. to reduce costs/increase speed



40ALA2005R3.ppt

Moral of story:Moral of story:

It¶s not just price; it¶s a combination of factors, carefullyIt¶s not just price; it¶s a combination of factors, carefullyblended and balanced to satisfy a particular consumer blended and balanced to satisfy a particular consumer

need or aspiration. Each retailer has to search withinneed or aspiration. Each retailer has to search withinits own strengths to find the right formula. There areits own strengths to find the right formula. There are

no easy answers.no easy answers.



41ALA2005R3.ppt



42ALA2005R3.ppt

A Special Thanks to Sylvia Harris and Cathy Ely of Luke AFB A Special Thanks to Sylvia Harris and Cathy Ely of Luke AFB for their time and hospitality . . .for their time and hospitality . . .



We Appreciate The Time and Attention You Have Given UsWe Appreciate The Time and Attention You Have Given UsTodayToday

Specifically, we want to thank Frank Jepson and the American Logistics Association for 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.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 85255Phone (480) 513-0547 Fax (480) 513-0548 E-Mail: [email protected] [email protected]

www.hoytnet.com



44ALA2005R3.ppt

Appendix Appendix Appendix Appendix

Some particulars that may be of interest . . .Some particulars that may be of interest . . .



45ALA2005R3.ppt

Target and Kmart U.S. Sales vs. WalTarget and Kmart U.S. Sales vs. Wal--MartMart ± ± Relatively SmallRelatively Small

Source: MVI 10/28/2004

WalWal--Mart vs. Target and Kmart Sales & Growth Projections: 1999Mart vs. Target and Kmart Sales & Growth Projections: 1999 -- 2007E2007E

(Billions USD)1999 2000 2001 2002 2003

CAGR

'99-'03 2004E 2005E 2006E 2007E

CAGR

'04E- '07E

Wal-Mart

Corporation 162.9 180.0 204.2 229.8 256.5 12.0% 289.4 319.4 350.9 382.1 9.7%Wal-Mart US 134.1 149.3 169.2 189.5 209.5 11.8% 232.9 257.5 283.5 309.4 9.9%Target

Corporation 33.5 36.7 39.7 43.7 47.7 9.3% 46.6 51.0 55.3 59.5 8.5%Kmart 35.9 37.0 36.2 30.8 23.3 -10.3% 20.4 19.2 19.1 19.4 -1.6%

Reported Sales & MVI Projections

$100

$200

$300

$400

1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E

Wal-Mart Corporation Wal-Mart US Target Corporation Kmart

$19.4B

$59.5B

$309.4B

$382.1B

B id 2004 W lB id 2004 W l M t U S h d hi d 86% h h ld t tiM t U S h d hi d 86% h h ld t ti l t 25 i tl t 25 i t



46ALA2005R3.ppt

By mid 2004, WalBy mid 2004, Wal--Mart U.S. had achieved 86% household penetrationMart U.S. had achieved 86% household penetration ± ± almost 25 pointsalmost 25 pointsmore than its next largest competitor more than its next largest competitor ± ± which translates to over 130MM shoppers per which translates to over 130MM shoppers per monthmonth

WalWal--Mart vs. Leading Competitor Household Penetration, Mid 2004Mart vs. Leading Competitor Household Penetration, Mid 2004

62%

84%

55%

74%

15%

35%

60%

49%

13%

34%

60%

34%

17%

66%60%59%

86%

62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Wal-MartTrad.

Wal-MartTotal

Wal-MartSC

TargetTotal

KmartTotal

Costco SAM'sClub

2001 2002 2003

Source: IRI Panel Data (all shoppers - Total US)



47ALA2005R3.ppt

Not content with this, WalNot content with this, Wal--Mart plans an additional 500 new store openings plus remodelsMart plans an additional 500 new store openings plus remodelsin 2005, driven primarily by new Supercenters:in 2005, driven primarily by new Supercenters:

WalWal--Mart Domestic Expansion Plans For 2005Mart Domestic Expansion Plans For 2005 ± ± Total U.S.Total U.S.

Supercenters

Discount Stores

SAM¶s Clubs

Neighborhood Markets

Total New Stores

Remodels/Relocations

Grand Totals

+240 - 250

+40 - 45

+30 - 40

+25 - 30

335 - 365

160

500+

Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/2004 + 10/18/2004



49ALA2005R3.ppt

WalWal--Mart¶s latest and greatestMart¶s latest and greatest

jj Stores within stores:Stores within stores:

Kid¶s ConnectionKid¶s Connection ± ± Candy, soda, clothes, toysCandy, soda, clothes, toys

Personal Business CentersPersonal Business Centers

Dollar StoresDollar Stores ± ± plastic bunnies, etc.plastic bunnies, etc.

jj Increased focus on soft goodsIncreased focus on soft goods::

Coordinated lifestylesCoordinated lifestyles

Heavy focus on WalHeavy focus on Wal--Mart brandsMart brands

Integrated merchandisingIntegrated merchandising ± ± e.g., not just towels but everything for the bathroome.g., not just towels but everything for the bathroom

InIn--store TV support for ³How to decorate your home´store TV support for ³How to decorate your home´

jj Apparel: Apparel:

Mary Kate and Ashley exclusivesMary Kate and Ashley exclusives ± ± inin--store and onlinestore and online

Levi StraussLevi Strauss ± ± 20032003 The WalThe Wal--Mart ³George´ lineMart ³George´ line ± ± men, women and childrenmen, women and children ± ± big push!big push!

Carter¶s line in infantsCarter¶s line in infants

Trend alertTrend alert ± ± partnership with Seventeen Magazine to offer teens ³cool picks´ in clothingpartnership with Seventeen Magazine to offer teens ³cool picks´ in clothingand electronicsand electronics



50ALA2005R3.ppt

Target SuperTarget Growth vs. WalTarget SuperTarget Growth vs. Wal--Mart SupercentersMart Supercenters ± ± NotNotexactly NASCAR competitiveexactly NASCAR competitive

721

888

1066

1258

1471

1706

1951

2181

2391

16 30 62196

17315013611893

0

500

1000

1500

2000

2500

3000

1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E

Wal-Mart Target

Source: MVI, Selling Target, 12/9/2004



51ALA2005R3.ppt

Target Super Target Issues:Target Super Target Issues:

jj Traditional Targets are Hi/Lo; Super Targets are EDLP:Traditional Targets are Hi/Lo; Super Targets are EDLP:

Target dependent on supplier allowances to grow operating profitsTarget dependent on supplier allowances to grow operating profits

Every time Target converts a traditional discount format to a Super Target, it loses theEvery time Target converts a traditional discount format to a Super Target, it loses thebenefit of the allowance (which is thereby driven into price and not op. profits)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 financialsBuilding too many super centers too fast would severely impact Target¶s financials

jj Super Target trip frequencies do not support format productivitySuper Target trip frequencies do not support format productivity

jj Super Target layouts do not allow easy transition to the consumables section and crossSuper Target layouts do not allow easy transition to the consumables section and cross--over over shoppingshopping

E ME M I l i i ll bI l i i ll b li blli bl



52ALA2005R3.ppt

Expect MoreExpect More ± ± Implementation is all about nonImplementation is all about non--replicablereplicabledifferentiationdifferentiation

jj Department storeDepartment store--like destination departmentslike destination departments::

Apparel Apparel

HousewaresHousewares

ShoesShoes

jj Captive Brands:Captive Brands:

MossimoMossimo

DanskinDanskin

Philippe StarckPhilippe Starck

jj Exclusive PartnershipsExclusive Partnerships ± ± Fieldcrest,Boots (HB A and Cosmetics) and Amazon.com (powers the TargetFieldcrest, Boots (HB A and Cosmetics) and Amazon.com (powers the Targetwebsite)website)

jj Private LabelsPrivate Labels::

50% of the store50% of the store

Reinforce Target¶s brand equityReinforce Target¶s brand equity ± ± allall have either ³Wave´ or ³Bulls Eye´have either ³Wave´ or ³Bulls Eye´

Key contributor to Target¶s 32% gross marginKey contributor to Target¶s 32% gross margin

jj Synergistic, complementary spin between stores and websiteSynergistic, complementary spin between stores and website:: Bridal registry, ³Target to a TBridal registry, ³Target to a T ± ± custom made clothes´custom made clothes´ Red hot shopRed hot shop ± ± hot trendy itemshot trendy items ± ± new every weeknew every week

Greeting cardsGreeting cards

Infants and toddlersInfants and toddlers

Seasonal itemsSeasonal items

Waverly Garden RoomWaverly Garden Room

Liz Lange MaternityLiz Lange Maternity

Hello KittyHello Kitty



53ALA2005R3.ppt

Pay LessPay Less ± ± Implementation is all about driving trips and traffic:Implementation is all about driving trips and traffic:

jj Price compingPrice comping ± ± 20022002 -- Target pledges to match WalTarget pledges to match Wal--Mart on price item for item throughoutMart on price item for item throughout

storesstores

jj Significant expansion of consumablesSignificant expansion of consumables and commodity items starting in Q3, 2003:and commodity items starting in Q3, 2003:

Based on new P2004 formatBased on new P2004 format

50% greater space devoted to food, beverages and snacks50% greater space devoted to food, beverages and snacks

³Consumables World´ department placed in front of store³Consumables World´ department placed in front of store

70 remodels in 200470 remodels in 2004 ± ± all remodels and new stores starting in 2005all remodels and new stores starting in 2005

jj ³³Savings Spot´Savings Spot́ ± ± In front of store, near registers, introduced 2004:In front of store, near registers, introduced 2004:

ClubClub--like pack sizeslike pack sizes

Paper, household cleaning supplies and pet foodsPaper, household cleaning supplies and pet foods

jj ³One³One--Spot´ (Dollar departments) now expanding beyond test:Spot´ (Dollar departments) now expanding beyond test:

Kitchen, storage containers, toys, baby products and stationeryKitchen, storage containers, toys, baby products and stationery

Exceptional value and ³Treasure Hunt´ itemsExceptional value and ³Treasure Hunt´ items

Managed by separate buying groupManaged by separate buying group

Does not cannibalize other itemsDoes not cannibalize other items

T t A ill D t tT t A ill D t t R t T i d T tiR t T i d T ti



54ALA2005R3.ppt

Target Ancillary DepartmentsTarget Ancillary Departments ± ± Return Trip and TransactionReturn Trip and TransactionSize Drivers:Size Drivers:

jj PharmaciesPharmacies::

71% of stores by YE 200371% of stores by YE 2003

Extended hoursExtended hours

Pharmacy rewards program tied to use of Target Visa cardPharmacy rewards program tied to use of Target Visa card

jj ³Minute Clinics´:³Minute Clinics´:

135 sq. ft., staffed by a nurse practitioner 135 sq. ft., staffed by a nurse practitioner

Treats about a dozen common health problemsTreats about a dozen common health problems

MenuMenu--pricedpriced ± ± most services $40most services $40 -- $45, covered by insurance + co$45, covered by insurance + co--paypay

Now testing in 8 stores (BM) with plans to expand in metro areasNow testing in 8 stores (BM) with plans to expand in metro areas

95% of MC patients get prescriptions filled at Target95% of MC patients get prescriptions filled at Target

jj Other Services:Other Services:

One hour photo labsOne hour photo labs Optical departmentsOptical departments

InIn--store restaurantsstore restaurants ± ± Starbucks, Pizza Hut, Taco BellStarbucks, Pizza Hut, Taco Bell

Lawn and Garden centersLawn and Garden centers

Portrait studiosPortrait studios

B

ridal and baby gift registriesB

ridal and baby gift registries



55ALA2005R3.ppt

Target aggressively advertises its benefits through multiple vehicles and is, in fact, theTarget aggressively advertises its benefits through multiple vehicles and is, in fact, thelargest advertiser of the Big 3largest advertiser of the Big 3

Media Strategy:Media Strategy:

jj TV is strongly seasonal/holiday orientedTV is strongly seasonal/holiday oriented

jj Heavy print budget is targeted to women and young adultsHeavy print budget is targeted to women and young adults

jj ³Unmeasured´ is circulars and ROP³Unmeasured´ is circulars and ROP

VehicleVehicle TargetTarget WalWal--MartMart KmartKmart

TVTV $288$288 $426$426 $86$86

PrintPrint $293$293 $40$40 $95$95

Outdoor Outdoor $19$19 $14$14 $8$8

UnmeasuredUnmeasured $483$483 $198$198 $223$223

$1,083$1,083 $678$678 $413$413

IndexIndex (100)(100) (63)(63) (38)(38)

Source: LNA and MVI, 2003 - 2004



jj 85% of buyer compensation:85% of buyer compensation:

SalesSales

Contribution DollarsContribution Dollars

Contribution %Contribution %

Inventory TurnsInventory Turns

jj InIn--Stock % (10%) and personal objectives (5%) round out compensationStock % (10%) and personal objectives (5%) round out compensation

jj Senior Buyers are also eligible for a bonus plan that can represent up to 100% of their baseSenior Buyers are also eligible for a bonus plan that can represent up to 100% of their basecompensation.compensation.

jj Goals are set every 6 months, not annually.Goals are set every 6 months, not annually.

Including product flow costs«

Target Buyer Compensation StructureTarget Buyer Compensation Structure

ala2005r3-final with pics march 8 2005

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