Target- Kmart comparison Porter's 5 forces VRIO analysis, competitive advantages.

1. Strategy Final Assignment
VS.
Shai Zamir
Dan Saguy

2. The Discount Retail Arena
• Founded 1902 • Founded 1916
• Over 1800 stores • Over 1000 stores
• 49 States, now expanding into Canada • 50 U.S. states, Puerto Rico
Competition

3. Porter’s 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.

4. Porter’s 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.
Kmart’s supplier power will be higher because of payment
problems in the relatively near past.

5. Porter’s 5 Forces analysis
Summary
• Same market
• Similar products.
Similar performance.
Differences exist, mainly due to Kmart’s difficulties and
struggles to develop its brand, which is reflected in the higher
bargaining power of both suppliers and buyers.

6. Analysis

7. 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.

8. 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, Stop’n’Shop, etc. but they sell a smaller line of
products, and not necessarily discounted. Therefore we consider it
as being rare.

9. 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 it’s history of financial disorders.
Competitive advantage
Performance Above normal

10. 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.
Kmart’s brand name is related to the lowest prices. It is highly popular
with minorities groups, especially afro-Americans 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.

11. 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 normal

12. 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.

13. 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 e-commerce 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. Competitive Advantage:
Quality in Retail Discount
Imitation
• Size economies
• Private information- 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

19. Competitive Advantage:
Quality in Retail Discount
Holdup
Target's large scale 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.

20. 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.

21. 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.

22. 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.`

23. 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).

24. 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 don’t 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.

25. Competitive Advantage :
Customer Service
Holdup
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.

26. 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.

27. 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.