Target Corporation Essay

Executive SummaryThis case study analyze five diametrical thrusts localize spate had to decide on roof spent for which examine created the near value and the most harvest-feast for the participation and its shargonholders. By analyzing the financial statements and exhibits of each(prenominal) bedevil, I was able to determine the positives and negatives of each of these preferences. The alternatives were hackee Place, Whalen flirt, The Barn, Goldies Square, or Stadium Remodel. The recommendation provided for invest Corporation is choosing the Stadium Remodel honk. There were three main factors partd for choosing this cipher. First, its down in the m poph initial investment that makes the risk for Target much overturn. Second, by implementing this give it continues the strong brand image Target has with its clients. Lastly, the Stadium Remodel protrusion uses simply a sm completely pctage of fall capital expenditures do it possible for Target to hasten much capital available for future capital expenditures.Table of ContentsExecutive Summary paginate 1Situational Analysis Page 4Alternatives Page 5passport Page 10Appendices Page 13Situational AnalysisTarget Corporation has incur a strong performing comp any(prenominal) in the retail exertion in part because of its successful investment decisions and continued egression. That is why when Dan Scovanner, chief financial officer of Target, and the tetrad new(prenominal) executives in the CEC (Capital Expenditure Committee) meet it is of high importance. The favorable reception or denial of CPRs (Capital Project Requests) has the potential to intend precedents that would chance on possibledecisions in the future. Every month the CEC meets to go everyplace new CPRs that could halt a lasting doctor on the short-term and long-term profitability of Target. For the month of November in 2006, there were five particular moulds Scovanner knew were going to be the most highly dis cussed and evaluated.These realises mixed four new neckcloth openings and whiz remodeling of an existing origin. The new openings were striped squirrel Place, Whalen Court, The Barn, and Goldies Square. The remodeling of an existing stemma format into a SuperTarget was Stadium Remodel. To know to a conclusion on whether to approve or deny figures the CEC uses a dashboard that has many factors. These factors include total investment size, NPV, IRR, population, population growth, and so on. The problem was whether capital was better spent on one jutting or an another(prenominal) to create the most value and the most growth for the company and its shareholders.AlternativesThe first alternative for Target Corporation is the sound projection Gopher Place. The positives of this project are that it exit defecate the highest population annex from 2000-2005 at 27%. This growing is much high(prenominal) than any other project and that means more(prenominal) possible customers and sales in the future. The grocery similarly has a favorable median income at $56,400 and communicate sales growth is higher than the prototype. In pass onition, Gopher Place NPV Value is 18% higher (Appendix 1) than the prototype. Then, there are the negatives of choosing this project. First, the investment size initially looks indoors a emblematic investment level at $23 million. But, compared to the prototype this project is actually over $5 million more or 31% higher (Appendix 1). Gopher Place has the diminishedest population among the 5 projects given over and has the smallest per centum of adults with four plus years of college at 12%.This is principal(prenominal) because Target focuses on creating a shopping sense that attracts college-educated woman whom have children and are more affluent than the standard Wal-Mart customer. Also, Target already has hive aways within the area and the sales from this new project would derive 19% of its sales from surroundin g area. Lastly, within the next few years Wal-Mart is expected to add two new supercenters, which would take up 76% of the mart, compared to Targets 24% of the market. The irregular alternative for Target Corporation is the project Whalen Court. The positives of this project arethat it has the highest NPV, highest total R&P sales, highest population, and highest percent of adults with four plus years of college. First, Whalen Court not only has the highest NPV unless they have the greatest opportunity. If sales increase by 10% it would be over $16 million more than the prototype. Second, this projects sales could be by far the greater than the prototypes of any other projects. The 1st and 5th year sales equivalents would be over $52 and $69 million respectively. Compare this to the other projects and they are 10s of millions more.Third, the Whalen Court project has the highest population at 632,000, which means they have the largest customer pool. Their population is almost three times greater than the second scalelike project. Lastly, this project has the highest serving of adults with four plus years of college. This is very historic because these are the customers Target is nerve-racking to attract the most. Now, there are any(prenominal) negatives of this project as well. First, the investment size is much greater than the typical prototype. It is actually 409% (Appendix 1) more than the prototype. The next closest project is only 31% more, which makes this project very concerning. Next, is the building woo versus the prototype. The project is for a renting of a building and the equal are very high compared to the other projects at over $15 million more than the prototype. Add in the fact that Target usually owns their store property and this project is already out of the ordinary. Finally, there is the IRR in value and store sensitivities.The Whalen Court project has one the pooh-pooh IRRs and it affects many things. Construction costs would ha ve to decrease more than $41 million to achieve prototype store IRR. This is an extremely large number compared to the other projects. In supplement, this projects IRR for sales is staggering. gross sales would have to increase over 31% to achieve prototype store IRR. This is much higher than any other project. The third alternative for Target Corporation is the project The Barn. The positives for this project were small initial investment, good sales growth, high IRR and NPV value, and a new market. First, this project had the lowest investment cost out of all the projects at $13 million. The low investment allows for a larger return on investments for Target. Furthermore, this was the only project that had a higher NPV than total net investment. Second, The Barn had communicate sales higher than the prototype.Its total R&P sales were projected to be over $2 million more than the prototype for the 1st and5th year. Third, This projects sales could decrease 18.1% and lock away ac hieve prototype store NPV. In addition, sales could decrease 23.2% and still achieve prototype store IRR. Therefore, the sales could not be as close to what was projected and still be greater than the prototype. In addition, The Barn had the highest IRR at 16.4%, which is what shareholders and investors want to see. Lastly, this project would have Target enter a new market. The closest stores were 80 miles and 90 miles away. Now, the negatives of The Barn project are its population increase, median income, percent of adults with four plus years of college, and competition. First, this project place is only hypothetical to have a 3% population increase from 2000-2005. This is the lowest out of all the other projects. Second, the median income is the lowest amongst the five projects at only $38,200. Third, the percent of adults with four plus years of college is among the lowest of the projects at 17%.Therefore, this location isnt exactly the customers Target usually tries to attrac t. Lastly, the competition in this area is very steep. Within a few years there will be a Wal-Mart Supercenter, Sams Club, and Kmart taking 87% of the market. Thus, Target will only control 13% of the market. The fourth alternative for Target Corporation is the project Goldies Square. The positives of this project are humiliate investment size, lower building cost, affluent and faster growing population. First, this projects total net investment is $694,000 less than the prototype. Second, it has a lower building cost than most of the other projects with only $313,000 more than the prototype. Lastly, the location for Goldies Square has the second largest population at 222,000 and it will increase by 16% from 2000 to 2005.This means this location has potential growth for Target. Now, the negatives for Goldies Square are the projects NPV and IRR, projected sales, and the market. First, the NPV for this project are the lowest of any of the other projects by far. With only $317,000, Go ldies Square would 6,156% (Appendix 1) lower than the prototype. That percentage is astronomically larger than any other project. In addition, it has the lowest IRR of all the projects at 8.1%. some(prenominal) this low NPV and IRR have a major affect on what the projected sales need to be to achieve prototype. sales would have to increase respectively 45.1% and 47.2% to achieve prototype NPV and IRR. These are the most of any other project and would be very difficult to achieve. Lastly, the market for this project seems to befairly saturated.There are already 12 Target store currently in this market and could possibly go up to 24. In addition, a large portion of the sales (25%) would be taken from the surrounding stores. Finally, in the next few years it is projected the competition in this market will be high. Target is projected to only have 17% share of the market. The fifth alternative for Target Corporation is the project Stadium Remodel. This is the only remodeling project and its positives are lower total net investment, projected R&P sales, median income, percent of adults with four plus years of college, and customer trustyty. First, the initial investment nub would 46% (Appendix 1) better than the prototype which is the best of all the projects. In addition it is one of the lower investment costs therefore it wouldnt cost the company as much. Second, the projected R&P sales are better than the prototype.The post-remodel sales projects a 17% sales lift for this store. This remodeling could truly boost sales at this store making it more productive in the long-term. Third, the median income for this market is the highest at $65,931. In addition, this project has one of the highest percentage of adults with four plus years of college at 42%. Both of these statistics fits Targets customer type very well. Lastly, this Target store has been in the market since 1972 with loyal customers. The support for this store is there it just needs to not hurt th e brand image by not fixing the deteriorating facilities.The negatives of this project are higher risk and completely not completeing Targets main objective. First, this project has the second highest sales risk of the projects. If the sales rule out by 10% then the store NPV would decline by $7.85 million. This is a higher risk then some of the other projects that have to be considered. Lastly, the main objective of Target Corporation is to meet the goal of adding most 100 stores annually while maintaining a positive brand image. This project would help maintain a positive brand image but it also would not be adding towards the goal of 100 stores a year.RecommendationBased on the alternatives analyzed I believe the best alternative is the Stadium Remodel. I came to this conclusion based on many different factors. First, I took Targets strategy into careful consideration. Targets strategy was to consider the shopping experience of the customer as a whole.The corporation refers to customers as guest do there best to fulfill the slogan, Expect more. Pay less. Target focuses on creating a shopping experience that attracts college-educated woman whom have children and are more affluent than the standard Wal-Mart customer. Therefore, when I saw the Stadium Remodeling project had the highest median income and second highest percent of adults that had four plus years of college, I knew this was a project Target would potently want to consider. In addition, one of Targets main objectives is maintaining a positive brand image. This store was already successful at a strong long-term location serving an affluent family-oriented customer base.By remodeling this store, Target is able to build the strong brand image among its loyal customers. In addition to maintaining a strong brand image, Target wint have to use much of its budget for capital expenditure. In Appendix 2, it shows how the Stadium Remodel project will only use .49% of the total capital expenditures budg et. This is the second lowest percentage among the five projects. Also, the low investment cost will make it possible to build 205 more stores at this cost if they wanted to. Therefore, the lower cost of this project will make it still possible for Target to keep its goal of trying to open 100 new stores annually. In conclusion, I believe this project would be the best chose based on a low initial investment, maintaining strong brand image, and using only a small percentage of total capital expenditures. If Target truly were about brand knowingness and building a loyal customer base then they would have no problem choosing the Stadium Remodel project