The Retail Grocery Landscape Is Changing And Will Continue Change

The strategic objective of Costco is based on the concept of offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories while producing high sales volumes and rapid inventory turnover. This rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self service warehouse facilities, enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets. (1)

Target Corporation (NYSE:TGT) is the leading large-format general merchandise and discount retailer in the U.S., challenging Wal-Mart in electronics, toys and apparel while also seeking to differentiate with higher-end fashions and products for an upscale audience. As of the close of their latest fiscal year (FY2011), Target operated approximately 1,760 stores encompassing 233,000 square feet in 49 states and the District of Columbia. The company is divided into the retail and credit card divisions and moves the majority of its products through a highly integrated network of 37 different distribution centers, which include four food distribution centers. Target is one of the most well-entrenched large format retailers in the U.S., has the ability to manage their pricing strategies at a level of accuracy and precision that is comparable to Wal-Mart (Henderson, 2001). Unlike Wal-Mart, Target concentrates on a value-based message that concentrates on quality and price differentiation to sustain their gross margins while Wal-Mart concentrates on supply chain efficiency and a continual reduction of supplier and transaction costs (Krishnamurthi, 2001).

Target Corporation’s first store was opened in 1962 and was focused on discount retailing. Today, Target has opened more than 1,500 stores in 47 states, including a line of SuperTarget® stores which have expanded to include grocery shopping at those Target stores, in addition to the photo processing, pharmacy, and Food Avenue® restaurants found in almost every other Target. Recently, Target has also expanded it’s presence to other countries such as India.

Marion Nestle, a teacher at New York University, examines how supermarkets are designed and how the design affects consumers in her essay “The Supermarket: The Prime Estate”. “Nestle teaches in the department of nutrition, food studies, and public health” (496). The essay was published in one of her numerous books, What to Eat: An Aisle-by-Aisle Guide to Savvy Food Choices and Good Eating in 2006. Nestle investigates the strategic method behind the store’s layout in this essay for the average consumer. Nestle portrays the manipulations of supermarkets to sell the most products possible to consumers through the store’s order and design through logos, pathos, and cause and consequence in the development of her essay.

Gregg Steinhafel, Target’s Chief Executive Officer, chairman and president stated that “Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season” (Target.com, 2012). Additionally, Steinhafel stated that “For the full year, our U.S. businesses generated 14.3 percent growth in adjusted earnings per share, and we experienced our strongest growth in comparable-store sales since 2007. As we look ahead to 2012, we’ll continue to focus on bringing our ‘Expect More. Pay Less’ brand promise to life for our guests, providing unique, well-designed merchandise while driving value and loyalty with initiatives like 5% Rewards and REDcard Free Shipping” (Target.com, 2012). In addition, Steinhafel stated that Target will continue to invest in the stores, online and their mobile channels. Also Target is preparing to open their open their first CityTarget locations in July 2012 and arrange for the opening of their first Canadian Target stores in the early months of 2013. (Target.com, 2012).

Most wholesalers either cut costs such as employee wages or insurance, or increase prices to increase profit. Costco’s strategy involves treating employees well, cultivating consumer loyalty, and not allowing another corporation to undercut its prices-- ensuring a profitable future.

3 takeaways from Home Depot corporations 2001 earnings report. Firstly, new warehouses at first glance, has grown consistently 21% year-over-year at approximately 200 stores added each year in the last 5 years. A deeper look into what the new stores is, that it is a store with difference concept from the traditional warehouse and growth plan. Home Depot has expanded into the international market, opened Expo design store centers, and within those stores have implemented different channels and cross-selling to increase sales per square footage, currently same-store sales increase at 4%, traditionally they’ve had a 7% increase year over year.

Costco always had a simple operating philosophy. Their operating philosophy is to keep costs low and pass the savings on to the

Costco Wholesale is the second largest retailer in the U.S behind Walmart. Costco is kown for its pricy $55 a-year membership fee, but this doesn’t stop consumers from coming to its massive warehouse of consumer goods. “Costco’s sales have grown 39 percent and its stock price has doubled since 2009” (Stone, 2013, p.1). That is a clear fact that Costco is doing well. This is during a period where other retailers struggled significantly.

Costco has gained significant success through building customer loyalty (Timm, 2014). Costco spends almost nothing on traditional advertising and marketing yet the company has grown to almost 60 million members. The company has grown by word of mouth through their customers who tell other people. The company offers their employees a generous compensation package which results in low turnover and long tenure reducing hiring and training costs and boosting productivity. Costco only offers their customers items that can provide an outstanding value resulting in about 4000 stock keeping units (SKUs). Whereas, other retailers keep anywhere from 30,000 to 150,000 SKUs. Over the past decade, Costco's earnings have grown 12 to 17 percent each year despite a difficult economic environment; their total sales exceed $76 billion a year.

Target Corporation is a large retail Corporation in the world with its headquarters in Minneapolis. The precursor of the Target Corporation is a famous retail corporation of the United States: "Dayton-Hudson Corporation" - established in 1918. First, Target is only a small portion of Dayton-Hudson Corporation. But by 2000, due to a number of changes, the Corporation was renamed the Target Corporation. It is the owners of subsidiaries like Target Financial Services, Target Sourcing Services, Target Commercial Interiors, Target Brands, and Target.com. Target Corporation organizes business with many stores such as Target or Super Target, which sell much different merchandise like clothing, jewelry, electronics, medicines and some groceries. Since the beginning of the 21st century, after rebuilding the brand new identity system, Target Corporation has continued to build more retail stores. Target Corporation has 1,764 stores across the United States and at Target.com. Target has grown and become the second largest retail group in the whole the United States - after Wal-Mart. Target Corporation has higher revenue and earning on Thanksgiving, Christmas and New Year season, which highly increase in working capital than other seasons. While Wal-Mart dominate the retail market with a low price, then Target succeeds in giving Target served customers with slogan “expect more, pay less” by encouraging diversity, providing great value, supporting the community, and protecting

The first of Porter’s Five Forces that impact Costco is the threat of new entrants. The threat of new entrants into the wholesale and membership retail space is low. There are several reasons why the threat of entrants into the market is low. The leading reason why the threat of entry is low is because an emerging company will struggle to have the volume necessary to compete with Costco. Costco is the sixth largest retailer in the U.S. As a major retailer, Costco has the highest discounts on a majority of its

Costco will increase its revenue by 15% in the next five years upgrading to the “Executive” membership existing business and qualified members. The increase in revenue provided by the upgrade is almost 100% profit, and will help to provide a strong incentive to clients to save enough through their benefits and purchases to offset the cost of membership. Given that this is a low-margin business, membership fees can account for about 50-55% of operating profits. Over the past years, the sales mix has shifted towards services and away from department store related hard lines and soft lines. While all categories have shown strong growth over the past decade, the services/other category have been the standout. During the next five years, industry revenue is estimated to increase at an average annual rate of 5.2% to $531.5 billion. Growth will occur most likely because of improving disposable incomes, consumer sentiment and business sentiment, all of which act as key drivers for the retail sector. (See Table 1.)

At the end of 2012, Costco was a successful business, but there are some issues that they would need to deal with. These issues mainly arise from their previous successful ventures as a warehouse wholesale company. The first issue is that Costco has competitors that can actually be and are a threat to their success. Competition allows a company to improve itself and prove its prowess to its customers. However, when a competitor is able to provide the service at a much reduced cost, problems will arise. As for the second issue, it seems that Costco’s efforts to become an international company are moving slowly. They have not reached a point where their US and Canadian warehouses provide a backbone for their finances. Costco’s third issue is that their finances are too reliant on acquiring new members and not on selling their products. If they cannot keep acquiring new members at a steady rate, their financial infrastructure could suffer.

Costco has had steady growth in sales and earnings going as far back as 1995 as shown in Costco’s financial reports published on their corporate website. Also, Costco’s stock had substantial growth between 1995 and 200 and has shown steady growth trends since them (Yahoo Finance, 2013). Their member renewal rate was approximately 89.7% in the U.S. and Canada, and approximately 86.4% on a worldwide basis in 2012, consistent with recent years (Costco, 2012, p. 11). Costco’s strong financial performance, stock price trends, and customer retention are all indicators that their strategy is in line with their visions and objectives.