Target
Corporation
International
Expansion
Report
December 13
2012
This report will address a situational analysis of Target Corporation and
apply the strengths of the organization to a new international market
that is best suited for additional company expansion accompanied with
strategy suggestions and financial forecasts.
Analysis and
Recommendations
Prepared For:
MBA 735: International Business
Dr. Alexander Nill
Prepared By:
Andrew Dunifer
Tony Fleming
Lyndsay Gensler
Joseph Porter
EXECUTIVE SUMMARY
Potential Growth
The proposed plan demonstrates how Target Corporation’s current position with 10.7% domestic market share will
be further expanded by expanding internationally into Singapore. Singapore was chosen after careful filtering of several
international regions while analyzing the potential growth for such markets, economic and political stability as well as many
cultural and benchmarking industry performance considerations. Although Hong Kong and Singapore were close final
contenders, the ease of doing business made Singapore the prime choice for the first venture into overseas expansion.
Within the 1st year, it is expected that each store will achieve a profitable cash balance of $13.9 (Singapore millions) and
$81.5 (Singapore millions) closing cash balance within five years of operations. These figures take into consideration 3.3%
industry growth rate while factoring in inflation of 4% and 17% corporate tax rate. Within 5 years, Capital real estate
investments are anticipated to be recouped.
Key Successes and Considerations
Target Corporation is already one of the local industry leaders for the variety retail market in second place behind
Wal-Mart. However, Target has already begun international expansion as of 2012 into Canada. Target is now better
positioned to address international business concerns such as currency exchange, international marketing and analysis of
international industry and economic performances. Furthermore, the company is highly successful with cross branding
strategies including international fashion designers and pop stars which will help Target prove successful in the Singapore
market that will recognize such international brands as well as the fact that this region embraces Western Culture especially
when it can be attained at an affordable price. Target has been successful at adapting location size and product offerings to
various metropolitan hubs as well as suburban areas and will be able to adapt these store models to similar international
locations.
Overall Strategy
Target is going to apply many of the same core principles of differentiation that the company finds successful in the
US market. The fundamental practice of offering higher quality and trendy household items and fashion apparel at very
competitive pricing has been the key to the company’s success. Specific product offerings may be adapted to suit local
consumer needs, however. The plan is to enter into the main retail hub in the heart of Singapore first and expand locations
from there. This area will not only be more in line to adopt such a Western company, but consumers will be expecting a little
higher pricing and progressive styling for their urban living.
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CORPORATE BACKGROUND
1962 marked the opening of the first Target store in Roseville, MN started by the Dayton Dry Goods and its founder
George Dayton. With the bull’s-eye logo created shortly before opening, the concept of Target was to hit right in the center
of this bull’s-eye; metaphorically meet the center of every customer’s needs. Since then Target’s has championed their
differentiation strategy of bring a high quality shopping experience with trendy fashion apparel and household items while
remaining a relatively low cost retail leader. By the year 2000 Target had officially changed their parent company name from
Dayton Dry Goods to Target Corporation.(1)(2)(3)
Currently Target exceeds over $69 Billion in revenues and has opened their first international chains in Canada. The
company’s President, Chairman, and CEO is Gregg Steinhafel who runs the publicly traded company with over 654 (mill)
outstanding shares of which 84% are owned by institutions, .14% owned by insiders of the company and the remainder
owned by public investors. Today, as America’s second largest discount retailer, Target operates nearly 1,800 stores in 49
states, and is still growing. Catering to the price conscious, yet fashionable consumer, Target has engrained its motto “Expect
More Pay Less,” into the minds of shoppers across the country. (1)(2)(3)(4) With a market share of close to 11%, from over $67
billion in total sales in 2011, Target Corporations is the second largest discount retailer in the United States, right behind
Wal-Mart whose market share is 67%. (15) Over the past 5 years, Target has experienced financial growth and stability in their
earnings, which has served well for their investor relations in increased dividends paid.
(4)(5)(Appendix A.1)
Their company size,
market share, quality of product selection and bullseye logo has made the company recognizable throughout the globe.
Strengths
Target has focused on their brand image since the beginning of their store operations. The company has proven
that in order to compete in the world of big discount retailers such as Kmart and Wal-Mart that they need to set their brand
identity as something more than a cheap place to shop. Targets skillful differentiation has helped keep their stores very
attractive in the public eye.(3) Customers perceive Target as a higher-end, stylish discount retailer, as is indicative of their
pseudonym “Tar-Zhay”. Their brand image is well known and widely popular. Their typical shopper is a college educated, 40year old with kids, whose household makes twice as much as the typical American family (at $64K vs. the $31K median US
household).(3)(6) Target excels on in store rankings compared to top competitors such as Wal-Mart on store cleanliness,
shopping atmosphere and a fun place to shop.(Appendix A.2) (7)
The brand has achieved highly successful cross-branding strategies with high end apparel designers such as Isaac
Mizrahi and more currently brands like Harajuku Mini a spin-off of Harajuku Girls designed by famed pop star and fashion
icon, Gwen Stefani. These derivatives of their high end more expensive cousins still offer really trendy clothing styles at a
2
much more affordable price point.(7)
(8) (9)
The company’s marketing strategy has been very successful by differentiating
themselves as a strong pricing competitor that offers a wide variety of products that are hip and stylish. Target plans to
continue with this core competency, but also plans to redefine this image with store remodels and introducing the P-Fresh
grocery line to capture more of the one stop shopper.(10)
Target operates over 1763 stores in all of the US except for Vermont, and has recently moved operations into a
licensing agreement to replace “Zellers” for 125 initial stores in Canada.(10) Target operates many subsidiaries including
Target National Bank which offers the Target Red and Target Visa, Target Financial and Retail Services monitoring their
Target gift card services, Target.com handling their online shopping and e-commerce activities, Target Sourcing Services for
their value chain management activities, Target Commercial Interiors for office space needs, and Target Brands that
manages the private label functions of the company.(11)
The company offers several different types of Target stores to fit the regional needs of customers. These include
Target Greatland and SuperTarget which carry a much greater selection of merchandise than their standard stores to
compete more with bigger chains like Wal-Mart. The company has also introduced City and Urban target stores that cater to
more urban and modern designs and can be found in larger cities such as Los Angeles and New York.(10) (11) The company is
evolving from a department store-type retailer to more of a hypermarket, offering a one-stop-shopping experience for
everything from household goods to electronics, apparel, pharmacy, groceries, and more.
(12)
Part of their competitive
advantage comes from quality goods which are sourced from over 3000 different factories worldwide.(14)
Target is well known for their sustainability initiatives as well as their emphasis on charity placing them in the #1
spot for such donations.
(Appendix B) (13)
Furthermore, Target is ranked #38 on the Standard and Poor’s Fortune 500 Index.
Remodeling stores and introduction of their P-fresh grocery items has helped Target attract more commodities based
shoppers and pull some consumers away from competitors in these item areas. (15)
Weaknesses
Target has come under fire for issues such as lacking involvement in labor unions, low employee wages and
contribution to urban sprawl.
(16)
The company had also been involved in several discrimination law suits and much higher
penalties associated with environmental problems such as selling aerosol canned items banned by the Environmental
Protection Agency as well as a $22.5 million settlement in California for mishandling of hazardous disposed materials. These
lawsuits distracted Target away from some of their branding and marketing activities. (16)
Target stores have been known to be discounted, but generally not as cheap as stores like Wal-Mart. Although this
has been a weakness in their brand, Target has been trying to compete on this issue and according to a Bloomberg report
3
they have successfully edged out Wal-Mart in the pricing war. This title seems to be flip flopping between both companies
and Target has yet to solidify their brand as the price leader. (19)
Opportunities
Target’s international activity could be expanded into many other markets which have great potential. Top
countries for doing business such as Singapore, China, Australia, and several European countries may be an option for Target
to expand into new market share.
(Appendix D)
The “P-Fresh” concept of introducing more grocery related items into Target
stores could help them gain a new loyalty to their stores as more consumers begin to shop there for more commodities
based items that customers are used to internationally. While in store these customers may still be drawn to the trendy
apparel items which carry the largest profit margins amongst most items in the store.
(21)
Target could also gain more
profitability by introducing more of their own private label thus reducing costs of goods sold via outside manufacturers.
They are currently introducing more products of their own line each year and now venturing from grocery items into their
own “Threshold” label with focus on Home décor. (22) Target could see more opportunity for growth in e-commerce now that
the company is allowing the use of their gift cards in stores as well as for online and mobile purchases as online shopping is
not as common in some international countries. (23)
Although Target Corporation has only concentrated in Global efforts thus far in Canada, the company does have
Information Technology operations in Bangalore, India and according to CEO, Greg Steinhafel “Target India is a long-term
strategic asset for the company and is an extension of our corporate headquarters. It allows us to holistically look at
enterprise-level opportunities and how best we could engage in it.” Thus, Target will have opportunity to become closer to
expansion into new foreign markets.
(24)
This emerging source supply markets are great opportunities within their fastest
growing segment including pharmacy, over-the-counter and beauty products. Target plans on incorporating their own inhouse development of pharmacy products which is also aided by some roots connected to India’s market which
manufactures and supplies a lot of the world’s medications. (25)
The US industry, typically defined as department stores, though merchandise lines and grocery stores are not
included in this grouping, is growing at a slower pace than the economy itself. 5 companies account for almost 82% of the
entire industry, resulting in high competition (which is further increasing), and with 1700+ stores nationwide, focused
around the major cities, Target is faced with a saturated US market. Expansion beyond the borders is inevitable, and will be
key in continuing to excel in this industry. (26)
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Threats
Target’s biggest threats for brick and mortar retail chains are Kmart and especially Wal-Mart. Wal-Mart gained new
market share during the recession period and they are looking to retain those customers as the economy bounces back by
adding nicer stores, diversifying their product line and having a much larger marketing budget than Target.
(1)
Online
competitors such as Amazon.com pose a huge threat to many retailers like Target as prices are generally much lower than
what is found at Target stores especially for electronics and with online delivery trying to achieve same day delivery in the
near future, it will be hard to compete on such services. (27)
As US inflation continues to average around 2%, additional importing and devaluation of the currency coinciding
with slow economic growth and a stagnant or declining wages has changed the consumer’s priorities in recent years to
become more price conscious. Target cannot rely only on strong marketing differentiation but must take note of this new
trend. It is difficult, however, for Target to market the brand as being the higher quality competitor and be the price
contender as well. (Appendix C) (28)
Increased corporate taxes and rising healthcare costs have also impacted Target’s operating expenses and with
such changes the company has downgraded many fulltime employees to part-time status so that they do not need to cover
these expenses. This could hurt the image of the company which relies significantly on their brand. (29)
OPPORTUNITY ANALYSIS
In order for Target to enter into a new international market it was important to determine which countries are best
for business, in general, so that these regions could be the focus of analysis. According to a Forbes.com report, the countries
ranked for being the best for businesses were judged on GDP growth rate, population, GDP per capita and trade balance as a
percent of GDP. The United States and Canada were listed on the top 10 report and Target currently has operations in these
areas. Not far behind the top 10, France and Australia replaced these two active markets with a finalized Top 10 region list
comprised of 1) New Zealand, 2) Hong Kong, 3) Ireland, 4) Denmark, 5) Singapore, 6) Sweden, 7) Norway, 8) United Kingdom,
9) Australia, 10) France: (30)
Filters
In order to further filter out country selection, there are some fundamentals needs that any business would find
desirable for pursuing market entry into a foreign market. Within this analysis, the minimum requirements that further
applied to each of these 10 markets were the following: high population density, low corporate tax rates, high labor
freedom, low union density, low political risk, and economic freedom. Appendix D of this report presents a number of items
which were evaluated for each country, as compared with the US and Canada, and as is detailed further below.
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France
The last on the list of countries to examine, France, is a little unusual in that it has a low union density but has high
labor freedom. This could be perceived that France’s government has more control than what may be best for Target. This
political risk is a major concern. France also ranks relatively low in the top ten selections in economic freedom, ease of doing
business, and has a high total tax rate. Target would also have to contend with Carrefour a formidable French-based
opponent who will not give up market share easily. The aforementioned concerns were enough to exclude France from
further analysis.
Denmark
Denmark has a low urban density and a high corporate tax rate, two attributes that make it less than desirable.
Denmark also ranked very high in labor unions which could mean an additional expense for Target when hiring local
employees for their stores. Denmark did not pass 3 of the 6 minimum pre-qualifications and was excluded.
Norway
Norway has high union density, low labor freedom, as well as low economic freedom. Although the country ranked
well on ease of doing business and has a relatively low corporate tax rate compared to the US, the country is very spread out
and the urban density which Target would require is not sufficient for entering into this market so Norway was removed
from further analysis.
Sweden
Sweden is very similar to the market in Norway: they also have high union density and low labor freedom.
Furthermore, Sweden has a high total tax rate which limits the economic freedom. Sweden is ranked fairly well for ease of
doing business and is not a high political risk country. However, the urban density is low and with the preceding concerns,
this made this country unsuitable for meeting the market entry.
United Kingdom
The United Kingdom ranked relatively well on ease of doing business. The region has a huge population and urban
areas that would fit Target’s agenda. Union density, political risk, and corporate tax rates were also very low and economic
freedom was on par with most other regions in our analysis. United Kingdom appeared to pass the prerequisites for market
entry, however after further analysis of this region, research indicated that the UK is not only riddled with competition, but
their economy is expected to shrink this year. The Prime Minister states they are doing everything they can do to improve
the economy; however a shrinking economy is not attractive for new market of entry so the UK was eliminated. (31)
Ireland
Economic freedom, ease of doing business, political risk, and union density were all ranked fairly well in Ireland.
The country relative to those excluded has a decent urban density and corporate tax rates were lower than any other
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country. Ireland may have been a contender for market entry, but after additional analysis research showed that the Euro is
somewhat unstable right now leading to uncertainty in the Irish economy. Ireland’s Debt-to-GNP ratio is currently at 1.5
which demonstrates that Ireland is struggling to attain positive growth in their GDP. Ireland was eliminated for these
reasons. (32)
Australia
Australia ranked well on the ease of doing business, low corporate tax rates, very low political risk and their urban
density for the country’s highest populated cities was a prime area for Target’s market entry. (Appendix D)
Further analysis shows that the country would be great as it is highly westernized and many of Targets marketing activities
and products would not need to be adapted to this market. (33) Australia, however, has one issue that would prevent Target
from market entry. Target has licensed out their Target logo to another company, Wesfarmers. This would add to serious
confusion and it would not be desirable or legal to compete with this licensing agreement. Thus, Australia was eliminated. (34)
Top 3 Contenders
The remaining 3 markets under consideration are all fairly equal in their positive and negative attributes as related
to Target Corporation’s potential foreign entry. All three ranked very high on ease of doing business, economic freedom,
had very low union densities, and extremely low corporate tax rates. These figures far outweighed any of the previous
countries in our analysis making them the top 3 country contenders. (Appendix D)
New Zealand
New Zealand ranked very well for ease of doing business, low on union density, very politically stable, low
corporate tax rates and economic freedom. However, New Zealand did rank lower compared to the other 2 countries
remaining for population density in urban areas. With further analysis, New Zealand failed in comparison to its Asian
competitors in its infrastructure, labor market efficiency, and macro environment. (35) New Zealand also has demonstrated a
complete lack of Green Initiative, a core value of Target Corporation. Aligning Target’s brand in a smaller foreign market that
does not appreciate corporate sustainability does not fare well and with this concern, this region was eliminated. (36)
Hong Kong
Even more similar are Hong Kong and Singapore. Both countries had very low labor unions, low corporate tax rates,
and great for ease of doing business and ranked well on economic freedom and labor freedom. Hong Kong, however, has
much higher political uncertainty and, therefore, risk, resulting in a potential negative perception by the US population in its
increasing association and control by China. Entering Hong Kong has higher political consequence than does Singapore. Hong
Kong, with higher corruption and more government bureaucracy, was the last exclusion from the top 10 selection. (37) (38)
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Market Choice – Singapore
Singapore is the most viable choice for bringing Target Brands into a new international market. In addition to
passing all of the minimum qualification filters, Singapore has a rapidly developing economy and has embraced much of the
western influence. The culture is viewed as advanced, progressive and the urban environment demonstrates a lot of
potential for the Target Brand which is aligned with modern innovation and fashion forwardness.
(39)(40)(41)
Although there is
some competition in regards to Hypermarkets in the area, Targets ability to adapt with its new Urban and City Target
initiatives, especially in high density markets, could prove successful in Singapore and would be well suited for
differentiation in comparison.
(42)
Sustainability is a major corporate consideration for Target Brands and Singapore’s
advanced efforts to fall in line with many green initiatives is also a benefit to avoid any negative PR issues when branching
into this new market. Target remains heavily involved with community and practicing ethical business decisions. Singapore
ranks number 1 in regards to lack of political corruption and is a market image Target would feel comfortable finding
alignment with. (47)
With the busiest port city in the world, Target will be able to cut down on logistics, and employee output
performance in Singapore far outweighs most advanced markets. Even with trade unions increasing a little, this percentage
has remained quite steady over the past 20 years and the ports and outputs will help to keep Target’s profit margins
performing well and pricing at a competitive rate. (48) (40)
Singapore’s general business economy may not be an emerging market, which might be better suited for
competitors looking to push commodities at the lowest prices, but it is one of the fastest and technologically evolving
markets in the world and their customers expect more.
(49)
Singapore has a highly developed and advanced economy in
regards to technical and civil engineered infrastructures. The multinationals and expats embrace the western culture and
Singapore has a very young demographic with some of the highest per capita average incomes in any advanced nation. (50)
Singapore was established under British rule almost 200 years ago and the English language is the primary language for the
nation (other than what is taught in schools. Almost all signs and advertising are in English which will make streamline the
marketing activities for Target. (51)
Even though the Hypermarket industry is a bit saturated in Singapore, Target’s focus will be on providing a higher
guest experience with more attention fashion apparel, quality products, and leading in innovative items to suit the
progressive environment in Singapore. These are all part of the strategy that Target has been successful at bringing to
market even in the shadow of its US competitors and through this differentiation, while still remaining competitive on
pricing, Target should also do well in Singapore.
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MARKET ANALYSIS
Competitors
The most direct competitors for the Target Store in Singapore’s retail market are hypermarkets
Carrefour(72), Dairy Farm International Holdings
(73),
and NTUC Fairprice Co-operative
(71),
(77)
such as
as well as mid-quality apparel
department stores or mixed retailers such as Robinson & Company (78), Takashimaya (80), Mustafa (75), and Isetan. (74) Within
the hypermarket retailers market segment Dairy Farm International Holdings has 48.1%(73), NTUC Fairprice has 24.1% (71), and
Carrefour has 21.3% (72) of the retail value share. This is a total of 93.5% of the hypermarket segment. (See Table 12, 13, 14, Appendix E –
Figure 1)
Although hypermarkets will be our most direct competitors in Singapore they differ in the fact that they do not
concentrate on fashionable clothing. They do however carry groceries and non-grocery items that are similar to the quality
of the items Target Corporation carries.
Within the mixed retailers market segment Robinson & Company, Takashimaya, Mustafa, and Isetan have a value
market share of 19.8% (78), 17.5% (80), 15.6% (75), and 11.9% (74), respectively, totaling 64.8% of the market. (See Table 15, Appendix E –
Figure 2)
These competitors have a low cost and/or differentiation strategy. Department stores in the mixed retailers market,
such as the ones mentioned above, specialize in apparel and do not carry many items similar to Target’s non-apparel items
like kitchen appliances, household cleaning goods, and other non-grocery consumer goods. These mixed retailers do,
however, carry higher fashion clothing although for a higher consumer price. Target could the market niche by providing a
one stop shop for consumers who are seeking higher quality goods at a more affordable price.
Consumer Trends
Increasing world travel to and from Singapore is creating a social change amongst all of the social classes. As a
result consumers are becoming increasingly westernized, opening up a market for trendy western fashion. (77)(81)(82)
Also, an increasingly strengthening economy, consumers will have more to spend on luxury items and apparel. The economic
recovery starting in 2010 led to an increase in consumer confidence; as a result consumers began spending more on branded
items. When consumers are presented the choice between similar items with different perceived values, on average, the
consumer is more likely to purchase the item with the highest perceived value at a higher price.
(76)
Unemployment is also
likely to remain low due to government training efforts, solidifying jobs means that consumers will have money to spend on
retail items. (77)
Retail Market Sales
In 2009 Singapore non-grocery retailers saw a decline in sales from SGD $16.5 to 16.4 billion, a difference of about
$90 million, due to economic downturn; decline was countered in 2010, though, by a large increase in sales, reaching about
$17.6B.
(77) (See Table 2 in Appendix E)
In 2011 Singapore’s total sales for non-grocery retailers reached $18.96B, an increase of
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approximately $1.4B from 2010 (76) (See Table 2 in Appendix E), with mixed retailers accounting for about 15.3% of non-grocery sales,
reaching slightly more than SGD $2.9B. (77) (See Table 6 in Appendix E), and retail-only sales reached an all-time high of $26.1B. Retail
sales are expected to increase by approximately SGD $700M in 2012. This increase in sales can be attributed to an overall
growing economy steamrolled by the manufacturing industry.
(77) (See Table 1 in Appendix E)
Lastly, Sales in non-store retailing in
2011, including direct selling, home shopping, internet retailing and vending, reached almost $1.4B; with internet retailing
being the major contributor to this sub-market at $777.6M.(77)
Rate of market growth
From 2006 to 2011 store-based retail sales had a constant annual growth rate (CAGR) of 4.1%. Non-grocery retail
sales had a CAGR of 4.4%. Grocery retail CAGR in the same time period was 3.3%. This may be an indication that consumers
are spending more on non-essential items. (77)(See Appendix E)
The non-grocery, store-based retailing market is expected to grow by 11.9% from 2011 to 2016 with mixed retailers
accounting for 17.6% and apparel specialty stores 14.5% of the market. Non-grocery and grocery retailing grew by 7.8% and
4.0%, respectively, from 2010 to 2011, a clear representation of an improving economy and increasing consumer confidence.
The overall growth from 2006 to 2011 for non-grocery retailing was 23.9%; 25.9% of this overall growth can be attributed to
mixed product retailers and 43.4% to apparel product retailers. (77)(See Appendix E)
Non-store retailing has seen tremendous growth in Singapore from 2006 to 2011 with a CAGR of 6.6% and a total
growth of 37.9%. This growth in mainly attributed to internet retailing with a CAGR of 10.0% and a total growth of 61.1% in
this timespan. Internet retail is forecasted to increase from 2011 to 2016 with a CAGR of 8.2% reaching a total growth of
43.3% in 2016, thereby impacting the store-based retail market. (77)(See Appendix E)
Likely Future Developments
As the retail industry in Singapore continues to grow, major retailers have been increasingly expanding to the rural
areas due to the lack of space in the inner-city areas. Available space for new businesses, such as strip malls, will likely be
built accordingly to support this forecasted growth. As the overall population becomes increasingly tech savvy, non-store
retail sales over the internet will, too, grow, and it’s likely that many international internet purchases will increase as well. (77)
Emergence of New Market Segments
The apparel and hypermarket industries are relatively mature in Singapore. But, as consumer fashion awareness
changes with fashion trends, it is likely to see an emergence of firms that focus on these specific trends.
Entry of Competition
Singapore’s government has created a very attractive atmosphere for businesses. With its low corporate tax rates
and low political risk it is likely to see more competition in this already competitive market. (76) As the economy continues to
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strengthen in Singapore, land, building, and leasing prices, will continue to increase adding barriers to entry.
(77)
Internet
retail sales are also rapidly increasing in Singapore and may become a major competitor for mixed retail stores. As of now it
is not much of a threat but it is likely to continue affect market share. (77)
MARKET ENTRY STRATEGY
Objectives
Since Target Corporation is only located in North America, via USA and Canada, it will need to further establish
itself in foreign markets to compete on a global scale with the most prominent hyper-market competitors, like Walmart and
Carrefour. By expanding into Singapore, Target Corporation can feel out the activities and needs required for further global
expansion through this smaller market with easy transition through determining logistics, advertising, branding, and pricing
strategies in an Asian market. In entering Singapore, Target is strategically positioning itself for further expansion into other
Asian countries.
Market Entry
Entry into Singapore should be consistent with their Canadian market entry (i.e. purchased leaseholds from
Zellers), where Target is opening its first 60 Canadian stores, along with 3 distribution centers, beginning in March or April of
2013. (83) Target will find a local, similar retailer to purchase leaseholds from for its stores. For instance, Carrefour's 70,000
square foot building in the Plaza Singapura Mall
(84)
in the main Downtown area of Singapore will be available in the near
future. Target will directly invest in Singapore, and look to purchase stores and, with further Asian expansion, distribution
centers, rather than leasing spaces. This is in-line with its USA philosophy where the company owns 85.8% of its stores and
81.1% of its distribution centers. (83, Appendix F)
Initial Market Entry
In comparing the US potential market of approximately 44M to 50M people, all else equal, each of Target's 1,763
stores averages about 25,000 to 28,000 customers. Singapore, with 550,000 to 650,000 potential customers, Target should,
theoretically aim to operate approximately 22 stores in Singapore, upon solidifying market presence there. However, the
geography of the US is vastly different from that of Singapore, with numerous highly populated cities and a number of rural
areas with less concentration. Currently, the most comparable area Target is located in is the island of Oahu, Hawaii (which
is over twice the landmass and a quarter of the population of Singapore), where they operate 4 stores, in the main, densely
populated shopping areas.(83) Singapore is highly concentrated, due to the geographical constraints of the island, and would
therefore require fewer stores to serve a larger populous. In order for Target to gain further international penetration, for
the Asian countries specifically, the company will use Singapore as a test area for further Asian expansion.
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Starting with the main openings in the central place for retail and many headquarters, Target will then further
branch-out from the major metropolitan shopping districts.
(85)
Of the 3.77 million Singapore residents, as of June 2010,
about 57% were concentrated in ten (10) planning areas. The five (5) area with over 200,000 Singapore residents, from
largest to smallest, are: Bedok, Jurong West, Tampines, Woodlands, and Hougang. (86) Opening one (1) to two (2) regular
Target store locations, depending on building space availability, in the core of Downtown, Bedok, and Tampines will place
the company along-side its competitors, and allow the company to solidify its logistics needs from the initial market
penetration. Following, in two (2) or more years, with Hougang, Woodlands, and Jurong West, furthering their reach on the
island.(86)(Appendix H)
Locations of Main Competitors: (Appendix G)
Carrefour (87)
Main downtown area.
NTUC Fairprice (87)
Giant Hypermarket (88)
Sheng Siong (89)
Many locations scattered
throughout the island.
10 locations focused around
Downtown and Jurong West.
31 locations scattered
throughout the island.
Target Market
The number of potential Target shoppers in Singapore is 550,000 to 650,000, when accounting for the current
customer scheme in the US market (median age of 40, median household income of $64K, 43% with children at home)(3), as
based on age and household income. (90)(91)(92)(93)(94)(Appendix I) Demographic focus will include:
Residents
with
monthly
household incomes of SDG $5,000 or more, aged 25 to 44 years old, and larger family households. The majority of the
Singapore population, in terms of age and gender, is very similar to the US market (90); the median Age of the population in
Singapore is 38.4 (the US is 36.8 years old), a little over a year younger than Targets median customer age in the US. (95) In
2010, 82.9% of households have 1 or more family nuclei in their homes, and 87.8% have 2 or more people, which also
indicates that households are condensed to include more people; a good indication for Target in the potential for gaining
more customers through reaching fewer households. (96)
Customer Benefits: Market Position
Local competition is perceived like WalMart in the US market, with cheaper prices, but of lesser quality. (97) Target
will project itself as a high-quality, but low cost retailer. A potential problem that Target may need to address is the
Singaporean perception of Target as a higher cost alternative to its competition. As such, Target will market and cater to the
higher income level residents, but will ensure its price-matching and low cost items are known to the public. Target will
offer its Singapore customers a differentiated product, with emphasis on its “westernized”-flare (as the culture is leaning
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towards a western-influenced lifestyle), and a different clothing/apparel perspective with the “relaxed,” while still
fashionable and trendy nature of the general Singapore population.
Locals are price-conscious but willing to spend a little more on what they perceive as luxury as the economy
strengthens. Target can offer higher quality goods at reasonable prices, through the Up&Up private-Target brand label and
exclusive deals with designers.
(81)
Price-matching and promotional efforts will help to ensure that Singaporeans perceive
the value of Targets products as higher quality at the same or only slightly higher prices. Additionally, Target offers a onestop shopping experience with a warm, fun, friendly, environment unlike any other hypermarket on the island. The stores
will offer higher quality household goods, foods, apparel, electronics, home furnishings, etc., whereas competitors like Sheng
Siong carries mostly food and general household goods
(89),
while Giant Hypermarket carries groceries and general
merchandise, which does include some clothing. (88)
STRATEGIC PLAN
Product Modifications
Due to the differences in laws, Target Corporation will have to follow the law codes closely. An example of some
items banned by law include: Politically sensitive or subversive literature or erotica; publications with moral, religious, or
communal issues, examples include magazines like Penthouse, Playboy, and Cosmopolitan; Videos deemed to carry
excessive violence, sex, nudity, or which depict drug abuse; Media which depicts themes that are objectionable on moral,
social, religious, and racial grounds; and Chewing gum.
(98)
Aside from product changes due to legal requirements,
modifications to products will include (see Appendix K.1 for current sales mix):
Home Furnishings and Décor – Adjustments made to the furniture pieces sold in Target stores, because the island is limited
for space, homes are much smaller than they are in the US. For instance, smaller couches and cabinetry will be presented to
the Singapore market, as opposed to the large items sold in the US. However, fashion and trendiness will stay at the
forefront of Targets sales mix. 93.6% of living spaces are HDB flats and condominiums, meaning home furnishings should be
minimalist and take up a small amount of space. As the smallest category, based on percentage of sales, Target will vastly
reduce the size and offerings of home furnishings. (100)
Food – Conducive to the local tastes, Singapore cuisine is roughly 74% Chinese, 13% ethnic Malay, 9% Indian, and 3%
Eurasian, and focuses on noodles, rice, and seafood.
(99)
While the convenience of groceries will help garner customers,
Target groceries will stay similar to the US market, where they offer a variety of goods which emphasize convenience, but
not to the vast extent of a traditional grocer. Produce and perishable goods will be sourced locally, as possible.
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Clothing – Singaporeans tend to wear loose fitting shirts, shorts and skirts. Their outfit choices are often dictated by the hot
and humid climate. This consideration will influence the clothing merchandise which Target stores will carry.
(101)
Though,
the local population does care about fashion, as is indicative of the growing luxury and fashion retail scene, something which
Target stores can take advantage of by offering fashion-forward clothing at a drastically lower price than luxury retailers. (102)
Key hypermarket and retail competitors, as outlined previously, do not carry trendy, fashionable clothing, and luxury
retailers are not nearly as affordable as Target, giving the stores a niche market from which to pull.
Product Mix and Pricing Strategy
Pricing in Singapore amongst large retailers is fixed, and competitive. (103) Similar to their pricing strategy in the US,
Target will need to evaluate the prices of the key competitors, and set prices based on their prices for similar products.
Based on customer-entered data, consumer prices are 32.4% higher and grocery prices are 15.5% higher in Singapore when
compared with the US (see Appendix K.2 for average cost of select items in Singapore vs. the US), bringing to attention the
need to seriously evaluate the local shopping scene for pricing appropriately. 104 Promotional prices are readily available on
many competitor websites and published advertisements. Evaluation of these promotional prices will be necessary for
setting prices, as the local population is price conscious, but willing to pay slightly higher prices if they perceive a product as
superior to its like counterpart. (Appendix J) Similar to its tactics in the US, many of Target's vendors are not paid until the
products are sold to the customer. Utilizing this methodology would help reduce risk for Target in Singapore in that the
purchasing and selling of goods could help the corporation better understand their customers before fully immersing
themselves in purchasing supplies and inventory, wholly, for sale in their stores. Additionally, this type of merchandise does
not get classified as inventory, as so is not a further liability or cost to the business. (97) In order to keep inventory levels in
check, Target stores in Singapore will continue to use radio frequency identification programs (RFIDs). RFID tags are like
barcode which are placed on products as they arrive at the store and allow for automatic updating of the inventory levels as
goods are sold. Once the in-store count of any particular product falls below the previously determined minimum level for a
particular product, replenishment is queued and shipped directly to the store, from the appropriate distribution centerspace. (97)
Target Corporation has indicated, with the entry into Canada, that pricing and branding go hand in hand.(85) The
general perception is that Target’s pricing in the US is higher than some of its competitors, but the balance is in higher-end
products. Target will have to establish the retails and the assortment of goods for the brand before setting prices. Some
considerations in pricing disparity will include: higher real estate charges, greater scale across a small island, and supplychain costs, such as freight and distribution. Upon initial market entry, hiring a third-party logistics company (3PL), such as
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Naigai Nitto Singapore PTE LTD. (106), will ensure that Target has complete control over its costs, as related to the movement
of goods. The costs of goods movements will decrease, when compared with the US, due to the smaller freights and the
nature of the commerce-driven, large port-city environment of Singapore. The proximity of the island to Target’s main
factories in China, India, et al, will also serve as a cost-reducer.
Distribution
Like many US exporters in Singapore, Target will use agents or distributors to serve the Singapore market.
Prospective distribution firms in Singapore typically employ aggressive and enthusiastic methods to entice new market
entrants. Many US companies use the U.S. Commercial Service (CS) Singapore’s matchmaking and promotion services in
order to create relationships which cover regional territories, such as Southeast Asia. (103)
With quality goods which are sourced from over 3,000 factories worldwide, from countries around the world like
China, India, Korea, and Indonesia, Target in Singapore will utilize a similar distribution model as it does in the US, as related
to transport and freight needs.
(107)
In the US, Target owns 30 of its 37 distribution centers, however in Singapore, the
company will not look to immediately open a distribution center for receiving its goods from the ports within the country.
Rather, opening a large distribution center will follow subsequent to Singapore entry as Target is likely to expand further into
the Asian market upon testing the market. Their international sourcing operations have 24 office locations in 17 countries,
all of which are leased. Utilizing these existing operations will assist in their transition to the Singapore market. No further
operations should be opened until after the market entry and subsequent evaluation of needs occurs. (83)
Promotional Strategy: Communication
With marketing and advertisement schemes as a core competency, it is important that the brand image is
identified and portrayed through the local media. Product quality and fashion-forwardness are items Target will want to
convey to the Singaporean market. As such, the initial entry keys to communication include: Brand Awareness; Provoke
First Trial; and Brand Image.
Target will acquire first trial customers through behavioral decisions. By marketing highly fashionable but lowercost items, as compared with clothing retail competitors, and higher-quality everyday goods, as compared with hypermarket
competition, the business will first aim to get people into the stores. Customer perception should evoke a feeling of
receiving a deal on a reasonably priced item which is viewed as superior and of higher-quality than a like item from a
competitor. The main message to customers will encompass an American/western company with affordable, high-quality
goods which are fashion-forward and trendy (as compared with luxury retailers). By appealing to the first trial visitor, Target
will aim to feed on the collectivist culture of Singapore and gain further popularity through word-of-mouth, as a higher-
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quality hypermarket with reasonable prices. After some time in the market, Target will shift focus to the emotional
decisions, requiring higher purchasing involvement by utilizing marketing campaigns with emotional ties encompassing the
fun, care-free, trendy environment that Target offers.
Advertising
“The main mass media in Singapore seems to be the newspapers, TV, radio and increasingly, web space; that is, if
you want to reach the masses without targeting specific interest groups.”
(108)
In 2011, Target reported spending $1,360M
on advertising, accounting for about 9.6% of their selling, general, and administrative costs ($14,106M). As a volume-driven
business, about 2% is spent on marketing as percent revenue.
(83)
With a projected sales of SGD $103.6M in its first year,
marketing expenditures are expected to be around SGD $2.1M with 2% spent on marketing as a percent of revenue. (109)
Based on the projected revenues for the next 5 years, Target is expected to spend SGD $2.1M to SGD $2.7M annually on
marketing. (See Financial Section for projected sales forecast). Much like the US, focus in Singapore will be given to
newspaper circulars, internet advertisements, and media broadcasts, which made up the majority of the $1,360M USD spent
on ads in 2011.(83) To evoke initial visit interest, Target will saturate the advertising space through frequent and complete
immersion in each of these venues, with special attention to presence in these media spaces most frequented by the
hypermarket competition. Additionally, an online presence is essential, as all of Targets competitors have websites, and the
majority (77.8%) of Singaporean households have the internet.(110) At approximately SGD $175,000, each month Target can
run, for example, a healthy mix of 1 rotating banner ad, 3 large billboards, 3 full page ads, and 30+ 30-second commercials.
(111)(Appendix L)
With a high focus on marketing efforts, Target will utilize a 3 rd party advertising/marketing specialist in
Singapore to roll-out its marketing efforts, much like they are doing in entry to Canada. (112)
Singapore’s Code of Advertising Practices demands that all advertisements should be legal, decent, honest and
truthful. Abiding by the rules of this governing body is essential to participation in local advertisement campaigns.
Censorship and advertising regulatory guidelines are in place to protect the multiracial and multicultural population of
Singapore. Advertisements in Singapore should be structured to be sensitive to the differences that exist in the society.
(108)
This will ensure that their marketing techniques and focus are correct for the market, and that the right mix of
advertisement types, such as “tactical” (i.e. sales and promotions) and “branding” (which inspires, captivates, entrances, and
plays with emotions) are used for the local market.
(108)
Potential marketing agencies include:
The Thinc Group
(www.thethincgroup.com), Adwright (www.adwright.com), WILD (www.wild.sg), Ogilvy & Mather (www.ogilvy.com), and Iris
Nation (www.irisnation.com).
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Promotions
As a culture of high collectivism, Target can garner further business through word-of-mouth and peer influence.
It’s important that Target’s first users evolve into repeat customers which will be accomplished through promotions and
advertising ventures. Targets promotional efforts in Singapore will be geared towards those methods perceived by the
potential customers as value-added and beneficial. Some of the popular methods of promotion considered as value-added
by supermarket managers in Singapore, include: Price discounts, coupons, premiums, free gifts, sampling, and
demonstrations. (105) Since the key competitors in the hypermarket industry are using these promotional tactics, Target will
too to stay in-line with the consumer expectations of promotions. Target will advertise discounts and promotional schemes
through their website, social media, and various external landscapes (i.e. mailings, radio and television spots, newspaper
circulars, etc.), as described previously. Additionally, the Target RedCard, or similar “loyalty” card, expanded to Singapore
will help entice customers and allow them to further benefit from purchase discounts, special coupons, and promotional
incentives for card-holders.
Website and Online Presence
Target.com does not currently ship outside of the US, and with its transition into Singapore, this will remain true. (3)
Target.com will need to have a presence in Singapore, to show what is available in the physical spaces in the countries
stores. An option to hold or “ship to store” may be conducive to maintaining the “feel” of online shopping while not actually
allowing for shipments to Singapore or international addresses. The website will also be key in providing support for “pricematching” and promotional efforts.
FINANCIAL ANALYSIS
In order for Target to become a multinational entity, there are many things that the company needs to consider.
One of the most important items that must be taken under consideration is the finances associated with opening, and then
operating in a foreign country. The areas of finance that the company must consider are items such as local cash flow
projections, repatriating currency back into the home country, how opening in a foreign country will affect the company in
the home country, amongst other financial considerations.
The steps required to project local cash flows would be to analyze similar companies already operating in the area. This
is important because this will determine the spending habits of the local populous. This will also aid the company in
analyzing the strength of its competitors. The strength of competitors will affect the company greatly when attempting to
operate in that area. The competition in Singapore includes companies, amongst others, like: Tangs, Takashimaya, Metro,
Sheng Siong, NTUC Fairprice, Carrefour, Beijing Hualian Group (BHG), and stores owned by Robinson & Co. (including: John
Little, Marks & Spencer, and Robinsons).(113)
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The chart above shows that the MoM retail sales (as a percent) have maintained fairly stable over the period of
September 2011 to September 2012. The largest fluctuations occurred during normal periods of either increased or
decreased sales, namely the first and fourth quarters. This data shows that Target will see similar shopping habits in
Singapore as they do in the US. (116)
According to the Department of Statistics Singapore, the retail industry growth is 2.2%. (113) Comparing Target to a
company of similar size (similar size refers to sales compared to size of market), Sheng Siong, we could project that Target
would grow at a minimum of the industry growth rate of 2.2%, and see sales matching that of Sheng Siong in the variety
retail market of 3.3%. The next section demonstrates projections of sales for Target Corp, using Sheng Siong’s 2011 financial
data as a benchmark.
Discussion of Projected Revenue, Net Income , and Cash Balances
A detailed pro forma has been prepared that estimates a 5 year forecast and closing cash balances of each year.
This estimate is based on a local competitor, Sheng Siong’s, industry sales, 3.3% variety retailer growth rate, operating
expenses as well as factoring in the corporate tax rate of 17% and local inflation of 4%. (120)
The data from the competitor was then broken down by square footage and applied to an average 70,000 square
foot Target store location for Singapore. Although the data reflects annual operating expenses, each store will also require
about $40.05 (Million Singapore Dollars) for upfront capital to purchase an average sized 70,000 square foot store based off
of average prime retail Singapore commercial sale prices at $572 (Singapore Dollars) per square foot. The buildings will be
financed through the sale of 10 year callable bonds. Based on Target’s 2011 annual report, the most recent bond issues
averaged a coupon rate of about 6.5%,(Appendix
M)
so we will use that estimate for the bond issuance for financing the
Singapore store space. Forecasting indicates that this amount will be recouped within the first 5 years of operations.(Appendix
N)
The forecast shows how the bonds can be paid-back, using the payback method, in 3.2 years if Target operates with zero
profits for this time. The charts also demonstrate that the sensitivity of sales to the square footage size of the stores is
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roughly $26,536 per 1,000 sq. ft. of sales space. This just means that the sales would increase or decrease by this amount
depending on the size of the store.
When the company begins operations in the foreign country, repatriating cash will become a very important issue. The
things the company needs to consider here are:

Local laws and regulations pertaining to removing cash from the country. Currently there are no exchange controls
in Singapore; however, this could change if the government adjusts to keep profits in Singapore. (113)

The exchange rates from the local currency to the currency of the home country, impacting Target’s bottom-line
through increased or decreased profits. The current exchange rate is $1 SGD = $0.8176 USD.

How the funds will be taxed, both leaving the foreign country and after repatriation occurs. The corporate tax rate
in Singapore is one of the lowest in the world at 17%. (115) To repatriate the profits back into the US, the tax rate is
8.75 %.(119) This coupled with the Singapore’s corporate tax rate is still less than standard corporate tax rate in the
US.
Lastly, the company will need to consider how the consumers of the home country will react to the company opening in
the foreign country. This will have a great impact on the sales in the home country because the feelings of the local
consumers will affect their shopping and spending habits. Singapore consistently heads the ranks for business-friendly
nations. According to The World Bank, Singapore is still the number one nation for ease of doing business, which could
translate to Target being a success in this market. (118)
CONCLUSION
The expansion to Singapore will serve as the baseline to further international expansion for Target Corporations. If
Target can succeed in Singapore, the natural progression will be movement to other SE Asian countries, thereby solidifying
the firms’ global presence and further competing with its biggest worldwide rivals, namely Walmart. Should the brand name
and identity successfully penetrate Singapore, Target will likely find that its expansion to the some of the biggest markets in
the World, focused on Asia, will be natural and simplified.
However, should Target fail in the Asian test-market of Singapore, the company may look to focus on expansion to
more Westernized-cultures, like the European market, if at all. Because Singapore is a small test-market for the company,
other, larger Asian markets are not completely ruled-out, rather, focus should be adjusted to more like-markets. Impending
reluctance by shareholders may add barriers to alternate international expansion efforts, in the event of failure, in that the
financial implications of further failures will seem detrimental to the companies bottom-line, and thus, stock and dividends.
As presented in the financial section of this report, the financial implications for entering Singapore are minimal as
compared with larger expansion ventures, such as the entry into Canada with 125-135 potential stores in the first swing of
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store openings. This, though, cannot fully account for the unquantifiable impacts of success or failure in the expansion, such
as: shareholder confidence, customer perception (in the US and Asia), supply-chain relationships, management outlook, etc.
As a test-market for further international expansion, success in Singapore will have a significant influence on the
company’s outlook on further expansion ventures. Success could steamroll a major international push for the company,
since Target will likely have gained buy-in from all sides of the retail business environment (i.e. management, shareholders,
Asian market players, industry analysts, etc.). As such, expansion to SE Asia and other similar countries will follow quickly,
and further establish the company as a world-recognized corporation. On the other hand, failure in the Singapore market
could have the opposite effect, even halting any notions of further international expansion immediately. Failure could cause
hesitation and nervousness among company leaders and shareholders, thus pigeon-holing Target as a US and Canada-only
retail name.
Target Corporations will use Singapore as a spring-board to further international expansion by first opening one (1)
to two (2) stores in the main highly populated areas of the country. While distribution, sourcing, and supply chain
psychology will remain the same, a key third-party logistics (3PL) group will ensure Target is handling the expansion in the
most effective way possible. Through using 3PLs for distribution and supply chain efforts, Target can focus on its core
competencies of offering high-quality, affordable-fashion, trendy goods, and marketing/advertising in a unique and
memorable way. Additionally, the company will use a third-party for marketing efforts to ensure its message and delivery is
in-line with the companies brand identity. These efforts will provoke a trial visit, and eventually, hook consumers into the
brand offerings and further penetrate the “collectivist” market culture through word-of-mouth and strategic advertising.
Target will ultimately saturate the advertisement space upon initial entry and try to appeal to the consumer decisions based,
first on behavior, and subsequently (with some time in the market), on emotions. By presenting itself as a trendy,
westernized hyper-market with higher quality, while still affordable goods, Target will seek to find the niche market of
shoppers with higher incomes but still savvy and price-conscious.
An evaluation of Target Corporation and potential foreign markets was presented in this report. With Singapore
determined as the best market to enter, the strategic needs for Target’s initial entry into this foreign market-space were
outlined. This plan includes sourcing, distribution, marketing, promotions, product mix and adjustments, among other key
features Target will consider in taking on the Singapore market. A financial analysis follows, depicting the financial
implications and expectations of entry into Singapore. This report is intended to depict the requirements for Target to
succeed in venturing across the World to the Asian market.
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