Target Corporation

1
Target Corporation
Voorhees Business Conference
Supply Chain Should it be Part of Your
Corporate Strategy?
4/1/2005
2
Agenda

• Introduction
• Target Corporation overview
• Role of SC in corporate strategy
• SC excellence impact on L/T growth and
  profitability
• Relating SC excellence to financial results

3
Target Corporation Components

• Target Stores
• Super Target
• Target.Com
• Associated Merchandising
• Corporation

2004 Corporate Revenues approximately 47 Billion
4
Target Corporation Stats

• Corporate Headquarters in Minneapolis, MN
• Approximately 275,000 team members
• First Target store opened 1962 in Roseville, MN
  (What other 3 chains also started in 1962?)
• Currently operate 1,330 Target stores, including
  141 Super Target stores
• Historically add 10 new Target stores each year
• Super Target is a primary growth vehicle for
  Target going forward

5
Our Target Store Guests

• Expect More, Pay Less
• Young, well-educated families living active
  lifestyles
• Median age of guest is 45 years old (the
  youngest of major retailers)
• Median annual income of 57,000
• 90 are female
• 79 have attended college
• 44 have completed college
• 39 have children at home

6
Porters Three Generic Strategies
STRATEGIC ADVANTAGE
Uniqueness Perceived by the Customer
Low Cost Position
DIFFERENTIATION
OVERALL COST LEADERSHIP
Industrywide
STRATEGIC TARGET
Particular Segment Only
FOCUS
7
Porters Generic Value Chain
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
MARGIN
SUPPORT ACTIVITIES
TECHNOLOGY DEVELOPMENT
PROCUREMENT
OUTBOUND LOGISTICS
MARKETING SALES
SERVICE
INBOUND LOGISTICS
OPERATIONS
MARGIN
PRIMARY ACTIVITIES
8
Target Supply Chain Vision

• Our supply chain is the physical backbone of our
  retail business.In todays highly competitive,
  value-oriented environment, speed and efficiency
  are critical elements of a successful supply
  chain.and a successful supply chain is a
  strategic imperative.
• Through cross-functional integration of our
  supply chain, item segmentation and increased
  simplicity and speed, we expect to achieve our
  objectives of improving in-stock levels, reducing
  costs, and eliminating unnecessary inventory in
  our pipeline. We are confident that the supply
  chain vision I have just described will help us
  achieve the world-class performance we aspire to
  and help us deliver superior returns to our
  shareholders.
• Vice Chairman Jerry Storch to Targets Board of
  Directors

9
Supply Chain at Target

• Major Cost Component
• Significant Impact on Guest Satisfaction
• Increasingly Central to Strategic Position

10
Supply Chain Objectives

• Improve In-stocks
• Lower Costs
• Reduce Inventory

11
Supply Chain Vision

• Cross Functional
• Segmented Product Flow
• Simple and Fast

12
Supply Chain Vision

• Cross Functional
• Segmented Product Flow
• Simple and Fast

13
Target Supply Chain Initiatives
RFID/EPC
Top 2500 Items
Import Warehouses
Pre-Distro/Asst item
Indirect to Direct Imports
Food/Grocery/Non Retail Network
Supply Chain visibility and measurement
14
Supply Chain Vision

• Cross Functional
• Segmented Product Flow
• Simple and Fast

15
Segmentation Paradigm
Cube
Predictability
Rate of Sale
Other Factors
Lead-Time Vendor Reliability Risk
16
Top 2500 Mission
Initial Goal.expanded to 2500
17
Supply Chain Vision

• Cross Functional
• Segmented Product Flow
• Simple and Fast

18
Simple and Fast

• Eliminate Unnecessary Buffers
• Shorten Pipeline
• Partner w/ Vendors Upstream

19
Buffers

• Reserve Stock in RDCs
• Off-site DCs
• Backroom Open-Stock

20
Examples of SC disruptions

• Major derailment AZ Nov 2000
• 9/11/2001
• CF Bankruptcy Sep 2002
• ILWU lockout Oct 2002
• Hurricane on East coast Aug 2003
• Fires on West coast Oct 2003
• Hurricanes in Southeast Aug/Sep 2004
• Transportation capacity crunch - NOW

21
Port Lockout - 2002
Vessels Queued Up
22
Hurricane
East Coast Hurricane 2003
23
Firestorm
View of San Diego Firestorm
24
Simple and Fast

• Eliminate Unnecessary Buffers
• Shorten Pipeline (e.g. Single Day Receipt, ART,
  LOS)
• Partner w/ Vendors Upstream

25
Simple and Fast

• Eliminate Unnecessary Buffers
• Shorten Pipeline
• Partner w/ Vendors Upstream

26
Partner w/ Vendors Upstream

• Pre-Distribution
• Joint Business Planning - Collaborative
  Forecasting
• Single Day Receipt

27
(No Transcript)
28
An unscientific comparison from personal
experience
29
Supply Chain Excellence-Impact on L/T growth and
profitability

• Supply Chain Excellence-Impact on L/T growth and
  profitability

• Cannot separate strategic elements from L/T
  growth and profitability
• Supply Chain impacts both revenue and expenses
• REV IW, Top 2500
• EXP Direct imports, Pre-Distro, eSourcing
• Strategic use of Logistics/Distribution network
• Super Target as part of overall strategy

30
Strategic Use of Distribution Network
31
Target Distribution Mission

• Drive sales profitably by delivering what guests
• want, when they want it, at the lowest possible
  cost.
• Guest Focus
• Drive In-Stocks
• Fast, Fun, and Friendly Team
• Operational Excellence

32
Target a major containerized importer(TEUs in
2003)

• Wal-Mart Stores 471,600
• Target Corporation 300,000
• The Home Depot 267,100
• Dole Foods 150,000
• Chiquita Brands 110,000
• Lowes 90,000
• Kmart Corporation 84,400
• Heineken USA 75,000
• Interbrew (Labatts, Bass) 60,000
• IKEA

Source JoC Week, May 2004
33
Import Ports of Entry
Seattle 35
East Coast 30
Los Angeles 35
34
(No Transcript)
35
(No Transcript)
36
(No Transcript)
37
Distribution Network Illustrated
38
DC network growth
Target DC network growth (1990-2010)
Cumulative of DCs (includes all DCs open at EOY)

• Build for peak with buffer
• CDMs
• Breakthrough technology

• Continued investment to support business / store
  growth

• Limited buffer / chasing demand
• Non-standard processes
• Incremental investment

39
Target Stores Distribution Network

• 2001 13 Regional Distribution Centers (RDC)
• 2002 15 RDCs, 1 Import Warehouse
• 2003 19 RDCs, 3 IWs
• 2004 22 RDCs, 3 IWs
• 2005 23 RDCs, 3 IWs
• Perspective.
• 1962-2000 12 RDCs
• 2001-2005 11 RDCs 3 IWs

40
(No Transcript)
41

• An upscale discounter offering our guests a full
  assortment of trend forward, premium-quality,
  general merchandise and grocery items, presented
  with a fresh attitude and fast, fun and friendly
  service.
• First SuperTarget store opened 1995, in Omaha,
  NE

42
(No Transcript)
43
Distribution Strategy 2004

• Three-pronged strategy
• Using large wholesalers
• Employ existing RDC network
• Shipping direct to store

44
Logistics Opportunities for SuperTarget

• Spread out network longer length of haul
• Longer length of haul specialized trailer
  requirements
• Specialized trailer needs smaller carrier base
  from which to source
• Unique strategy Build logistics network around
  markets and stores rather than building stores
  around existing logistics network

45
Relating SC Excellence to Financial Results

• Shareholder returns
• SC impact on income statement
• Affect of SC glitches on stock price

46
TARGET
Revenue
( Billions)
46.8
5 YEAR CAGR12.0
42.0
37.4
33.0
29.7
26.5
2000
2001
2002
2003
2004
1999
47
TARGET
Total EBIT
( Millions)
5 YEAR CAGR15.1
3,601
3,158
2,812
2,192
1,928
1,781
2000
2001
2002
2003
2004
1999
48
TARGET
EPS
5 YEAR CAGR17.6
2.07
1.78
1.52
1.19
1.03
0.92
2000
2001
2002
2003
2004
1999
49
TOTAL RETURN TO SHAREHOLDERS
TOTAL RETURN TO SHAREHOLDERS
12 Months Ended 1/31/05
238
65
55
34
24
21
19
16
7
Wal-Mart
6
6
Saks
Gap
May
-2
Sears
Kohl's
Kmart
Target
Dillard's
-5
JCPenney
SP 500
Nordstrom
Federated
50
TOTAL RETURN TO SHAREHOLDERS
TOTAL RETURN TO SHAREHOLDERS
Five Years Ended 1/31/05
Annualized
9
6
6
6
5
4
4
2
Kmart
Saks
Gap
0
0
May
Sears
Kohl's
Target
Dillard's
Wal-Mart
SP 500
JCPenney
Nordstrom
Federated
-10
-13
-100
51
SHAREHOLDER VALUE AT 1/31/05
SHAREHOLDER VALUE AT 1/31/05
of 100
Invested Five Years Ago
166
145
139
139
134
127
126
112
102
101
53
44
0
Gap
May
Saks
Sears
Kohl's
Target
Kmart
Dillard's
SP 500
Wal-Mart
JCPenney
Nordstrom
Federated
52
Relating Supply Chain Excellence to Financial
Results
Avg company on SP Industrials
Source The Financial-SCM Connection , Supply
Chain Management Review, 5/1/2000
53
Supply Chain Glitch Impact on Shareholder Value

• Comments
• Supply Chain glitches destroy shareholder
  value by 20
• These announcements have a lasting impact
• Deploying solutions to avoid glitches is of
  paramount importance

Source Radian Group
54
Wrap up

• Successful companies integrate supply chain
  emphasis into corporate strategy
• Supply chain has major impact on strategic and
  financial results
• Thanks for your attention!
• Questions?

55
(No Transcript)