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Group A Professor Greene MGMT 231D March 5, 2020 Target Corporation: Ackman vs Board How, as of the time of the case, did Target’s business model differ from Walmart’s? How are these differences reflected in Target’s and Walmart’s financial metrics? (See Exhibit 7 - be specific.) Given these differences, how would you evaluate Target’s financial performance relative to Walmart’s? What sort of performance grade would you give to Target management? Walmart’s business model was influenced by their business strategy of overall cost leadership. The company offered their customers a wide variety of products and services at the lowest price in the market. They aimed to have the cheapest price point in order to enable their customers to “live better” with the money they saved at Walmart. This low price point caused them to record lower gross margin compared with Target (Exhibit 7). Walmart’s gross margin was consistently around 25% while Target’s was 33%. Walmart wanted to be the undisputed leader is discount store market, and thus targeted price conscious consumers who were often in rural, suburban neighborhoods. Consequently, their stores were located mostly in rural and suburban areas. Their model allowed them to expand internationally because their prices remained competitive even in foreign markets. Their lowest price strategy also meant that they sold more products faster and thus they had lower day’s inventory turns compared with Target, higher inventory turns, and outsize revenues. Walmart's diversity of products made it a one-stop shop for almost all their customers retail needs including food and groceries. Having so many products also allowed Walmart to have a large range of suppliers, giving them a high bargaining power, which allowed them to negotiate lower prices from suppliers, and realize higher accounts payable turnover as compared with Target. Target on the other hand was an upscale discount store. Target sold basic discount products at competitive prices to Walmart, but they also sold slightly more expensive products which attracted the consumer who would typically shop at a department store. Target had locations in big cities and more prosperous neighborhoods than Walmart. The company’s target consumer enjoyed getting a good deal on price but also would spend a little more for a better product. They organized to exploit this by creating a shopping experience that was more enjoyable than Walmart. Customers here were called “guests” and their shops were neatly organized to give the same superior feel of a department store. Walmart stores were not as organized and neat. This resulted in higher Opex to Sales percentage for Target as compared with Walmart. However, this allowed Target to price higher and enjoy higher gross, EBIT, and net income margins. Since they established a winning position among relatively affluent shoppers, they could extend credit to them via their credit cards business and increase sales. Their customer was less risky to extend credit to in comparison with the typical Walmart shopper. This allowed the company to grow significantly