Dayton Hudson Corporation; the fourth largest discount and fashion retailer in the United States, is facing a plethora of problems, that is causing top management to implement new strategic actions to try to salvage the company. The first of their problems dealt with an inability to generate profits. Their first quarter earnings had fallen 72%, and their net earnings were down 28%. The Mervyns division has reported that their profits were down 51% from the previous year. Second, they experienced trouble with the U. S Labor Department. Hurting their image of being a socially responsible firm. Finally, they face personnel problems.
This occurred due to numerous top-level employees leaving the firm abruptly. Company History: Dayton Hudson Corporation has retail operations in all segments of the discount and clothing industry. These range from their national upscale discount stores (Target), to a moderate-priced family department store (Mervyns), as well as a Department Store Division which is a centrally operated full-line, full-service chain, emphasizing fashion leadership (Marshall Fields, Dayton, Hudson). However it was not started this way. Initially, Dayton and Hudson were two separate companies that both specialized in shopping centers.
Both realized they had market potential and grew through mergers and acquisitions. Dayton focused on internal growth ventures as well, hoping to capitalize on low margin merchandising. In 1962, Dayton opened their first Target stores, hoping to obtain this goal. In 1969, the two companies merged to form the Dayton Hudson Corporation (DHC). This merger made DHC the 14th largest general merchandise retailer in the United States. DHC continued with its growth strategy and merged with Mervyns in 1978. Mervyns was a West Coast department store chain.
The following merger allowed DHC to become the countries 7th largest general merchandise retailer. In 1990, DHC made its final major acquisition by acquiring Marshall Fields, a Midwest up-scale department store chain. DHC ventured out East into Florida; however, heavy competition was causing the Mervyns stores to lose it? s market share. Internal Analysis of Company: Strategy. DHC, overall, follows a differentiation strategy. Though one may think they are following a price leadership strategy, they are competing in a discount merchandise industry, therefore their competitors are also advertising at prices just as low as theirs.
The target division is actually the only one of the three that uses a hybrid structure. Target is trying to have high quality at low prices. They are price oriented in their strategy. However they also follow a differentiation strategy. They use promotional devices to attract people to their store (they were the first mass merchant to use promotional toys). They introduced several new strategies, including establishing local flexibility through micromarketing, initiating a total quality system, and focusing on efficiency through the use of advanced communication technology and reduced inventory levels.
It also donates millions of dollars to local nonprofit organizations, establishing goodwill in the community in which it operates. Mervyns uses a differentiation strategy by offering brand names and customer credit. It using a new pricing strategy, shrinking inventory, sprucing up their stores, and tailoring merchandise to match the needs of the local customers. The department stores division, like Mervyns, uses a focused differentiation strategy. Its allows the DSD to focus on image as well as fashion trends in the marketplace due to its very good customer service and brand name products, despite the higher prices.
It is also assisted by its dedication to the communities in which it operates, which are mainly in three Midwest states. Resources and Core Capabilities. The first core competence of the company is its reputation with the community around it. Though the labor incident with Mervyns may have slightly injured this competence, their commitment to charitable organizations in the local community boosts their image amongst their potential customers. Another core competence is their strong market position in the industry.
Target and the department stores have a strong image in the markets in which they compete, which, as you will see later on in the discussion, is a pretty stable marketplace with little potential for new entrants. Also the experience and knowledge of Robert J. Ulrich is a core competence for the company. With the loss of numerous high level employees, Ulrich a long time employee and key factor in target (their most successful segment) growth, took over as CEO of all the entire company. His knowledge from Target can be incorporated now into the other segments of the business, to help them generate a profit.
However the company has a shortage of cash and also needs to rectify its image problem caused by the Mervyns issues with Labor department Sustainable Competitive Advantage. The current source of strategic advantage is their reputation and ability to offer superior products at low prices. With the recent law suit they may have to work at regaining their prior reputation amongst the public. Yet it seems unlikely that they will lose their advantage of being able to supply high quality at low prices (except in the Department Store division? where they mainly focus on quality of product, not price and image/reputation of the company).
External Analysis: Five Forces: Threat of New Entrants though the discount merchant retailer industry is still a growth industry, the barriers to entry are very high. Expected retaliation is inevitable, and certain firms such as Wal Mart and Sears have such good name recognition that product differentiation may also be a factor. People are so accustomed to Target and its name that they may find switching costs high, as well. Intensity of Rivalry. Right now the intensity level of rivalry is very high. DHC competes with major stores such as Wal Mart, Sears and JC Penny.
Also the DSD competes with smaller retail stores that offer higher quality clothes such as Armani exchange, and other retail stores that appeal to the upper class working man/woman. Suppliers. Since DHC purchases most of its products from outside suppliers, their bargaining power is very high. Also note that suppliers are a credible threat to integrate forward into the buyers industry. They may open their own retail store and sell their own product there. Buyer. Because DHC already offers a low price for their products the bargaining power of the buyers is very low.
In their higher priced departments, their customer service is so respected that the customer would not be able to force lower prices for their goods, as they would not be able to find a adequate substitute. Substitute. Substitutes could include specialty stores that focus on one single product line, or catalog ordering that allows the user to purchase a wide variety of products from their home via mail. Environmental Trends: Environmental trends are generally positive. The discount merchandise industry is currently in its growth stage allowing DHC to possibly increase its sales and profit.
Economically the slow growth is moving consumer spending to discount retailing. This trend should cause customers to focus more on stores that are operated by DHC then those that are specialize in a single product, or non discount type stores. However, politically/legally the problem of the illegal labor, caused by Mervyns is hurting the company by causing bad publicity. and affecting the good reputation the company worked so hard on establishing with the local communities. Competitor Analysis As mentioned before there are many other stores that focus on low cost.
Wal Mart has a huge market share in the industry and captures a huge amount of revenue that DHC could be earning. If Wal Mart continues to grow at the rate it is, it could flush out all of its competition through competitive pricing and good strategic planning. Though the other companies pose a threat, Wal-Mart has such a huge grasp on the market, that it is really the only competitor that DHC should focus most of its attention on. Recommendations: My recommendation is for the company to sell off its Mervyns Division to someone that competes in that industry.
They could then get rid of numerous problems they were encountering. The negative trends of Mervyns would be eliminated off the companies financial statements and the income gained from the sale could be put into the companies two other businesses that it seems to operate well with. Or since they are so focused on growth use that money to buy out one of their competitors in the industry in which Target competes, and convert those stores into their own, creating more stores in their biggest profit area. By getting rid of the Mervyns stores they can get rid of the lingering legal problem they had with the Labor division.
They could offer a public announcement stating that they have eliminated the bad segment of their business and plan on focusing on the better segment. Also the money generated from the sale of Mervyns could be put into funds that assist labor relations showing their drive towards equal employment rights. Lastly I think they should completely segregate the operations of the DSD from Target, but combine the profits of the two. By this I mean keep Target focused on low cost high quality, and not to incorporate low cost products in the DSD segments of the business. Therefore this would prevent cannibalization.
If one wanted low cost they would go to Target, or high cost products they would go to a DSD. Therefore they wouldn? t be losing business but would be appealing to two separate markets, thus not eating into the others products. This will allow the company to eliminate the two major issues plaguing it, low profitability and the legal issue it faces because of the Labor dispute. Also it eliminates any cannibalization and focuses on the companys core competencies. It will create a stronger company even though it loses a segment of its business, and gives it more revenue to focus in on its key strategy, growth.