Environmental Analysis

Environmental Analysis

General merchandise stores are defined as retail stores that sell a number of lines, such as dry goods, apparel and accessories, furniture and home furnishings, small wares, hardware, and food (Levine, 2000). General merchandise stores are subdivided into three major groupings: department stores, variety stores, and miscellaneous general merchandise stores. Each of these three groupings has different characteristics. Target Corporation is one of the most popular discount retail companies in North America. First opened in 1962 in Minneapolis, MN, strives to sell trendy retail merchandise at discounted prices. Target sells a variety of retail goods, including home furnishings, clothing, toys, electronics, kitchen appliances, infant care products, pharmaceutical goods, optical goods, and personal care products (Mittal, 2007). The Target Corporation has been a constant contributor in the retail market industry by posting better than industry sales increases every year beginning in the 1990's (Levine, 2000).

There are numerous macroeconomic indicator variables that affect the retail industry. Some of which include the disposable personal income, consumer confidence,

interest rates, gross domestic product (GDP), inflation, unemployment, the expansionary policy and consumer price index. The Bureau of Labor Statistics defines the consumer price index (CPI) is a measure of the average change in prices over time in a market basket of goods and services (2007). If a company has to have an increase in prices, they will pass the costs onto the consumer. The below graph represents the change in Consumer Price Index over the past several years:

The graph shows that the consumer price index has not been steady over the years by any means. In 2000, the CPI peaked around 3.50% and took a downward slope post 9/11. Since 2002, the CPI has been gradually on the rise, with a slight dip to just under 3.0% last year in 2006. As you can see in 2007, the slope is back to a steady increase.

Consumer confidence is a highly important asset to the economy. This is because consumer spending drives nearly 70% of economic growth (about.com, 2007). If consumers are unsure about the status of the economy, they will buy less, and the economy will slow further. If consumer confidence increases, then the economy will grow. The graph below represents the U.S. Consumer Confidence over the past several years, beginning in 2001.

The period between 2002 and 2004 marked an increase in consumer confidence, due to high GDP growth. However, consumer confidence decreased again in 2005, due to the occurrence of Hurricanes Katrina and Rita. As a result of decreased gasoline prices and consumers' enhanced outlook for the labor market, the index rose to 105 in 2006 (Heller, 2006). The overall increase in consumer confidence is positive for a discount retailer such as Target, which depends on high levels of consumer confidence to promote consumer spending. This means that the recent increase in consumer confidence will likely lead to higher consumer spending in the near future (Mittal, 2007).

Although Target attempts to have the lowest prices, the company is often defeated by its chief competitor; Wal-Mart. Target is constantly changing its home collections so that they reflect current trends. While the constant change is often extremely profitable for Target, it sometimes results in decreased profits when a home collection does not sell as well as anticipated (Heller, 2006). Since Target is only in the United