Kudler Fine Foods

Environmental Analysis

Looking at the microeconomic environment retail in the United States two variables are charted for a five-year period. The two chosen macroeconomic variables are changes in business inventory and new orders for consumer goods and materials. Target Stores is the company used in this presentation. Present day operating challenges and opportunities are reviewed for the retail industry. The retail industry's sales represent a large percentage of final good delivery in the country.

Industry in Which Organization Operates

Target Stores operates in the retail industry. Target Stores is the flagship operation for Target Corporation, formerly Dayton-Hudson Corporation. Operating in the retail industry Target Stores is classified as a general merchandise store. Target Stores operates brick and mortar stores as well as an e-commerce division run by the Target Direct division. Two macroeconomic variables will be looked at with respect to the retail industry.

Key Macroeconomic Variables that Affect Industry

Macroeconomic variables that affect the any industry in a macroeconomic environment are 12 items. The 12 variables are "stock prices, the money supply, the change of business inventories, an index of net formation of new businesses, the percentage change in sensitive commodity prices, the average work week of production workers in manufacturing, initial claims for unemployment insurance, building permits for private housing, new orders for consumer goods and materials, contracts and orders for investment goods, the change in business and consumer borrowing, and vendor performance" (Lyman, 2007). The two selected variables that will be examined for the retail industry are the change of business inventories, and new orders for consumer goods and materials. New orders for consumer goods and materials in the retail industry are referred to as sales, which are the final goods sold to consumers for consumption. This paper will look at the variables of macroeconomics for comparison of retail industry sales for brick and mortar and compare retail e-commerce sales, better known as online shopping and sales/inventory ratios for the past five years.

Macroeconomic Variable Charts

The two chosen macroeconomic variables are changes in business inventory and new orders for consumer goods and materials (retail sales and e-commerce sales). Variable Chart one depicts the last five years and current year through September of changes in business inventory and inventory/sales ratios that correspond to the sales for the retail industry and general merchandise store category.

Variable Chart 1:

Retail Inventories and Inventory/Sales Ratio for

Retail Trade and General Merchandise Stores

Retail Inventory in millions adjusted, average for year. Inventory/Sales Ratio

Year Retail Trade General Merchandise Stores Retail Trade General Merchandise Stores

2007 Year to Date January -September 496,761 76,244 1.47 1.59

2006 527,586 79,316 1.37 1.59

2005 465,446 74,634 1.51 1.66

2004 451,281 68,682 1.56 1.66

2003 425,495 66,027 1.56 1.69

2002 405,656 64,607 1.55 1.74

(U.S. Census Bureau, 2007), (U.S. Census Bureau, 2006), (U.S. Census Bureau, 2005), (U.S. Census Bureau, 2004), (U.S. Census Bureau, 2003), (U.S. Census Bureau, 2002). Chart-one shows the steady increase in retail industry inventory from 2002 to present in 2007. The chart also shows the increase in inventory in the general merchandise store category. Even with increased sales and inventory in the retail industry one can see that inventory to sales ratios are declining due to new and improved technology that retailers are using. Today retailers use just in time delivery systems to minimize on hand inventories.

Variable Chart two depicts the last five years of new orders for consumer goods and materials for retail sales and retail e-commerce sales.

Variable Chart 2:

New orders for consumer goods and materials Retail Sales,

E-commerce Sales and E-commerce as a percent of Retail Sales

Year Retail Trade Sales(In millions of Dollars) E-commerce Retail Sales (In millions of Dollars) E-commerce percent of total sales

2007 Year to Date First 3 quarters 3,032,313 99,778 3.3

2006 3,909,872 114,150 2.925

2005 3,690,777 93,066 2.525

2004 3,462,249 76,115 2.2

2003 3,264,135 59,796 1.85

2002 3,135,184 46,610 1.45

(U.S. Census Bureau, 2007). One can see in chart two that the retail trade shows the steady increase in retail industry sales from 2002 to present in 2007. The chart also shows the increase in sales in e-commerce category. Even with increased sales e-commerce from year to year continues to grow as a percentage of total sales. This shows the trend that more people are shopping online with the stores they shop at in their respective communities.

Through analysis of these charts one can identify that the retail industry is growing in the United States, which presents many challenges and opportunities for the companies in the industry.

Operating Challenges and Opportunities

Three challenges that exist for the firms in the retail operating environment are, maintaining customer base, real estate availability for expansion, and competition with luxury and designer goods in the marketplace. Through online and brick and mortar stores today's retailer's have even more of a challenge of keeping it's customers. "Internet retailing lowers many barriers for customers switching between retailers for repeat purchases: thus retaining existing customers is a key challenge for achieving profitability" (Boyer and Hult, 2005). "Online retailing sales have increased substantially over the past few years, with sales reaching $14.8 billion in the November 1 to December 26, 2004, period, an increase of 29% from the same time during the prior year. More important, online sales growth has consistently outpaced the in-store sales growth (Boyer and Hult,