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Providing Merchandise Farmers In Australia

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Question:

Discuss About The Providing Merchandise Farmers In Australia?

 

Answer:

Introduction

Wesfarmers is a renowned conglomerate headquartered in Western Australia in the capital city of Perth. It initiated operations in the year 1914 with a distinct aim of providing merchandise to farmers in Australia. It was founded by a group of farmers guided by Walter Harper and was then known as ‘The Farmers’ Company’ (Wesfarmers, 2017).

 Wesfarmers takes immense pride in being one of the largest employers in the private sector with over 222,000 full time employees (Wesfarmers, 2017). The giant conglomerate aims to provide a satisfactory return to its’ enormous shareholder base of 530,000. This group of companies is listed on the Australian stock exchange with a stock price of AUD 41.35 and is a part of AUX50 which lists top 50 companies of Australia (Australian Stock Exchange, 2017). This colossal enterprise is diversified into various businesses like Office supplies, liquor, Chemicals, Energy, Fertilizers, Department stores and coal.

Department Stores – Service Detail:

Wesfarmers recently launched this new division of department stores predominantly comprising of two of the biggest retail chains of the country Kmart and Target. It is one of the leading businesses of Wesfarmers generating annual revenue of $8646mn (Wesfarmers Annual Report, 2016).

Kmart

Kmart is one of Australia’s leading retail chains with over 200 stores throughout Australia and New Zealand. Kmart has positioned itself as a department store that provides low prices every day with a grand variety of merchandise.

Target

Target offers a sundry variety of merchandise, apparels and home wares. It functions across 300 outlets with the help of a 16000 member team. Sourcing for Target products is predominantly done via Asian markets (Wesfarmers, 2017).

This report lays emphasis on the market strategies used by the Department stores division particularly their brand ‘Target’. In order to grasp the same, a brief introduction of the division followed by their marketing strategies has been explained. The tool used in this report is SWOT analysis.

 

Target Market:

Phillip Kotler defines target market as a set of well-defined set of customers whose needs the organization plans to satisfy (Creighton University, 2002). Analyzing target market forms the launch pad for introducing any new product or service into the market.

Target department stores offers a broad spectrum of products in their outlets and hence they appeal to a large audience.

  1. Gender: Essentially women tend to take more responsibility for grocery, home ware as well as apparel shopping in a family and hence they form a significant part of their target market.
  2. Income Group: Business objective of Target department store is to ensure low price to their customers. Therefore their target market would fundamentally include lower and middle class families who seek good quality products at a lesser price.

Target Department Store:

Target is the flagship department store brand of Wesfarmers. The store sells an extensive range of products ranging from clothing across all age groups and gender, home ware items and all-purpose merchandises. This report reflects upon marketing strategies used by Target department store. For better understanding of the firm, SWOT analysis has been used.

SWOT Analysis:

The foremost objective of a SWOT analysis is to make organizations aware of their internal and external environment and how they can best put that information to use. This method was created in the 1960s by Edmund P. Learned in the book "Business Policy, Text and Cases" (R.D. Irwin, 1969).

Strengths:

  1. Strong brand name: Inheritance of a strong brand name ‘Wesfarmers’ is one of the biggest strengths of Target Corporation. Brand name helps in establishing a positive goodwill for the company and builds trust among consumers.
  2. Variety of available merchandize: Target Corporation takes immense pride in the sundry varieties available. This gives consumers a great deal of options and thus helps the firm in satisfying a larger number of buyers.
  3. Number of stores: Target corporation operates in over 300 stores nationwide (Wesfarmers, 2017). Large number of stores led to increased visibility and greater brand presence.
  4. Online store available: The availability of an online store creates convenience for consumers and an entirely new customer base of online shoppers. This also gives them an added advantage over their competitors.
  5. Designer Tie-ups: Target corporation is recognized for its Tie ups with renowned designers for apparels like Stella McCartney, Dita Von Teese, Zac Posen and even Joshua Goot (Wesfarmers, 2017)

Weaknesses:

  1. Ethical issues in sourcing from Asian Markets: Asian markets still continue to be subjected to extreme cases of child labor and underpaid labor. This is the reason most Australian nations including Wesfarmers are shifting to direct sourcing by eliminating the agent. This requires setting up direct sourcing offices and enhanced knowledge of local businesses. This process is usually time consuming and demanding (Journal of Superannuation Management, 2012)
  2. Accounting scandal: It came to light that Wesfarmers’ department store Target’s income was fraudulently inflated by $21mn for a span on 6 months ending December 2015. This mishap not only led to resignation of then MD Stuart Machin but also diminished the brand’s goodwill (ABC news, 2016).
  3. Store space: Saturated store spaces combined with burdensome lease obligations have been a major source of worry for Target Corporation (Bowen, T, 2017). Their Chief Financial Officer Marina Joanou stated that at least a 20% increase in the store space productivity is targeted towards growth phase of this struggling business by FY21 (Inside Retail, 2017).
 

Opportunities:

  1. Guy Russo: Post the Accounting scandal, Guy Russo has taken the opportunity to look over Target Corporation’s performance. Guy’s excellent credentials have added a much needed wave of optimism among Target’s shareholders.
  2. $80bn market: As Guy Russo, CEO of Target Corporation rightly said “I don’t look at amazon, I look at the market and I see $80bn” (Guy Russo, 2017, Personal Communication to a Sydney audience), the retail sector of Australia is a large market worth $80bn which leaves immense opportunities especially for eminent players like Target Corporation.
  3. Leveraging current store network to negotiate occupancy cost with new stores: As Target Corporation is facing saturated store space issue, group’s finance director, Terry Bowen, has targeted to reduce the average lease length. The massive network of stores at present in Australia is used as a negotiating tool with an aim to keep the average lease time below 10 years.
  4. Technology: Tesco’s Michael E McNamara was hired as the C.I.O. (Chief Information Officer) of Target Corporation in the year 2015 and since then he has been instrumental in changing the face of technology used by the firm. Predominantly, he has reduced 800 projects to 100 momentous projects and has successfully hired over 700 engineers in Minneapolis, St. Paul and Bangalore, India. He targets at reducing outsourcing and increasing the insourcing projects to 80% from the current 30% (Forbes, 2016).

Threats:

  1. Shifting office: CEO Richard Goyder confirmed that after the accounting scandal of 2015, the business required a physical shift. Which is why Target Corporation’s office is to be shifted from a small town of Geelong to Melbourne. This will lead to a loss of 900 local jobs. Also any physical shift requires immense adjusting and is a time consuming process (ICAS, 2016).
  2. Competitors: The entry of Amazon in Australia is one of the biggest threats to Target Corporation. A Morgan Stanley report stated that Wesfarmers could lose as much as $400mn in earnings to this e-commerce giant by the year 2026 (Sky news, 2017).
  3. Cost of Raw Materials: According to the journal of Marketing Superannuation, two of the major issues faced by Australian retailers in Asia are increasing costs in China and lower productivity in Bangladesh. China government 5 year plan is focused at increasing labor wages as well as domestic consumption. This automatically increases the cost of raw materials sourced from there.

Bangladesh, on the other hand, has a bi lateral trade agreement with Australia which allows duty free garment imports however, as compared to China, Sweatshop and infrastructural issues are extremely high in Bangladesh which limit the benefits for Australian retailers to move from China to Bangladesh.

 

Marketing Strategy:

Celebrities as brand ambassadors – Target Australia has joined hands with TV presenter and style icon Gok Wan. The reason behind using a celebrity brand ambassador is the benefit of an instant shift in brand equity from the celebrity to the brand. Managing Director Stuart Machin commented that “Gok Van represents everything that we want Target to be – fun, modern, stylish, with something for everyone”.

However, it must be kept in mind that any negative publicity garnered by the celebrity will adversely impact the brand. Gok Van used the term “Bangers” in order to refer to women’s breasts and the ad received numerous complaints as this was not expected from a “family store” (The Guardian, 2013).

Bull’s eye – The logo of Target Corporation, a Bulls eye, connects well with the brand name Target. A dog (Bull Terrier) which was formerly known as ‘Spot’ has the logo painted on her face and is the official mascot of Target Corporation. This logo has been creatively and extensively used for creating brand visibility so much so that a 2003 study indicates that 96% of shoppers know, understand and recognize the logo (Target, 2017).

Social Media Marketing – Target Corporation’s Facebook page is actively managed and has over 20mn followers. Target has well understood the coverage of social media well and hence their Facebook comes with a link to shop online (Facebook, 2017).

Target Corporation has over 2.4mn followers on Instagram and 1.91mn followers on Twitter. The team is active on twitter and has used this platform efficiently to voice their opinions and various other announcements to general public.

Key Recommendations:

  1. Selling Kmart to Revive Target: Analyst Grant Saligari of Credit Suisse recently urged Wesfarmers to “stop playing the zero sum game with the two family department stores” (Credit Suisse, 2017). At present Kmart at the peak of its valuation and it is ideal to sell Kmart now and utilize the billions of dollars in order to “fix” Target Corporation.
  2. Trim Portfolio: In a recent strategy meet, Wesfarmers decided to prune Target’s store portfolio due to falling productivity. Reducing the portfolio would help in better management of the brand. CFO Joanou mentioned, this trimming would include Store closures, Store Re-badges and Store creations whenever and wherever necessary (Inside Retail, 2017)
 

Conclusion:

Conglomerate Wesfarmers’ flagship department store Target Corporation is spread over 300 outlets engaging a 16000 member team across the nation. The department store provides a wide variety of merchandizes, apparels and home wares. Target Corporation is positioned as a family store providing low cost and high quality products to its consumers.

Target Corporation’s logo is a bull’s eye resonating well with its name. Hiring celebrities, newspaper advertisements and efficient use of social media are predominant marketing strategies used by Target.

The accounting scandal of 2015 still continues to pose threats to the firm’s goodwill. However, new CEO Guy Russo has brought in a sense of optimism. New CIO, Michael E McNamara has already enriched the standard of technology at the firm and is currently working towards enhancing insourcing IT levels.

New and efficient sources of raw material sourcing must be consistently hunted alongside working on the problems at China and Bangladesh.

Credit Suisse’s recommendation of selling Kmart to revamp the brand cannot be ignored entirely, however, Target Corporation have made no comment on the same yet.

Lastly, the heritage that comes along the brand name of Wesfarmers will continue to benefit Target Corporation. The firm still holds a strong goodwill and a loyal customer base. With right marketing, strong strategy, efficient use of resources and well managed operations will take Target Corporation a long way.

 

References:

Australian Stock Exchange, 2017, https://www.asx.com.au/asx/share-price-research/company/wes, viewed on 24 August 2017.

Bowen, T, 2017, https://www.insideretail.com.au/blog/2017/06/08/wesfarmers-to-trim-target-portfolio/, viewed on 24 August, 2017.

Forbes, 2016, https://www.forbes.com/sites/walterloeb/2016/08/24/why-targets-new-battle-ground-in-technology-will-help-growth/#636d6ea36c13, viewed on 24 August 2017.

ICAS, 2016, https://www.icas.com/ca-today-news/target-accounting-scandal, viewed on 24 August 2017.

Inside Retail, 2017, https://www.insideretail.com.au/blog/2017/06/08/wesfarmers-to-trim-target-portfolio/, viewed on 24 August 2017.

Kotler, P, 2011, https://people.creighton.edu/~shu02225/nps_c_04.html, viewed on August 24, 2017.

Parker, J, 2016, https://www.abc.net.au/news/2016-04-11/wesfarmers-taking-action-over-target-accounting-scandal/7317178, viewed on August 24, 2017.

Sky news, 2017, https://www.skynews.com.au/business/business/company/2017/06/01/kmart-and-target-most-at-risk-from-amazon.html, viewed on 24 August 2017.

Sweeny, M, 2012, How Sustainable are Australian retailers’ new sourcing strategies. Journal of Superannuation management 04(03), 22-26.

Target Corporation, 2014, https://corporate.target.com/article/2014/04/bullseye-love-history-of-target-logo, viewed on 24 August 2017.

The Guardian, 2013, https://www.theguardian.com/tv-and-radio/2013/aug/26/gok-wan-advertising-complaints, viewed on 24 August 2017.

Wesfarmers, 2017, https://sustainability.wesfarmers.com.au/our-businesses/department-stores/target/, viewed on August 24, 2017.

Wesfarmers, 2017, https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8, viewed on August 24, 2017.

Wesfarmers, 2017, https://www.wesfarmers.com.au/who-we-are/our-history/the-wesfarmers-pstory-begins , viewed on August 23, 2017.

Wesfarmers, 2017, https://www.wesfarmers.com.au/who-we-are/who-we-are , viewed on 23 August 2017.

Wesfarmers, 2017, https://corporate.target.com/article/2014/06/target-design-partners-fashion-awards viewed on 24 August, 2017.

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