Licendiado

SOC 265 Spring 2007-05-10
Professor Gary Hamilton
Research Paper for Segment Two
#0635453 Reo Hirota

Sourcing Strategies of Target
This paper illustrates the growth and the strategies of Target Corporation, the sixth best-selling discount retailer in the United States. How has Target become such a famous retailer, selling clothes and commodities at very low prices? This questionwill be discussed by focusing on its history and the sourcing strategies, particularly in the garment industry. The substantial reason for its low prices is that it has paid close attention to establishing Asian networks, to which it sources its products, by owning its own sourcing company with worldwide branches and increasing the direct imports from various countries. Target has also practicedin-store production to reduce costs by making special contracts with fashion designers and producing their own ‘brand’ clothes. Despite some criticism concerning its weakness in food sourcing, all of these sourcing tactics have brought Target huge success as one of the biggest retailers and will probably maintain its gradual growth in the future.
Before discussing the sourcing strategies indetail, let us briefly take a look at the history of Target. According to the official website (Target Corp. 2007: a), Target’s first discount store was opened in Roseville, Minnesota in 1962 by a traditional department store owner, the Dayton Company. In the ten years following, the company opened several Target stores, mainly in Midwestern cities (Funding Universe 2007). During the 1970s it rapidlyestablished new units, up to 49 units in nine states in the central U.S. Then in the 1980s and 1990s, by establishing its new distribution systems, it expanded into the West and East Coast with hundreds of new units (Funding Universe 2007). Dayton Corporation officially changed its name to Target Corporation in 2000, eventually expanding to 1488 units in all states but Hawaii, Alaska, andVermont, with $59.4 billion USD in sales as of 2006 (Target Corp 2007: a). This rapid growth mainly results from its sourcing strategies by which it can retail huge amount of products at competitive prices.
One of the most important points in understanding the sourcing strategies of Target is that it has a subsidiary called Target Sourcing Services / AMC, which specializes in sourcing withworldwide networks, particularly in Asian countries (TSS/ AMC 2007). According to its website, this subsidiary used to be an independent company called AMC (The Associated Merchandising Corporation), which was born in 1918. Since its founding, AMC provided early American retailers with buying, policy making and planning assistance. As of 1945, it had contracts with 24 retailers, including Dayton Company,with 19 international offices for sourcing. Since the first Target store was open, AMC has established an even stronger network to support the growing retailers in Asia and the Middle East, where it saw increasing business opportunities. In 1998, Target (Dayton Hudson Corporation) acquired AMC to increase its sourcing capabilities and set up Target Sourcing Services (TSS), a division within AMCspecializing in sourcing merchandise exclusively for Target. Today, the subsidiary, renamed TSS/AMC, owns 51 international offices all over the world (10 in the Americas, 6 in Africa, 11 in Europe, and 24 in Asia) and is continuing to expand its world networks (TSS / AMC 2007). Although Target is still behind some other retailers such as Wal-mart in total sales, it has more sophisticated globalnetworks than Wal-mart, which has 27 international offices (Lara 2005; Wal-Mart 2007)
TSS/AMC now plays the most important role in lower-cost sourcing for Target, particularly in the direct import of non-brand products such as garments, furniture, bedding, and towels (Hoover’s 2007: a). It has established relationships with local venders in South Asia, Southeast Asia and many other countries...