Following a review of Target and considering its “unsustainable financial performance”, the Group has identified a number of actions to accelerate the growth of Kmart while addressing Target’s challenges. These actions will enable the Kmart Group to optimise the Target store network and reduce Target’s unsustainable cost base. They include:
- Converting between 10-20 large format stores to Kmart, subject to landlord support
- Converting approximately 52 Target Country stores to small format Kmart stores and closing the remaining 50 Target Country stores that are not suitable for conversion
- Closing 10-25 large format Target stores
- Significantly reducing the size of the Target store support office
- Ongoing negotiations with landlords to support the transition to a sustainable store network
The company explained that the conversion of suitable stores to Kmart will address gaps in the Kmart network. This is expected to improve the financial performance for the Group and meet the Group’s return on capital hurdles. The conversion of suitable Target Country stores to small format ‘Kmart Hub’ stores will provide regional customers with increased access to a selected range of Kmart’s home, apparel and general merchandise products.
Wesfarmers Managing Director Rob Scott said that these actions demonstrate the company’s continued focus on investing in Kmart, as a business with a compelling customer offer and strong competitive advantages. It also improves the viability of Target by simplifying the business model and addressing some of its structural challenges.
“For some time now, the retail sector has seen significant structural change and disruption, and we expect this trend to continue. With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption,” said Mr Scott.
Kmart Group Managing Director Ian Bailey said that the decision to significantly reduce the Target store was difficult but necessary, and that the Group has tried hard to avoid store closures and retain employees.
“Unfortunately, the disruptive and competitive nature of the retail sector requires us to make some difficult decisions to ensure we have a viable Target business into the future, while continuing the strong growth of Kmart and Catch,” explained Mr Bailey.
“We continue to believe that Target has a future as a leading retail brand in Australia and is much loved by many customers, but a number of actions and changes are required to ensure it is fit for purpose in a competitive, challenging and dynamic market, including a smaller number of stores and a stronger online business.”
Following the continued strong growth in online sales across the Kmart Group and the increasing number of customers who prefer to shop online, Kmart Group will complement the optimisation of the Target store network by investing in its digital channels. Customers will be able to access the full range of Kmart, Target and Catch1 products, which will be available for home delivery or via click and collect at all stores across the network, including ‘Kmart Hub’ stores.
The actions Kmart Group identified to address Target’s financial challenges and to accelerate the growth of Kmart will be implemented over the next twelve months, with the majority of actions occurring in 2021. The Group is continuing to assess strategic options for a commercially viable Target and its remaining store network, including further optimisation to the network and changes to the operating model.
Target employees will be supported throughout this reorganisation process. Employees in stores that are planned to be converted will be offered employment from Kmart, while members from stores that are scheduled to close may be able to secure employment through new roles created as Kmart and Catch grow. Wesfarmers will also identify redeployment opportunities in other divisions, such as Bunnings and Officeworks.
Cover Image: Following a review of Target’s financial performance, the network is undergoing a restructuring, which involves store closures, conversions of suitable stores into Kmart stores, as well as a reduction in the Target support office. (Image: Wikimedia)
- The company acquired Catch in August 2019, and it has seen “pleasing progress” since the acquisition.