The number of Kmart and Target stores across Australia is set to shrink as Wesfarmers seeks to review and “rebalance” its department store network and mitigate the losses of the struggling Target brand.
In its 2017 strategy day briefing to investors, Wesfarmers declared it is looking to improve its department store “space productivity” by around 20% through closures and renaming of its 521 Target and Kmart stores across the country.
“We have reviewed the whole country and have created a plan that rebalances the network, removes unproductive space and opens a creative new space over time,” Wesfarmers chief financial officer Marina Joanou said at the briefing.
“This will include closures and rebadges, and new Kmarts and Targets in the right locations for our customers. It will see an overall reduction in Target’s network and selling floor, with an overall aim to improve total department store space productivity by almost 20%.”
Target managing director Guy Russo told investors that Target’s transformation was “underway” but the improvement required for the languishing retailer was “significant”.
Russo also said there were “one too many of us in the market”, referring to Kmart, Target, and Woolworths-owned competitor Big W, and that Wesfarmers now has some “strict controls” in terms of what it does with its offerings.
Russo was tight-lipped on the specifics around the closures and rebadging, refusing to provide any numbers or information on which stores had been marked for changes, but made comments about the future of the company’s smaller format Target Country stores.
Out of the 521 department stores owned by Wesfarmers, Russo says about 150 of them are Target Country stores, which are “not on the list” for closures or rebranding given they have “good returns”.
Target Country stores were previously branded Fossey’s stores after Coles Myer acquired the brand in 1996. It then rebranded all existing Fossey’s stores to Target Country in 2001. Due to the fact they were “opened as very small stores” and “probably prevented” other big department stores such a Big W and Kmart entering the area, Russo says some sites should “maybe” be converted into big box formats.
“We have now looked at those sites, and said maybe they should be a big box, and then the decision we will make is should that box be a Kmart or a Target Country?” Russo said.
Retail expert and associate professor at Queensland University of Technology School of Business Gary Mortimer tells SmartCompany he believes Kmart is “cannibalising” Target, and says the move to close and rebrand Target stores is the right one.
“The retailer doesn’t need two differently branded discount department stores in the same space. The operational costs of duplication between the two are unsustainable, and it’s confusing to shoppers,” he says.
“Aussie shoppers know what Kmart stands for around the low-price great value products, but they don’t know what Target stands for. It’s toying with branded products, cheap fashion, and also cheap homegoods, and the pricing is starting to replicate Kmart’s strategy.
“They’re just clouding the water and confusing shoppers.”
Mortimer thinks the retail giant should “lead with its strongest hand” and simply rebadge Target stores as Kmart, including the smaller Target Country stores. However, he acknowledges the Country branded stores are much smaller than typical Target stores, and believes Wesfarmers could go down a “Kmart mini” route to make efficient use of the smaller floor space.
“Generally, Kmarts and Targets have the same size footprint, but Countrys are much smaller, so trying to get everything offered at Kmart into a Target Country store is going to be difficult,” he says.
Overall, Mortimer believes it’s time for Wesfarmers to put a focus on its supermarkets and hardware divisions alongside Kmart, and “shut down the Target brand for good”.
“It has lost its core customer to Kmart and it doesn’t have any value in the market,” he says.
SmartCompany contacted Wesfarmers for further details on the future department store strategy but did not receive comment prior to publication.
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