Struggling Target’s big move for customers
Target could become a largely online store after the struggling retail continues to be cannibalised by Kmart stores.
Wesfarmers, parent company to the two stores, announced a drastic plan last year for 167 Target stores to either close or be converted into Kmart outlets, meaning around half of Target's 284-odd Australian stores would be affected.
Around 55 Target's will be converted around Australia this year into Kmart stores or KHubs, smaller neighbourhood stores that stock products across kids, home and clothing. There have been 16 stores that underwent the transformation last year under a restructure worth $800 million.
Ian Bailey, managing director of both brands, flagged that Target could become a bigger business online compared to its physical presence.
"As to what the percentage [online] would be, time will tell, but I certainly believe online will be a very, very important part of the Target business and we're certainly investing in the growth of online for Target," he told The Sydney Morning Herald.
"It's already a very profitable channel for us, and we think it has a lot of potential to grow."
The challenge that Wesfarmers has encountered is running two discount department stores that are essentially attracting the same types of shoppers, Professor Gary Mortimer, retail expert from the Queensland University of Technology, told news.com.au.
"Ultimately, when one brand delivers a better value proposition to customers, be it Kmart, the other brand will naturally contract as a result and we have seen that over the last several years," he said.
The retailer's strategy, which has been playing out over the last 18 months, is "viable", Prof Mortimer added, including removing their Target Country brands and installing KHubs which enabled regional and rural communities to access Target products via online and delivery.
"Their strategy around the rest of the nation to reduce the Target fleet of stores seems reasonable. They have simply closed several of them and rebranded many of them to Kmarts where didn't have a dominance in a suburb," he told news.com.au.
"It has a smaller physical presence in those suburbs or markets that are more aligned to a better fashion offer and home furnishings offer, but a much bigger presence for Kmart, which is clearly their hero brand."
Mr Bailey denied suggestions that Target could be completely swallowed up by Kmart in the future, although the performance of Kmart post the Target conversions had been ahead of expectations, he said.
"That would be very unlikely. The Target brand is a very powerful brand and we see it as a great asset," he said. "As we focus on a smaller, simpler and more focused Target ... it gives us the ability to be more precise than we've been historically."
But Prof Mortimer suggested the company needs to do more to differentiate the brands for shoppers.
"I do genuinely think that long term unless there is a clear market differentiation between the two brands, Kmart being cheap and cheerful, and potentially pushing Target back into the middle market I don't know why they would want to hold that Target brand?" he said.
"Clearly the Target brand has some history in Australia. It's a well known brand that may be some of the rational why they want to hold it ... but if the home fashion, soft furnishings, apparel, toys offering is essentially the same as Kmart, customers will continue to not identify the difference and continue to shop at its hero brand, the Kmart brand."
Wesfarmers had signalled an intention to push Target back into the likes of the middle market a few years ago, alongside the likes of Myer, Prof Mortimer said, but he warned it was a challenging segment to capture and Myer had "struggled for over a decade now".
However, he said it was clear Target were making a change inside, with a "better level of store presentations", better quality fashion and home furnishings, and pricing slightly higher than Kmart.
Gaps on shelves has been a huge issue for Kmart during the pandemic as cashed up Aussies look to splurge while travel is restricted, but Mr Bailey said it has increased the amount of stock it holds to prevent future shortages and has also invested in new technology.
Shoppers may now see a new addition in the Kmart aisles - a human sized robot called Tory, which will move through stores to track stock levels by scanning products, although they are more likely to be used at night when it's quieter.
Prof Mortimer said the robot means even better news for shoppers as it should bring about cost savings, which will be passed on to consumers, and will also be able to identify where misplaced stock is in store.
Wesfarmers recorded $5.4 billion in revenue for the broader Kmart Group across the first six months of the financial year, it announced in February.
Originally published as Struggling Target's big move for customers