Target stores around Australia will be shut down in the next five years, announced the discount chain’s boss this week.
Lagging behind the impressive growth of its stablemate and general merchandise retailer, Kmart, Wesfarmers’ CEO of department stores, Guy Russo, announced at the Wesfarmers investor day that it would close dozens of Target stores around the country in an effort to reduce its footprint by 20 per cent.
Instead it will create a “boutique” fashion chain competing with fast-fashion giants H&M, Uniqlo and Zara, shifting away from its traditional market position as a rival to Kmart and Big W.
It’s not a new threat from Mr Russo as he battles years of underperformance at Target, with him telling analysts last year that he wanted to close down stores and boost its productivity by 20 per cent.
Target currently has 305 stores throughout Australia, outweighing the more profitable Kmart which has 227 stores.
While not singling out specific stores that could be closed, apart from Highpoint in suburban Melbourne which will be downsized, Mr Russo the reduction would occur as leases with shopping centre landlords come up for renewal in the next few years.
“We’re not going to go after size any more, and we’ll just be a nice new boutique retailer that plays in mid-tier, and I’d like to make sure it’s a profitable mid-tier business,” Mr Russo said.
It’s thought the move could adversely affect Target stores in regional towns and centres where the discount department store is often the only key retailer in the region.
Target has 18 regional stores in WA, including Broome, Geraldton, Bunbury, Esperance, Albany and Karratha.
Mr Russo said staff at closing Target stores could be moved to one of Wesfarmers’ other brands, such as Kmart or Officeworks, but acknowledged this was not always possible in regional towns.
“Where it’s a little sadder is when it’s in the country town and there is no other retailer,” he said.
In contrast, Wesfarmers plans to open between eight and 10 new Kmart stores in Australia and New Zealand annually, and explore opportunities abroad.
Wesfarmers’ new Managing Director, Rob Scott, said the company would focus on organic growth rather than acquiring new businesses.
“They’ve stopped their growth [in Australia] but they’re enough for my team to be inspired around fashion, quality and their fabrics,” he said.
Already it is wholesaling its private-brand products to Robinson department stores in Thailand and Indonesia, which Kmart’s boss, Ian Bailey, said was a learning exercise for targeting growth markets overseas.
Mr Bailey said countries such as Thailand and Indonesia were markets experiencing a huge expansion in the middle class seeking more aspirational products.
— The Sydney Morning Herald (@smh) June 7, 2018
Coles increasing its own label range
The Herald Sun has reported that the Wesfarmers meeting also revealed a surprising new strategy for Coles supermarkets.
Coles boss John Durkan told attendees that the grocery chain wanted 40 per cent of all products sold in stores to belong to the brand’s own label by 2023.
But Mr Durkan insisted the bold move wouldn’t limit customers’ choice.
“The last thing we need to do is push stuff onto consumers that they don’t want,” he said. “We need to make sure we have the right products with the right quality and right price … we are never going to take away choice.”
He said the percentage of Coles-branded products sold currently was in the “high twenties” overall, and more than 50 per cent in “fresh categories” including meat.