Target Braces for First Steps of Significant Restructure

Power Retail By Power Retail | 22 May 2020

Is this the end of Target? Wesfarmers has decided to launch its first steps of the restructuring of Target, citing the ‘disruptive and competitive’ nature of retail as its reason for the downturn in sales.

Wesfarmers has made the decision to begin the process of restructuring its department store, Target. The retailer’s poor sales over the last few months accelerated the review from Wesfarmers.

In an announcement from Wesfarmers in April, the review aimed to accelerate the performance of the chain, which include the actions needed to improve shareholder returns and create a commercially viable brand image.

The first phase of Target’s restructuring includes the closure of ten to 25 large-format stores, the remaining 50 small-format Target Country stores, and a ‘significant’ restructuring of the Target support office.

Up to 95 remaining Target stores may be converted to Kmart stores, the announcement read.

These changes will address the unsustainable financial performance of Target and accelerate the growth of the more profitable Kmart stores.

“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 Rob Scott, the Managing Director of Wesfarmers.

“The actions announced reflect our continued focus on investing in Kmart, a business with a compelling customer offer and strong competitive advantages, while also improving the viability of Target by addressing some of its structural challenges by simplifying the business model.”

Significant items are expected to change, which includes costs and provisions in Kmart Group of approximately $120 to $170 million before tax. These costs primarily reflect Target store closures, inventory write-offs and a restructure of the support office.

While the stores will close, Wesfarmers has plans to expand the department store’s digital offering.

“The reduction in the Target store network will be complemented by increased investment in our digital capabilities, following the continued strong growth in online sales across the Kmart Group and the pleasing progress in Catch since its acquisition in August 2019,” Scott explained. “The expansion of our digital offer will provide customers with access to the Kmart and Target products they love, together with over two million products from the Catch marketplace, via home delivery or click and collect.”

These changes are expected to be implemented over the next 12 months, with the majority occurring in CY21.

“Leveraging the strengths of the Kmart Group, we have made a significant effort to avoid store closures, retain our valued team members, keep serving our customers and supporting our suppliers,” said Ian Bailey, the Managing Director of Kmart Group. “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.”

“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.”

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