Wesfarmers has flagged that it will fast track a review of the Target business to improve its financial performance by assessing a range of strategic options, following further deterioration in trading conditions. Additional details will be provided before the end of the financial year.
Kmart and Target sales growth in the third quarter was broadly in line with levels achieved in the first half, supported by strong online sales. However, in recent weeks in-store sales momentum moderated in Kmart and declined significantly in Target, reflecting the broader decline in customer footfall in shopping centres and ongoing weakness in discretionary categories, Wesfarmers said in its COVID-19 update.
The group expects a sustained decline in sales momentum to have a material impact on the profitability of Kmart and Target, given the high degree of fixed occupancy costs. Margins have also been impacted by higher levels of clearance activity and the increased cost of online fulfilment.
Meanwhile, Bunnings and Officeworks have experienced significant growth in demand as customers spend more time at home, resulting in increased sales growth for the third quarter and the first three weeks of April relative to the first half of the financial year. Bunnings and Officeworks have also recently implemented ‘Drive & Collect’, enabling contactless carpark collection by customers.
Wesfarmers managing director, Rob Scott said the health and safety of team members and customers remain the top priority and the group is committed to supporting government and community efforts to limit the spread of COVID-19.
“Each of the group’s businesses has implemented a number of changes, including store-based measures to support social distancing requirements, roll-out of protective screens at registers and increased levels of personal protective equipment for team members,” he said.
“In recent weeks, our retail businesses have also made significant progress in further enhancing their respective digital offers while responding to the substantial increase in online sales.”