Wesfarmers has confirmed that it will close or convert up to 167 Target stores – over half of its total store network in Australia – with 92 of the stores becoming Kmart locations within the next 12 months.
IBISWorld senior industry analyst, Daisy Feller said the decision reflects increasingly polarised consumer demand in the retail sector.
“Declining discretionary incomes and fluctuating consumer sentiment have encouraged shoppers to favour discount stores,” she said.
“Shoppers are now seeking either ultra-low-cost or high-quality, ethically made goods. Target’s mid-market position has failed to appeal to either of these types of shoppers.
“Target has underperformed Kmart over the past five years, with sales declining significantly after a brief boost in February and March 2020 due to consumer stockpiling activity.”
IBISWorld research shows that Wesfarmers holds circa 45% market share in the department stores sector, with Kmart Group revenue increasing at an annualised rate of 0.4% to approximately $8.1 billion over the last five years, driven by Kmart’s sales growth.
However, IBISWorld expects department store revenue to fall 4.8% in 2020 due to weak shopping activity as a result of the COVID-19 pandemic.
Reduced physical footprint met by increased digital investment
Wesfarmers managing director, Rob Scott said further investment in Kmart will enhance the overall position of the Kmart Group while improving the commercial viability of Target.
“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, our retail businesses are well-positioned to respond to the changes in consumer behavior and competition associated with this disruption.”
Scott said the reduced store network will be complemented by increased investment in digital capabilities following continued strong growth in online sales.
“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 & Collect,” he said.
Selected Target Country stores will be converted to small format ‘Kmart Hub’ stores to leverage Kmart Group’s trial of small format Anko stores in the US, while providing regional customers with increased access to selected home, apparel, and general merchandise.
All team members in Target stores scheduled for conversion to Kmart will receive an offer of employment from Kmart and all Target team members affected by store closures will be given consideration for new roles created in Kmart and Catch.
Wesfarmers has also established a cross-divisional working group to identify redeployment opportunities in Bunnings and Officeworks. Team members unable to be redeployed will be provided access to support services, along with all entitlements.
This announcement comes at the completion of the first phase of the strategic review with further store network optimisation and operating model changes still being assessed. An update will be provided at the group’s full-year results released in August 2020.