Target store closures: Where it all went wrong for retail icon
Target has been struggling for years and now half of its Aussie stores could vanish within months – and it’s all due to one fatal mistake.
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Once upon a time, Target was one of Australia’s favourite discount department stores and Kmart simply its poor cousin – but today, those roles have drastically reversed.
While Kmart has had a stunning change of fortune and emerged as one of our leading retail brands, Target has been limping along for years.
And today, the retail icon received yet another body blow after parent company Wesfarmers – which owns both brands – revealed up to 75 Target stores will be closed and up to 92 converted into Kmart outlets within 12 months.
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The restructure means around half of Target’s 284-odd Australian stores could disappear by 2021.
So where did it all go wrong for the once-booming chain?
According to Queensland University of Technology retail expert Dr Gary Mortimer, it comes down to one fatal mistake – the “cannibalisation” of Target by Kmart as both brands fought for market share.
‘STRONG CANNIBALISATION’
“I don’t think there is too much shock in this announcement as most analysts identified several years ago many of the shortcomings associated with the Target brand,” Dr Mortimer said.
“There is far too much crossover between the Target and Kmart brand, which caused a lot of confusion in their market position.
“At one point, Target was selling MAC cosmetics and Stella McCartney launches while also selling cheap T-shirts and $7 kettles – that simply confused their core customer and we saw strong cannibalisation of Target sales which went directly back to Kmart.”
Dr Mortimer said Kmart had been saved by Guy Russo, who previously served as the chief executive of Wesfarmers’ department stores division and has been credited with the transformation of the once-ailing chain.
The retail expert said he had long claimed the success of Kmart had “literally come at the expense of Target”.
“Ultimately, it doesn’t make great business sense for a conglomerate like Wesfarmers to run two discount department store businesses – it simply duplicates the costs to service the same market,” Dr Mortimer said.
‘RISKY VENTURE’
As Target desperately attempted to turn things around, it came up with several plans.
Last year, Wesfarmers announced as part of a review into Target that it would possibly reposition the Target brand into the middle market and away from Target’s low price offer.
But Dr Mortimer said that in itself was a “really risky venture” considering how crowded the middle market already was.
“It was already struggling, and the likes of Myer would be a direct competitor if they repositioned the Target brand,” he explained.
“It would also then come into international competition with global fast fashion retailers like H&M and Uniqlo.”
‘NO LONGER VIABLE’
While Australia’s retail sector has been devastated recently due to economic uncertainty, floods and bushfires and now the COVID-19 pandemic, Dr Mortimer said Target’s decision to pull stores was not a reflection of our wider retail woes.
“Target itself is a retailer that offers great value when it comes to mainstream fashion and home furnishings – however Kmart and others have just done it better and cheaper,” he said.
“And if we go back before Guy Russo’s leadership of Kmart, Target was actually the much stronger business.”
He said the only way Target could have avoided its current bleak fate was if it had managed to dominate the “middle market sector” a decade ago.
“Then it could have taken the fight to Myer, but at this stage unfortunately, that middle market is just no longer viable, particularly when it comes to clothing, footwear and accessories,” Dr Mortimer said.
“Target is highly exposed to discretionary spending, and ultimately when families are looking for cheap and cheerful, they are clearly voting with their feet, walking past Target and wandering into Kmart.”
THE CULT OF KMART
Meanwhile, Kmart has managed to cultivate a “cool factor” with a revolving door of on-trend home decor and other hot sellout items that have led to scores of social media groups dedicated to shoppers’ love of the brand springing up in recent years.
On top of that, Dr Mortimer said Australians had increasingly turned towards value for money across many retail categories, which Kmart capitalised on.
“Australian shoppers have now realised that shopping with a discounter – whether that’s a general merchandise discounter like Kmart or food like Aldi – is not about being cheap, but is simply being savvy,” he said.
“Target’s fashion range and homewares is also on-trend but unfortunately, there’s far too much similarity with Kmart and if people want to save a few bucks, they will shop there.”
‘PROFOUND EFFECT’
While Wesfarmers has indicated it will preserve as many jobs as possible, Dr Mortimer said shopping centres and landlords would be most concerned by today’s news.
“With 50 Target Country stores closing, landlords will be looking to determine how they are going to fill that space,” he said.
Dr Mortimer predicted Target stores would close in many shopping centres that already also contained a Kmart store, but that “hopefully Wesfarmers may consider replacing it with another Wesfarmers retail brand such as Officeworks or Bunnings”.
THE END OF TARGET?
Meanwhile, IBISWorld has questioned if today’s news could spell the end of Target, claiming it had “underperformed Kmart over the past five years” with sales “declining significantly” after a brief coronavirus-led boost in February and March 2020.
It revealed Wesfarmers held an estimated market share of 45 per cent in the Department Stores industry, and that “declining discretionary incomes and fluctuating consumer sentiment” had pushed shoppers towards discount stores, although there was an overall decline in revenue within the Department Stores industry.
IBISWorld Senior Industry Analyst Daisy Feller said Wesfarmers has increasingly focused on Kmart at the expense of Target in recent years.
“Consumer demand is becoming increasingly polarised, with shoppers seeking either ultra-low cost or high-quality, ethically made goods,” Ms Feller said.
“Target’s mid-market position has failed to appeal to either of these types of shoppers.”
Originally published as Target store closures: Where it all went wrong for retail icon