Get ready for Target’s $200 million sale

A MAMMOTH winter sale is around the corner as Target struggles to turn its fortunes around, after Wesfarmers downgraded its profit forecast.

Target is gearing up for the mother of all winter sales. Picture: Jerad Williams

A MAMMOTH sale is around the corner at Target, with the beleaguered department store sitting on huge piles of winter stock.

In an investor teleconference this afternoon, Wesfarmers Finance Director Terry Bowen revealed that the value of stock needing to be cleared over the next six months was “in the order of 100 to 200 [million].”

New chief executive Guy Russo has vowed to turn the struggling chain around with a $145 million restructure of the business, which is forecast to lose $50 million this year due to the impending winter mega sale, and lower gross margins.

The retailer’s ill fortune, and the cost of its rescue, are expected to all but wipe out parent company Wesfarmers full-year profit, to be announced next month.

Wesfarmers Managing Director Richard Goyder said that while the unseasonably warm weather had hit Target’s sales, “When it does get cold, I think we’ve got some of the best products in Australia sitting in Target.”

Mr Russo, who was previously Kmart’s managing director, was appointed to run both Target and Kmart in February, in the newly created role as Wesfarmers’ chief executive of department stores.

He quickly moved to announce staff cuts and a $30 million relocation of Target’s store support centre, with about 240 employees having walked the plank.

Shoppers can expect to see a transformation of the product range, with streamlining Target’s supply chain and resetting its inventory next on Mr Russo’s agenda.

Clearance costs, and the acceleration of plans to whittle down Target’s range, were expected to cost about $80 million, he said.

Guy Russo turned Kmart around; now the pressure is on at Target. Picture: Steve Tanner

NO ‘SMOKE AND MIRRORS’

Mr Russo has been credited with turning Kmart’s fortunes around, boosting the once-drab retailer’s first-half profit from $75 million when he took over in 2008, to $319 million this year.

What remains to be seen is how he can perform a similar revival at Target, without cannibalising Kmart.

Mr Russo said he was “very confident that, over time, there can be a great future for both Target and Kmart as parallel but differentiated brands in the market place.”

But the seasoned company boss admitted he was feeling the weight of the task ahead.

“I’m a little nervous on the issue because I don’t like failure,” Mr Russo told reporters, adding that he had not failed in his career as a chief executive to date, since being appointed to run McDonald’s Australia in 1999.

“But I also realise that I can’t do smokes and mirrors,” he said.

“The only thing I’ve got some confidence on is I understand how this model works. I’ve studied it for the last eight years ... I understand the sceptics, but I will make this work.”

REVIVAL ‘WILL TAKE TIME’

In a nod to the 34 years he spent at McDonald’s, working his way up from a part-time burger flipper to the top job, Mr Russo explained his philosophy on how to turn a profit.

While Target stores were $20 million retail boxes, he said, “I know a lot of small business players that own $1 million or $2 million retail boxes or fast food outlets ... If they know how to make money off $20,000 a week, I would hope that I know how to make money off a business that’s doing $400,000 a week.”

He promised to identify the areas where the business was leaking cash and “remove them surgically and return them to shareholders”, with stock the key outstanding area of interest.

While his executive team had already alerted merchants, the stock reduction process was expected to take two to three years.

“It needs to be done carefully,” he said. “The solution to find the right renewal for returns and customers, that takes time.”

Mr Russo said he intended to ensure Target would turn a profit in 2017, but that a more striking turnaround would take longer.

“It’s a little bit like the hare and the tortoise — some things can be done fast, but the outcomes and the results of them normally take their time,” he said.

“It took me nearly four to five years [at Kmart] to get the right looking store that gave the right returns to shareholders ... This stuff takes time, and it needs to be done right for the long term.”

Mr Goyder said Wesfarmers had never shied away from taking tough action when required.

“The decisions which we have outlined today reflect more difficult market conditions ... but we remain confident that operationally we have the right plans to improve future performances,” he said.

“Whilst Target has made operational progress in recent years, market competition and disruption has continued to accelerate, including from the very strong performance of Kmart.”

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