Kmart is guilty of retail cannibalism and has ‘eaten’ Target

RETAIL cannibalism is the new thing taking down giant department stores, with some stores “eating” their friends out of business.

STORES are eating each other.

It sounds dire, but this is exactly what is starting to happen in the retail industry.

Queensland University of Technology retail expert Gary Mortimer said Kmart had “eaten” Target and was starting to kill the giant retailer, despite the stores being on the same team.

They are both under the Wesfarmers group, but Target is expected to lose $50 million this year as its most loyal customers head to Kmart.

“There’s not many people left shopping at Target,” Dr Mortimer said.

“The number of people who were shopping at Kmart and Target has flipped.

“I think shoppers now only visit Target when there’s a 30 per cent off sale or when brands are heavily discounted.”

Target’s earnings for the first half of this year has only been $74 million while Kmart has made a whopping $319 million.

Is Target dead? Picture: Peter Wallis

WHAT IS RETAIL CANNIBALISM?

Retail cannibalism happens when stores managed by the same company begin to compete with each other.

Then it becomes the survival of the fittest.

Dr Mortimer said stores like Kmart and Target should be attracting different customers, instead they both tried to appeal to those looking for a cheap option.

Guy Russo, the former chief of McDonalds, took over Kmart in 2008 and steered it in the right direction so it could become a thriving retail store.

Dr Mortimer said Target tried to copy to gain success, but ended up just confusing its customers.

“If you have two brands that are operating in the same market, providing the consumer with a similar offer, what tends to happen is the consumer doesn’t see the difference between the $7 kettle at Target and the $7 kettle at Kmart,” he said.

“Target’s core customer wanted brands and good quality products and were prepared to pay a reasonable price for it, but then Target started doing cheap T-shirts and kettles and muddled their message because they still stocked brands like Stella McCartney.

“People chasing the brands then started to move across to Myer and even the glut of global fashion retailers like Zara and Top Shop.”

Retail cannibalisation happens when brands in the same company become too similar and sooner or later, one has to conquer and “eat” the other.

Dr Mortimer said retail cannibalisation could be a good thing and push competitors from other companies out of the market.

But it can lose the company money overall.

Kmart is eating Target in a case of retail cannibalism.

WHO’S EATING WHO?

Target is suffering the most from retail cannibalism but there could also be other brands at risk.

Woolworths supermarket could be slowly destroying itself but according to Dr Mortimer, this could actually work out for the company.

“Woolworths supermarkets are branching into Woolworths Metro, it’s a convenience style supermarket that’s opened in constrained and tight real estate areas,” he said.

“Woolworths understands it will cannibalise traditional supermarkets a little bit but they are willing to do that to capture a little bit more of the market.”

Dr Mortimer said the Super Retail Group was also a company with brands that could become cannibals.

The group manages both BCF and Ray’s Outdoors, targeting campers and fishermen, and Amart Sports and Rebel Sport, targeting sportsmen and exercise junkies.

While having similar brands in the same group, Dr Mortimer said the company could be lucky and escape retail cannibalism if the stores continued to focus on different types of customers.

Amart Sports targets schools for example, while Rebel focuses more on fitness trends and fashion.

“They are currently doing a good job,” Dr Mortimer said.

Bi-Lo was another victim of retail cannibalism and eaten by retail giant Coles, both were also part of Wesfarmers.

They were set up to cater for different markets, Bi-Lo had basics in store for a low price while Coles was the place for customers who wanted fresh food, meat and more brand selections.

Bi-Lo then started to increase the items on the shelf, becoming more and more like Coles and it soon lost its customers and some Bi-Lo stores were rebranded as Coles.

“The old saying goes: it’s best to cannibalise yourself than have someone do it for you,” Dr Mortimer said.

Guy Russo was made the boss of Target after successfully turning Kmart around. Picture: Tony Gough

WHAT HAPPENS NEXT?

DGC Advisory retail analyst Geoff Dart says it’s time for Wesfarmers to get rid of Target.

“Anything that involves fashion is not in Wesfarmers’ DNA,” he said.

“Wesfarmers is very successful with the everyday low price, cheap and cheerful options.

“When they step outside, that is when they struggle.

“Don’t step out of your DNA — get rid of Target.”

Dr Mortimer said when former Target boss Dene Rogers was appointed in 2011, he attempted to push Target into the same space as Myer.

“We started to see better store fit-outs and Target had more brands and differentiated itself from Kmart,” he said.

“If you go back seven years the profitability of Target was very, very strong.”

Stuart Machin, a former senior director at Coles, took over Target in 2013 and then tried to replicate Russo’s ideas for Kmart and make things cheap — but it backfired.

Mr Russo is now also the boss of Target, with Wesfarmers relying on him to turn things around like he did with Kmart.

“Personally I think he is stuck between a rock and a hard place,” Mr Dart said.

“I think Westfarmers should admit it made a mistake, like Woolworths found with Masters.”

While Mr Dart thinks shutting Target down is the best option for Wesfarmers, Dr Mortimer predicts a merger between the two retail giants.

“It’s a risky strategy to go back and try and push Target back up,” he said.

“They would have to get rid of the cheap toasters and T-shirts and bring in more brands.

“They risk putting themselves in direct competition with Myer, H&M and Top Shop and that’s a really tough market.

“I think Wesfarmers will focus on its engine room, which is Kmart. It’s working well for them and I think Target’s core customers have left.”

In 2004, Sears in America was “eaten” by Kmart and the two businesses were merged, creating the country’s third largest retailer and a rival for Walmart.

The two stores kept their own identities for a while before some Kmart stores were rebranded as Sears.

Kmart started selling products exclusive to Sears and Sears started stocking items previously only found in Kmart.

Wesfarmers did not respond to requests for comment.

Kmart bought Sears in 2004 and the two stores merged. Picture: Elise Amendola/AP