Kmart CEO John Gualtieri reveals the products that have powered retailer to a record $600m half year profit
Kmart has revealed a huge profit but there’s one – very cheap – product the retailer’s boss loves most. He’s also admitted to a Target misstep.
The CEO of Kmart has revealed the product which is his favourite. And it takes the discount department store’s mantra of low prices to the limit – costing just 50 cents.
John Gualtieri spoke to news.com.au after the retailer announced bumper financial results with a record profit of more than half a billion dollars in just six months.
Also heading up day to day operations at Target, Mr Gualtieri – who said Kmart was now less a retailer and more a “product development company” – admitted the controversial rollout of Kmart’s Anko range at Target could have been done more smoothly. He also spoke of his “admiration” for the outgoing Woolworths CEO who resigned days after a disastrous TV interview.
“Our (financial) results are a reflection of all the hard work – not just in the last six months – but over the last few years,” he told news.com.au.
What a result it was. Sales at Kmart stores were up an impressive 7.5 per cent in the six months to December but profits for the Kmart Group (which includes Target), soared by 26.5 per cent to $601 million. That helped propel Wesfarmers, which owns Kmart as well as Bunnings and Officeworks, to a $1.43 billion half year profit.
In contrast, Kmart’s big rival Big W – owned by Woolworths – had a far more sobering six months with sales down 4 per cent and profits dropping 60 per cent to $54 million, a fraction of Kmart’s.
What’s Kmart doing right?
“We’ve been working really hard to understand how customer behaviours are changing, and more importantly, what they’re expecting from us and then making sure we deliver that to them when they want it”.
“We are a product development company,” he added.
“We’ve now have over 100 designers across Australia and Southeast Asia.
“And our sourcing teams really understand what’s required from a customer perspective and we deliver that to them at a low price.”
New products powering Kmart’s profits
Mr Gualtieri said apparel, particularly for Generation Z shoppers – in their teens and early 20s – was popular as well as beauty products.
Indeed some of its newer, notable, products have been more on trend and imitating must-have products seen elsewhere.
One of those is OXX Fragrance Beach Bliss Summer Solstice body butter which is strikingly similar, in looks and contents, to beauty brand Sol de Janeiro’s wildly popular Brazilian Bum Bum cream, sold at MECCA. Except the latter costs $77 and Kmart’s cream is $8.
“I was in a store on the weekend and I saw young customers buying the different creams, it’s all over social media, and you could see the excitement on their face when they found the product and put it in their basket,” he said.
Another one flying off the shelves is Kmart’s 1.18L jumbo tumbler with handle. If that doesn’t sound like a product that would rock your world then you’ve clearly not been paying attention to the must-have accessory of right now – the oversized Stanley water bottle.
The original costs $70. Kmart’s version? It’s just $15.
Boss’ favourite products costs just 50 cents
“My favourite products are those that hold significant value for our customers and would cost four or five times more elsewhere.
“But one of my particular favourites is a fun one we sell for just 50 cents,” he said.
He’s referring to the Mega bubble wand which is a modern take on the classic toy that enables kids to blow bubbles in the backyard.
“If you think about kids’ parties – you’ve got 20 children and you’ve got to entertain them. Even if you spend just $20 per kid that’s 400 bucks.
“But for 50c, you get hours of enjoyment – do the maths on that.”
‘Difficulties’ at Target
It might be all coming up roses for Mr Gualtieri at Kmart, but Target is still a struggle.
Kmart Group doesn’t factor out the profits and loss for each of its brands but comparable sales growth at Target for the half were down 2.9 per cent.
“Womenswear is resonating, there’s really good signs,” said Mr Gualtieri of Target.
“Areas where it was a little bit more difficult was in homewares.”
In January, Target shelves began to be cleared of its dedicated range of kitchen goods, smaller electricals and home furnishings in favour of the Anko brand that forms the majority of Kmart’s stock.
The company has said previously that Target’s biggest strength is in apparel and Anko will suffice for “commodity items” such as “coat hangers and white plates”.
But Mr Gualtieri has admitted that the Anko rollout to Target stores could have been handled better and led to empty shelves.
“There was a period, particularly in early January, where the old merchandise was going out and we hadn’t quite delivered the new merchandise,” he said.
Some Target customers have bristled at seeing Kmart items.
Mr Gualtieri said Target was “seeing generally pleasing results” with Anko.
“We’re starting to build a following at Target with the Anko range”.
‘Admiration’ for departing Woolies’ CEO
Mr Gualtieri has had senior roles at Kmart for more than a decade and during that time he’s met many other retail leaders including Woolworths’ CEO Brad Banducci.
Mr Banducci announced his resignation last week after a torrid few months for Woolies which had included the furore over its lack of Australia Day merchandise (Kmart also didn’t stock any dedicated products), accusations of price gouging, a $781 million half year loss and him walk out in the middle of an ABC interview.
Although, Woolworths Group has insisted that Mr Banducci’s departure after more than eight years had been planned for some time.
“I have admiration for the work (Mr Banducci) did during Covid,” said Mr Gualtieri.
“At the time there was so much uncertainty and (I admire) the way he communicated with his customers”.
Woolworths and Coles are facing a series of inquiries into whether they are profiteering by squeezing suppliers and charging customers too much.
Woolies’ profit margin is said to be high at 6 per cent. While Kmart isn’t as essential as a supermarket, it still sells everyday items, and its margin is an even fatter 10 per cent.
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But Mr Gualtieri said the company could still make money and help people spend less.
“Our customers save money and they can then make a choice whether they put that on their mortgage, petrol bill or save for a holiday.
“So, I’m pretty proud of what we can do and the impact that we make in our customers’ lives.”
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