Struggling department store Target could become a predominantly online retailer in years to come as the company’s ongoing amalgamation with Wesfarmers’ stablemate Kmart continues to see the business’ physical footprint shrink.
Ian Bailey, who oversees the operation of the two stores through his role as head of the Kmart Group, told The Age and The Sydney Morning Herald Target could “absolutely” become a bigger business online compared to bricks and mortar in years to come.
Kmart Group managing director Ian Bailey is eyeing more online growth for Target,Credit: Eamon Gallagher
“As to what the percentage [online] would be, time will tell, but I certainly believe online will be a very, very important part of the Target business and we’re certainly investing in the growth of online for Target,” he said.
“It’s already a very profitable channel for us, and we think it has a lot of potential to grow.”
Kmart and Target are both owned by Perth-based ASX-listed retail conglomerate Wesfarmers, which made the decision last year to take the axe to the Target store network. A total of 167 stores are currently in the process of being closed or converted into Kmart stores as part of the $800 million restructure.
Target has been struggling for some time and has long underperformed its stablemate Kmart. However, Mr Bailey dismissed questions over if the brand could be eventually absorbed entirely by Kmart, noting the retailer was still very popular with shoppers.
“That would be very unlikely. The Target brand is a very powerful brand and we see it as a great asset,” he said. “As we focus on a smaller, simpler and more focused Target ... it gives us the ability to be more precise than we’ve been historically.”
On Tuesday, Mr Bailey told investors the performance of Kmart post the Target conversions had been ahead of expectations and the business was working on combatting some of the stock issues it encountered during COVID.
While Kmart’s sales have soared during the pandemic it has come at a cost for the popular retailer, which has struggled to get enough product on the shelves to keep up with the heightened demand during COVID.
Mr Bailey said the issue stemmed from Kmart’s choice to follow its global peers and reduce its stock intake around March and April last year, a decision which came back to bite the business as sales soared to unprecedented levels just one month later.
From that point on, Kmart was left playing catch-up as sales continued to rise, Mr Bailey said. To counter this, Kmart has increased the amount of stock it holds as a buffer to prevent future outages, and has invested in new analytics and in-store technology to keep an eye on stock levels.
This includes a new, human-sized in-store robot, called TORY, which will move through Kmart stores and track stock levels by scanning product labels. Mr Bailey said the robots are capable of navigating the store while customers are there, but the company hopes to utilise them when the store is quiet, such a during the night.
In February, Wesfarmers booked $5.4 billion in revenue for the broader Kmart Group across the first six months of the financial year, with earnings rising nearly 40 per cent to $487 million. The Kmart Group also includes online marketplace Catch, which Wesfarmers acquired for $230 million in 2019.
Target’s performance for the half was above expectations, with the segment now predicted to post a rare full-year profit.
Market Recap
A concise wrap of the day on the markets, breaking business news and expert opinion delivered to your inbox each afternoon. Sign up here.