Target’s Guy Russo tells it how it is in retail

Target boss Guy Russo delivers a frank assessment of the retailer’s woes.

Target boss Guy Russo says if you want entertainment, go to Disneyland, not to one of his shops.

Target boss Guy Russo has delivered a frank assessment of the loss-making retailer’s woes to a gathering of its 700 suppliers, warning that Target would be forced to narrow its product range that had dangerously blown out of control under previous management.

In an uncensored, candid and at times unscripted presentation at Melbourne’s MCG yesterday to fashion and general merchandise suppliers, Mr Russo conceded Target and its stablemate Kmart — which together form Wesfarmers’ department store division — were about selling things people don’t need.

Hidden from the scrutiny of media, analysts and investors, Mr Russo provided a scrupulously honest explanation of what ­retailing was all about in the crowded $18 billion discount department store sector.

“So if you want to know the difference between Big W, Target and Kmart, you are going to hear it from me — nothing,’’ Mr Russo told the suppliers meeting strutting the stage with a microphone.

“We sell stuff to people that people don’t need at low prices. You don’t die if you don’t go to a Big W, or a Kmart.’’

He told stories of how he got the better of former Pacific Brands CEO Sue Morphet when he ran Kmart and dumped her Bonds underwear brand and riffed on how Target had lost its way as it chased fashion labels and burned millions on jazzing up the stores.

“Target will go back to what it was. We are going to be about small ‘F’ (fashion), you want big ‘F’ go to Vuitton or Armani,’’ Mr Russo told the meeting, which The Australian gained exclusive access to.

“It will all be about the product, not about fancy things moving and jumping at you. If you want to do that and get some really lovely entertainment go to Disneyland. This is a retail shop that needs to sell your product.’’

Mr Russo promised the closed-door meeting that Target would return to its roots as a discount department store, adding that if his own merchants didn’t like the shift down-market they could “leave and go and work for a high-end retailer”.

There was also a dig at Target’s former management and profligate spending that went right down to the type of flooring used.

“The last management team has managed to put down seven different floors in Target, so if you are a floor supplier you need to know we are going to one floor — it will be lino and it will be white.’’

But in other parts of Target, such as its small-format Target Country stores, there had been no money spent on refurbishments in decades.

“Some of them have not had money spent on them for 20 to 30 years. If you go into their change rooms, I’d say most people would feel like having a shower after they have been in there,’’ Mr Russo said.

Returning to the retailer’s new relationship with suppliers, Mr Russo said they needed to understand that Target was holding too many products.

“Apparently there are 100,000 seats in this Olympic (MCG) stadium, so those of you who still haven’t got it about our problem, those 100,000 seats, we have a product for every seat. And then 200,000 (more) we can’t bring on to the floor, so three MCGs, three items for every seat, it’s not possible … unless we can build more stadiums, which we don’t want to do. Do the maths.’’

But Mr Russo pledged Target would hit the right shelf price the first time, rather than constantly slash and discount.

“I don’t want to price maximise; I want to go to that price that our buyers seem to be able to achieve after they do their fourth markdown. So we normally start at about a 70 per cent margin and all of you should know our last margin, our final margin is 35. I don’t want to start at 70. I would rather start at 35 and I will give you this commitment: I will be dropping my prices before any of you drop your price. I will go to my customers and drop the products you have sold us to them before we even go to one of you.’’

Mr Russo was joined on stage by Target’s new finance director Mark Scatena, while also meeting and greeting suppliers at the four-hour event was Marina Joanou, who was recently appointed finance director of the new department stores division that houses Kmart and Target.

Mr Russo said suppliers should not focus on the decision by Wesfarmers to merge the running of Kmart and loss-making Target under one division led by him.

“Ignore Kmart, don’t put your hat on about how does this work between Kmart and Target, it’s a dumb thought, it’s a dumb question, and it’s the wrong question,” he said.

“I just want Target to be happy about who you are, we are a discount department store, we are like Walmart … that’s who we are.’’

He ended with a story about when he ran Kmart more than six years ago and approached then Pacific Brands boss Ms Morphet about his strategy to lower prices for Bonds and pump up sales by tens of millions of pairs of underwear.

Kmart later dumped Bonds, brought in its own brand and sales volumes surged from 3 million pairs to more than 30 million pairs annually.

“I remember the lady who was running Pacific Brands said, ‘Guy, it’s not possible’. Don’t say something to me is not possible when we talk volume because it is possible, so Sue Morphet and I parted professionally ... and I was right and she was wrong.

“And the (Pacific Brands) share price went from nearly $4 to $1. I followed it (the share price) from the moment I met Sue Morphet and I thought, this isn’t going to be good for one of us.’’