Russo: Less Targets, more Kmarts

TargetWesfarmers’ department store division chief executive Guy Russo expects an improved result from Target in the second half as ongoing efforts to improve its range begin to bear fruit.

Target’s top-line sales decreased by 6.2 per cent in the first-half, while same-store sales decreased by 6.5 per cent, but Russo said this was a result of continued efforts to reset product, price and range – particularly in womenswear, toys and general merchandise.

“The second-half will not be as dramatically down as the first,” Russo told analysts and investors on Wednesday afternoon.

“We’re starting to see growth now in womenswear, menswear and home,” he revealed, noting his expectation that sales momentum should improve over the next 12-18 months.

“Over time we expect sales trajectory to improve, we’re still obviously continuing to focus on improving the quality of sales.”

Russo said the majority of merchandise disciplines have now been reset across the business, with attention now turning to improving fashion and quality across the business in the second-half to fill out Russo’s affordable fashion vision for the business.

Margin improvements were realised in the first-half on the back of an increase in the amount of direct sourcing at Target, less markdowns and an improved sales mix.

Russo said the majority of Target’s first-half under performance was in the toys and general merchandise categories.

The poor performance from Target reflected tempered expectations from parent company Wesfarmers, which booked a $300 million write down on the carrying value of the discount department store several weeks ago.

Target is slated to reduce the size of its portfolio in the coming years, with Russo reaffirming his view on Wednesday that there will be “less Targets” and “more Kmarts” in the future.

“A commercial lens has been put over all [Target] sites. In our plan we have openings, but they’ve been tailed right back,” Russo said.

“There [will be] closures and rebadges, and the rebadges will not only include Kmart but wider Wesfarmers businesses of Coles, Bunnings and Officeworks.”

Russo once again declined to go into detail about potential closures, citing ongoing discussions with landlords on stores which are on holdover leases.

Kmart steams ahead, price investments on the horizon

Kmart performed much better than Target, as has been the trend in recent years, booking a 8.6 per cent increase in sales and a 5.4 per cent increase in same-store sales.

Transactions grew by more than 77 million over the six months to 31 December, underpinned by more than 10.5 million customers buying from the business.

Asked whether Kmart would moderate its price investment in the coming periods, managing director Ian Bailey said prices will decrease continually as the business looks to maintain its value leadership.

“Our long-term strategy is to be the lowest price player, so I’m happy for our margins to fall, but cost-of-doing business goes down as well,” he said.

Bailey acknowledged that increased price-investment from Woolworths’ owned Big W had played a role in shifting the competitive landscape in recent months but reiterated his view that Kmart’s strategy would drive long-term returns.

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