Over the last 20 years, Kmart has undergone one of the most remarkable transformations in Australian retail. Once considered a lost cause, the business has gone from strength to strength since embracing a ‘lowest price’ strategy following its acquisition by Wesfarmers in 2007. In the first half of FY24, the most recent results at the time of this writing, Kmart reported record earnings of A$601 million, a 26.5 per cent jump on the prior corresponding period. Wesfarmers is expected to announce its FY24 results on August 29.At the heart of Kmart’s comeback is its house brand, Anko, which sells over a billion products a year, the retailer states. With more than 20,000 SKUs across homewares, toys, pet accessories and apparel, Anko-branded products represent 85 per cent of the stock in Kmart stores and have been purchased by awhopping 90 per cent of Australian households.Now, Kmart is looking to take Anko global. Over the past year, the business has been working with international retail partners, including Canadian department store chain Hudson’s Bay and French hypermarket Carrefour – the 10th-biggest retailer in the world by revenue – to introduce Anko productsto a global audience. It’s a huge opportunity and a long time coming for Kmart Group managing director Ian Bailey, who was chief operating officer (COO) of Kmart during the turnaround in 2008 and took over from then-CEO Guy Russo in 2016. Here, we speak with Bailey about the state of Anko’s global rollout, the formula for building international teams, and what it takes for Australian brands to make it on the world stage.Inside Retail: Let’s start with your Hudson’s Bay partnership. Can you tell me how that’s gone? What Anko products are available in Canada? And what are the key takeaways from that?Ian Bailey: The products have been well received pretty much everywhere we’ve been. We’ve had products sold in Canada with The Bay [Hudson’s Bay’s e-commerce arm] and the Zellers brand, and the products have gone well in the categories you would expect, particularly toys. They are the areas that are performing the best. We did do some clothing as well, which was always going to be just to help out more than anything else. And as expected, we don’t think that’s going to be as strong, and we’re not really thinking clothing is going to be the go for us in markets outside of Australia and New Zealand. In Australia and New Zealand, it’s very strong, but I think the challenge with clothing globally is there are a lot of clothing suppliers and retailers, so the competition is fierce. When you go to [categories] like home, it’s very fragmented – actually surprisingly fragmented – so that’s where we see the real opportunities that are out there. And that’s how it’s playing out.IR: Can you give me a sense of the size of what you’re doing over there? IB: A lot of the bigger [Zellers] stores are around 500sqm and we would have about 3000 SKUs within thatspace, so they’re reasonably sized store-within-stores. IR: How have you been going to market in terms of the marketing side?IB: It’s the first time we’ve ever done it, so we’re learning a lot. We have gone in as the brand that sits underneath Zellers, so the go-to-market strategy has been to leverage the Zellers brand. It’s a brand thathas been in Canada for many years. It has very high recognition, but it disappeared about four or five years ago. Hudson’s Bay brought it back, so Zellers is something that immediately triggers an emotional reaction with consumers and an understanding of the proposition. We’ve not pushed Anko on that basis. [The products] are branded Anko, but we haven’t gone out and done a lot of promotion of Anko because the promotion has been Zellers. It’s a little bit like in Australia, where we promote Kmart and Anko is in the store. In other markets, we’re pushing harder with Anko because it won’t be as connected to the retail brand. IR: You’ve got another international partnership in the works with the French retail giant Carrefour. When did that conversation start, and what does your launch with them look like? IB: Carrefour was one of the first companies we spoke to. This was about 18 months ago. At the time, we didn’t have a formulated plan, but we knew we had an asset. How we got to market was something we were figuring out, so we had very exploratory conversations with Carrefour to say, ‘This is what we do, is there something we can do together?’ We had multiple conversations and got to the point of a trial,which launched recently. The trial is pretty small, it’s four stores, it’s about 140 SKUs, and it’s in the pet accessory category. One of the stores is on the outskirts of Paris, the other three are around Nice in Southern France, and then we’re also online. That’s really to test out how that product works in the Carrefour environment. We hope that goes well and we can take the trial up to a full-scale rollout. IR: With international expansion, some of the typical challenges are culture fit and understanding the market. What has your experience been like so far there? IB: We’ve done a lot of selling of our products in new markets. Pre-Covid, we opened stores in the US, so we had Anko stores in Seattle. That was more of a technology play than a retail play, but it gave us theexperience of selling products in the US, and we had a really good customer reaction. We’ve sold products in India, Thailand, Indonesia, Papua New Guinea, and Canada, and everywhere we’ve sold the product, we’ve found the reaction has been good. I think it’s because they’re the basics of everyday life. We’re not playing in niche categories.We take the global trends, we interpret them, and we take them into Australia. And if you think about the Australian population, it’s the world’s population because we have so much immigration – not just from European countries, but now also, increasingly, Asian countries. It gives us a very global perspective, I think, in Australia. So when we are jumping into Europe and the US, we’re hitting the same trends as the European and US retailers are hitting, and when we jump into Asia, it’s the emerging middle class, who are actually looking for the European and North American trends, which our products are based on. So we’re finding at the moment that we’re not really seeing a category that doesn’t resonate. All of our products tend to resonate, broadly speaking, in the same way that they do here. IR: On the communication side, though, that’s often where there are teething issues. Just figuring out the tone of voice. Do you see that being a challenge? IB: I think there are so many things for us to learn. We’re on step one out of 10. We know we’ve got this asset, and we know it’s developing really well, and we know the response we get from consumers. When we go to these markets, what we go with is not just product, we know the data. We can speak to a Carrefour or whomever, and be able to say this has a 4.8-star rating with our consumers, and we sell this many 1000 per week, and we’ve been selling it for this time period. So the certainty that it’s going to work is so much higher. But figuring out how we tell that story sometimes takes a little bit of time. How do we communicate that to the consumer, and how do we bring to life some of the social media commentary that we have in Australia? That’s something we’re working on. IR: In Australia, the social engagement is really strong with Kmart, but I imagine that developed organically over time and isn’t something you can just re-create. IB: The world’s a global place. I know it’s cliche, but when we opened in the US and Canada, anybody who had visited Australia, or was Australian and living in those places, immediately hooked into it. They actually started to push the brand through social media in those markets. What we’re now trying to get better at is figuring out how we take that and amplify that message in that social space. We see social media as critical, particularly if you go to a market like North America. To try to get into a punch-on with advertising dollars would be challenging, so we have to be pretty ‘guerilla marketing’ in the way we go about it and try to be a disruptor brand that acts like a start-up brand, as opposed to being the market leader, which we are in Australia and New Zealand.IR: That’s an interesting challenge, from a cultural mindset, within the business. Have you brought on board new teams to lead the expansion into new markets? IB: We’ve got a dedicated team. Some of the people are brand new, so we’ve got new hires within the US and Canada as well as the UK, where we lead our European operations. We’ve started to hire native language speakers for France to help with what we’re doing there. But it’s also important that we have the depth of knowledge of the Kmart business and the Anko product. If I look at the social media side, the woman running brand marketing and social media has been with our business for close to 10 years. She was one of the people instrumental in helping us build that social engagement in Australia, so we’ve now turned to her to do the same again for us in these global markets. It’s a real blend of international experience that has the local proximity to the markets, and then the knowledge of our business that we need to bring our proposition to the markets. IR: I’m curious how you see the international business eventually comparing with the Australian business.IB: I can tell you what I hope. With all things, you have to start with a vision, but you don’t really have a plan to get there. The next piece is trying to break it down into bite-sized pieces. The way I describe it is Australia and New Zealand [have] 30 million people. The planet has got 8-point-something billion. Clearly, the opportunity outside of Australia is huge. I think if we can figure it out, the business should bebig. If I am optimistic, it should be bigger than Australia. IR: One of the things you’ve talked about is transitioning Kmart from being a department store to selling Anko products. And now, you’re transforming the business again to make Anko a global brand. Was this always part of the vision for Kmart? IB: I wish I could say 15 years ago we knew we’d be here, but no. I think you can break it into three phases. If you go back to 2008, we were really fighting for survival, so the actions we took were the actions of a business with two pathways – either survive or not. That gave us the ability to make somepretty radical decisions. And one of the radical decisions was to go lowest price, and then start to expand our range. Now when we did that, we didn’t know quite where it was going to take us. But as we did that and it became successful, we were like, ‘We should do more of that.’ And that got us into the growth phase, where we really started to grow Anko into a material brand. At the time, it wasn’t called Anko, it was called other things, and we worked out in that period that we were building an asset and, in the long run – this is probably around 2012, 2013 – we’d probably want to go international. To do that, we couldn’t take the brand name Kmart, because that brand name doesn’t work outside of our market; therefore, we decided we should put our products into one brand name and that could be the brand of the retail business should we take the retail business into new markets later.We started to move into the next phase, which was going global, just before Covid. We opened stores in Seattle and then, of course, Covid hit, so we shut down. It’s really only been since coming out of Covid that we’ve been able to get back to exploring international markets. I think it’s probably a good thing because it allowed us to get stronger in Australia in that time period. I think our product is superior now to what it was during the pre-Covid period. I think our asset, the brand, is probably now in a condition where it’s the right time for us to explore new markets. IR: What does your current presence in the US market look like? IB: Our US presence is purely with Mattel, so it’s dropping into Walmart stores under the Fisher-Price brand. That’s going into Walmart US, Mexico and a couple of other countries as well. Fisher-Price’s intent is to go into Target US, Amazon US, and then retailers across the globe. So that has gone from being a small business to a pretty decent-sized business very quickly. IR: So it’s Anko products with the Fisher-Price logo? IB: We started with that, but [now] we’re taking our product design and development capability as well as our manufacturing relationships, and we’re developing [products] specifically for Fisher-Price. IR: Do you foresee opening Anko retail stores in international markets again? IB: I would like to, but I doubt it would be in North America and Europe. I think it’s much more likely to be Asia. But we wouldn’t take a 5000sqm store. The real-estate costs in Asia would be way too expensive and way too big a bet, if you like. If you look at retail in those markets, we think something that’s more like 1000sqm is probably what we would look at. But that’s something we’re working on and hopefully in a little while we’ll be able to talk about it. IR: How is Wesfarmers supporting this endeavour? IB: Wesfarmers is very rational and will allocate capital where they think there can be a good return. I think the way that we’re expanding into new markets is very low risk, so if it doesn’t work out, we haven’t spent a lot of capital. And clearly, if it works, it has this incredible upside. So if you look at it from a risk-return, it’s a pretty attractive equation. IR: Lastly, I’d like to get your take on Australian brands expanding overseas, and whether this is an overlooked opportunity that more Australian retailers should be exploring. IB: I think you’ve got to be sure you’ve got something that’s valuable outside of your own market. If you think about Zimmermann, what a great brand. Beautiful products and clearly they resonate on a global scale, so why not? But I think what they have is something great. We believe we’ve got something pretty good, too, and that’s why we think we can go overseas. I think there’ll be some brands in Australia that have the potential, and others for which I suspect it would be a tough transition. My personal hope is to see more and more Australian brands having a global presence and, ultimately, the world recognising that Australia has a lot to offer. This story first appeared in the August 2024 issue of Inside Retail Australia magazine.