Target has announced a range of big changes in Australia. Photo / File
Target has announced a range of big changes in Australia. Photo / File
Once upon a time, Target was one of Australia's favourite discount department stores and Kmart its poor cousin – but today, those roles have drastically reversed.
Kmart has had a stunning change of fortune and emerged as one of our leading retail brands but Target has been limping along foryears.
And today, the retail icon received yet another body blow after parent company Wesfarmers, which owns both brands, revealed up to 75 Target stores will be closed and up to 92 converted into Kmart outlets within 12 months.
The restructure means about half of Target's 284-odd Australian stores could disappear by 2021.
Where did it all go wrong for the once-booming chain?
According to Queensland University of Technology retail expert Dr Gary Mortimer, it comes down to one fatal mistake – the "cannibalisation" of Target by Kmart as both brands fought for market share.
"I don't think there is too much shock in this announcement as most analysts identified several years ago many of the shortcomings associated with the Target brand," Mortimer said.
"There is far too much crossover between the Target and Kmart brand, which caused a lot of confusion in their market position.
"At one point, Target was selling MAC cosmetics and Stella McCartney launches while also selling cheap T-shirts and $7 kettles – that simply confused their core customers and we saw strong cannibalisation of Target sales, which went directly back to Kmart."
Mortimer said Kmart had been saved by Guy Russo, who previously served as the chief executive of Wesfarmers' department stores division and has been credited with transforming the once-ailing chain.
The retail expert said he had long claimed the success of Kmart had "literally come at the expense of Target".
"Ultimately, it doesn't make great business sense for a conglomerate like Wesfarmers to run two discount department store businesses – it simply duplicates the costs to service the same market," Mortimer said.
'RISKY VENTURE'
As Target desperately tried to turn things around, it came up with several plans.
Last year, Wesfarmers announced as part of a review into Target that it would possibly reposition the brand into the middle market and away from its low price offer.
But Mortimer said that was a "risky venture" considering how crowded the middle market already was.
"It was already struggling, and the likes of Myer would be a direct competitor if they repositioned the Target brand," he explained.
"It would also then come into international competition with global fast fashion retailers like H&M and Uniqlo."
'NO LONGER VIABLE'
Australia's retail sector has been devastated recently because of economic uncertainty, floods and bushfires and now the Covid-19 pandemic but Mortimer said Target's decision to pull stores was not a reflection of our wider retail woes.
"Target offers great value when it comes to mainstream fashion and home furnishings – however Kmart and others have just done it better and cheaper," he said.
"And if we go back before Guy Russo's leadership of Kmart, Target was the much stronger business."
He said the only way Target could have avoided its bleak fate was if it had managed to dominate the "middle market sector" a decade ago.
"Then it could have taken the fight to Myer, but at this stage unfortunately, that middle market is just no longer viable, particularly when it comes to clothing, footwear and accessories," Mortimer said.
"Target is highly exposed to discretionary spending, and ultimately when families are looking for cheap and cheerful, they are clearly voting with their feet, walking past Target and wandering into Kmart."
THE CULT OF KMART
Meanwhile, Kmart has managed to cultivate a "cool factor" with a revolving door of on-trend home decor and other hot sellout items that have led to scores of social media groups dedicated to shoppers' love of the brand springing up in recent years.
On top of that, Mortimer said Australians had increasingly turned towards value for money across many retail categories, which Kmart capitalised on.
"Australian shoppers have now realised that shopping with a discounter – whether that's a general merchandise discounter like Kmart or food like Aldi – is not about being cheap, but is simply being savvy," he said.
"Target's fashion range and homewares is also on-trend but unfortunately, there's far too much similarity with Kmart and if people want to save a few bucks, they will shop there."
'PROFOUND EFFECT'
Wesfarmers has indicated it will preserve as many jobs as possible, but Mortimer said shopping centres and landlords would be most concerned by today's news.
"With 50 Target Country stores closing, landlords will be looking to determine how they are going to fill that space," he said.
Mortimer predicted Target stores would close in many shopping centres that already also have a Kmart store, but that "hopefully Wesfarmers may consider replacing it with another Wesfarmers brand such as Officeworks or Bunnings".
THE END OF TARGET?
Meanwhile, IBISWorld has questioned if today's news could spell the end of Target, claiming it had "underperformed Kmart over the past five years" with sales "declining significantly" after a brief coronavirus-led boost in February and March.
It revealed Wesfarmers held an estimated market share of 45 per cent in the department stores industry, and that "declining discretionary incomes and fluctuating consumer sentiment" had pushed shoppers towards discount stores, although there was an overall decline in revenue within the industry.
IBISWorld senior industry analyst Daisy Feller said Wesfarmers has increasingly focused on Kmart at the expense of Target in recent years.
"Consumer demand is becoming increasingly polarised, with shoppers seeking either ultra-low cost or high-quality, ethically made goods," Feller said.
