Target stores could disappear from Australia within five years after the chain’s owners sounded the alarm on its worsening performance.
The business’ sales fell 3.6 per cent between January and May 2019, compared with the same period in 2018, Wesfarmers reported to investors on Thursday morning.
Target also saw a 2.3 per cent fall in comparable sales, which looks only at sales made by stores that existed in the current January to May period and the same period in 2018 to factor out the effect that store closures and openings has on overall sales data.
Wesfarmers’ said the poor figures highlighted “that Target’s current offer requires ongoing repositioning”.
Meanwhile, fellow discount department store Kmart – also owned by Wesfarmers – eked out a modest 1.8 per cent lift in sales during the same period, though comparable sales were only 0.2 per cent.
Speaking to The New Daily, QUT Business School associate professor Gary Mortimer said the latest figures suggest Target is on track to post another full-year loss, which it has done for the “last several years”.
Last year Wesfarmers flagged plans to close 20 per cent of its existing Target stores by 2023.
Dr Mortimer said the business appears to be “turning around” off the back of Wesfarmers’ investment into products, prices and stores upgrades, but Target is still dragging down the company’s overall department store division.
“I’ve written before that I don’t think we’ll see a Target in five years’ time, but we’ll certainly see a much stronger Kmart, albeit without the same level of growth,” he said.
“It would appear that that’s [Kmart] turning around, which I would say is because Wesfarmers has invested in products, price and store refurbishment, but it [Target] is still pulling the overall department store division down as result,” he said.
Tough decisions for Wesfarmers
Tom Miller, senior industry analyst at IBISWorld, said Target’s falling sales growth and repeated losses have placed Wesfarmers in a “difficult situation”, particularly against the backdrop of increasing competition and softening consumer spending.
But while Mr Miller said the company may look to close more Target stores, it would be unlikely the brand will vanish entirely.
“Target has been an iconic Australian brand and it is unlikely it will be closed down entirely. However, the form the chain takes may change significantly over the next five years, including a focus on smaller-format stores and more online sales,” he said.
Mr Miller said Wesfarmers is expected instead to sharpen its focus on Target’s core markets, optimising its product offering to meet that market, and building its online capacity, as well as consolidating the number of stores.
Quite the Catch
The disappointing Target news comes only a day after Wesfarmers acquired Australian-based online retailer Catch Group for $230 million – a purchase that could yet prove to be Target’s saviour, QUT’s Dr Mortimer said.
“That was a smart move,” he said.
“Catch Group comes with 1.4 million active online shoppers. What you’re doing when you buy something like that is fundamentally buying those shoppers.”
David Kindl, chair of business consultancy Retail Doctor Group, said online sales are “the direction the market is going” and the purchase will be a positive for both Kmart and Target.
“Wesfarmers is a great retailer with great retail assets, and Catch Group is an amazing Australian success story that’s working on those digital strategies and the logistics behind fulfilling orders, and now Wesfarmers can add those skills to their stable of businesses,” he said.
Coupled with the right strategy going forward, Mr Kindl said this could help elevate Target to perform on a similar level to Kmart, but noted competition in the department store sector remains fierce.
“They’re all fighting for the same dollar – we’re not seeing retail sales in Australia grow at a great rate, so whatever dollar a customer has to spend, these businesses want a slice of it,” he said.
Mr Kindl said it wouldn’t be unreasonable for the Target brand to be rolled into Kmart, but added Wesfarmers still has other options that may prove more beneficial for shareholders.
“There’s been plenty of history in the Australian market of one brand taking over another, and that brand has a stronger appeal, why wouldn’t you consolidate the business? And it will mean Kmart will operate in additional stores,” he said.