How Kmart is killing off Target
TARGET is at a crossroads - and its fate will be decided by one simple but essential question.
Speaking at parent company Wesfarmers' strategy meeting yesterday, department stores chief executive Guy Russo said the number of stores within the chain would be reduced by 20 per cent within the next five years - meaning dozens of Target stores will soon close down for good.
Wesfarmers bosses now face a critical dilemma: either abandon the brand entirely and convert existing stores into Kmarts, or rebrand.
It seems the powers that be have opted for the latter, with Mr Russo confirming Target hoped to revitalise the ailing discount department store by setting it's sights on the fast fashion market and taking on huge international brands.
"H&M, Uniqlo and Zara is the thing we are going after," he said.
But according to consultant Brian Walker, from Retail Doctor Group, that will depend on Target's ability to capture the cool factor of those global heavyweights.
"The challenge will be, can they make Target cool enough as a brand? I think they can," Mr Walker told news.com.au.
"Target is an established brand. Apparel and kids is a $90 billion sector and global entrants over the last few years have taken 10 to 15 per cent of that, so it is crowded.
"But Target does have a footprint, they have played in fashion retailing for quite a few years - when you think of Stella McCartney and other range launches, you can see they've dabbled."
Mr Walker said to pull it off, Target needed to broaden its appeal to shoppers outside its core - which has always been value-conscious consumers with young families.
It will also need to cash in on social media - something Kmart has nailed in the past few years.
He also predicted Target would branch out into wholesaling instead of relying solely on retail in future.
Meanwhile, Queensland University of Technology retail expert Dr Gary Mortimer agreed that Target would need to make some big changes if it was to compete with the fast fashion giants.
"They will have to have a higher fashion turnover, with new ranges in stores every six to eight weeks, with a $29 to $49 price point, which is a reasonably good offer as it is more expensive than Kmart but much less than David Jones," he said.
"Fashion is a tough market if you don't get your offer right, but it could work for them."
But he said it probably made more sense for Wesfarmers to cut its losses and abandon Target altogether.
"It doesn't make a great deal of sense for a conglomerate like Wesfarmers to run two different discount department store divisions," he said.
"Wesfarmers originally ran Coles and Bi-Lo but they eventually gave up [Bi-Lo] because it didn't make sense to bring the same offering to the market across two brand divisions, as you end up duplicating many operational costs.
"In my view, I think the brand should simply rebadge as Kmart."
Dr Mortimer said if Wesfarmers decided to maintain the Target brand, it would have to work harder to differentiate itself from Kmart - but that the chain did have the opportunity to lure increasingly dissatisfied Myer customers, who may look to Target as an alternative in future.
Both agreed Target's downfall had been largely caused by the similarities between Kmart and Target and a failure to clearly differentiate the two.
But it wasn't just Target that stole headlines following yesterday's Wesfarmers meeting, with Coles boss John Durkan also announcing the grocery chain wanted 40 per cent of all products sold in stores to belong to the brand's own label by 2023.
Dr Mortimer said while that percentage seemed shocking, it would bring Australia in line with Europe, where private labels were far more common.
He said Aldi had helped reduce the stigma attached to home brand labels, and that the move might actually help shoppers.
"Supermarket grocery shopping tends to be quite habitual and we buy the same products all the time - and having more range actually creates confusion and makes things a bit more difficult, so supermarkets slowly removing ranges means the choice is easier," he said.
"Kelloggs, Cadbury, Palmolive, Nestle - those brands will never disappear from shelves, but some nice-to-have, fringe, smaller brands will slowly disappear as they move towards a more curated range."
Mr Walker said Coles' decision was "about driving gross profit" and that the announcement might get mixed reactions from consumers.
"If large families with limited budgets who are at the heartland of the home brand strategy see savings and good quality substitutes, I think they'd welcome it - but other segments less so," he said.
"The other question is around what it will mean for the range of products and choices available to consumers … location, price, convenience and range are the four main drivers of supermarket shopping."