Target stores facing a smaller future

Struggling retailer Target will live on but its worst performing stores are set to be rebirthed – as Kmart stores.

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The company behind the discount chain, Wesfarmers, has rejected pressure to replace Target with its more successful department store business, Kmart.

Instead, it plans to have fewer but stronger Target stores and more Kmart outlets, Wesfarmers chief executive Richard Goyder says.

“We will continue to operate both businesses in the market,” he said.

“We have a strong pipeline of new stores going to open for Kmart in coming years and we are not planning on opening as many new Target stores.

“There will be some Target stores converted into Kmart, and probably some Kmarts converted into Target, but I would expect over the next five years that the representation will be greater Kmart stores than Target.”

Target currently has more than 300 stores in Australia, while Kmart has more than 200 stores in Australia and New Zealand.

Two loss-making Target stores have already been converted into Kmarts.

Wesfarmers created a single department stores division to oversee both Target and Kmart in February, headed by former Kmart boss Guy Russo, fuellimg speculation the two retailers would be merged.

Mr Goyder said there would always been an overlap in what Target and Kmart offered, and hinted at possible category changes for Target.

Sales figures for the three months to March show Kmart continued to outperform Target, with its like-for-like sales rising 15 per cent to $1.1 billion.

Target suffered a fall of 0.8 per cent in like-for-like sales to $678 million, with womenswear, underwear and homewares the worst performing items.

There’s no immediate signs of improvement, with Target expected to suffer from higher clearance activity in the final quarter of 2015/16 due to a backlog of summer stock, and the added risk of excess winter stock due to unseasonably warm weather.

The embattled retailer’s head office, tainted by an accounting scandal where supplier rebates were used to artificially boost its half year results, is also set to be relocated from Geelong to Melbourne, and Mr Goyder confirmed there will be a number of job losses.

More details on Target’s turnaround plan will be revealed by Wesfarmers in a strategy day on June 22.