Wesfarmers to close or convert up to 167 Target stores in major restructure

[Retail Fan+ (Justin Hill)]

Wesfarmers to close or convert up to 167 Target stores in major restructure
By Dominic Powell, The Sydney Morning Herald
May 22, 2020 â€" 8.40am

Retailing conglomerate Wesfarmers will shut up to 75 Target stores and convert another 92 to Kmart stores in a massive restructure of the struggling discount department chain.

Wesfarmers said the move, announced to investors on Friday morning, was necessary to reduce Target's unsustainable cost base and would shift the company's focus to the more-profitable Kmart.


(Wesfarmers will close or convert up to 167 Target stores. Credit:Justin McManus)

For years, Target has consistently underperformed in Wesfarmers' portfolio, posting diminishing sales figures and weak profits as the brand has struggled to differentiate itself from stablemate Kmart. In late April, Wesfarmers announced it had accelerated a review of the chain, prompted by a sharp plunge in sales due to the coronavirus pandemic.

Between 10 and 40 large-format Target stores will be converted to Kmarts, subject to landlord support. An additional 52 Target Country stores, which are primarily located in regional areas, will also be converted to small-format Kmart stores.

The remaining 50 Target Country locations will be shut, and a further 10 to 25 large-format Target stores will also close. Between 122 and 167 locations, or about half of Target's 284-strong store network, will either be converted or shut.

Wesfarmers will also undertake a "significant reduction" in Target's store support office.

These actions will be undertaken over the next 12 months and will cost the company between $120 and $170 million. Wesfarmers will also record a $430 to $480 million impairment of the Kmart Group, reflecting a write-down in the value of the Target brand and other assets, such as property, equipment and lease values.

A further $120 to $140 million in one-off store conversion and stock clearance costs will also be recognised.

Wesfarmers chief Rob Scott said efforts would now be focused on increasing both Target's and Kmart's digital offerings, a move accelerated by the continuing structural change and disruption in Australia's retail sector.


(Between 10 and 40 large format Target stores will be converted to Kmarts, subject to landlord support. An additional 52 Target Country stores, which are primarily located in regional areas, will also be converted to small-format Kmart stores. Credit:The Sydney Morning Herald)

"The actions announced reflect our continued focus on investing in Kmart, a business with a compelling customer offer and strong competitive advantages, while also improving the viability of Target by addressing some of its structural challenges by simplifying the business model," Mr Scott said.

"While accounting standards require us to recognise an impairment of assets within Target to implement the restructuring, these actions will allow us to enhance the overall value of Kmart Group and further strengthen Kmart."

Affected Target staff will be offered jobs at Kmart or provided other employment opportunities across the Wesfarmers portfolio, which includes Bunnings and Officeworks. Any team members unable to be redeployed will have access to support services and provided with entitlements, such as redundancy payouts.

Options for the 100-odd remaining Target stores will be assessed and an update provided to investors at Wesfarmers' full-year results in August, with the company saying it is looking at further store closures and a change to Target's operating model.

[retailisking]

Interestingly, Target and Kmart have the direct opposite brand images Down Under, with Kmart occupying the "cheap chic" niche enjoyed by Tarzhay here.

[Retail Fan+ (Justin Hill)]

Interestingly, Target and Kmart have the direct opposite brand images Down Under, with Kmart occupying the "cheap chic" niche enjoyed by Tarzhay here.

Kmart wasn't always like that in the land Down Under. I think the chain skewed into to that tangent sometime in the 2000s. Since Kmart Australia was competing with another equally-upscale chain owned by the same company, it was as if they were competing against themselves...