Under the drastic plan, up to 75 Target stores will be closed down while 92 will be converted into Kmart outlets, meaning around half of Target’s 284-odd Australian stores could be affected.
The shock announcement regarding the struggling discount department store chain was made by Wesfarmers – which owns both Target and Kmart – in a note to investors on Friday morning.
It also revealed $780 million of writedowns on its Kmart Group and industrial and safety branch, and a number of plans designed to “accelerate the growth of Kmart” and “address the unsustainable financial performance of Target”.
They include converting “suitable” Target and Target Country stores to Kmart stores, the closure of between 10 to 25 large format Target stores, the closure of the remaining 50 small format Target Country stores, and a “significant restructuring of the Target store support office”.
Wesfarmers managing director Rob Scott said the changes would “enhance the overall position of the Kmart Group, while also improving the commercial viability of Target”.
“For some time now, the retail sector has seen significant structural change and disruption, and we expect this trend to continue. With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption,” Mr Scott said.
“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.
“The reduction in the Target store network will be complemented by increased investment in our digital capabilities, following the continued strong growth in online sales across the Kmart Group and the pleasing progress in Catch since its acquisition in August 2019. The expansion of our digital offer will provide customers with access to the Kmart and Target products they love, together with over two million products from the Catch marketplace, via home delivery or click and collect.”
A Target spokeswoman told news.com.au in a statement said the decision had been a difficult one.
“During this difficult time, we are committed to supporting our team. Across the Kmart Group we have made a significant effort to avoid store closures and retain our people and for impacted store team members we have the benefit of time to help find alternative employment opportunities,” the spokeswoman said.
“All team members in Target stores scheduled for conversion to Kmart will be offered the opportunity to join the growing Kmart team, for other affected Target team members, we will work with them to identify and offer other redeployment opportunities in Kmart, Catch, Bunnings and Officeworks as these businesses continue to grow.
“We believe that Target has a future as a leading retailer in Australia and we know it is loved by so many, but a number of actions are required to ensure it is fit for purpose in a competitive, challenging and dynamic market, including a smaller number of stores and a stronger online business.”
The investor note also revealed Wesfarmers expected restructuring costs and provisions in Kmart Group of approximately $120 to $170 million before tax, non-cash impairment in between $430 to $480 million before tax, non-cash impairment in the Industrial and Safety division of approximately $300 million before tax.
Kmart Group is also expected to incur one-off non-operating costs of approximately $120 to $140 million relating to the conversion of stores and stock clearance activity prior to closure or conversion.
The Target restructure is expected to take place over the next 12 months, although most activity is expected to occur next year.
The company also confirmed that while the decision would significantly impact staff, all team members in Target stores scheduled for conversion to Kmart would receive an offer of employment from Kmart, while those from closing stores would be “given consideration for new roles”.
Kmart Group managing director Ian Bailey said the company had made a “significant effort to avoid store closures, retain our valued team members, keep serving our customers and supporting our suppliers”.
“Unfortunately, the disruptive and competitive nature of the retail sector requires us to make some difficult decisions to ensure we have a viable Target business into the future, while continuing the strong growth of Kmart and Catch,” Mr Bailey said.
“We continue to believe that Target has a future as a leading retail brand in Australia and is much loved by many customers, but a number of actions and changes are required to ensure it is fit for purpose in a competitive, challenging and dynamic market, including a smaller number of stores and a stronger online business.”