Target to close 167 stores

22/05/2020

Wesfarmers announced this morning that 75 of its Target stores are set to close down completely, while another 92 stores are to be converted into Kmarts over the next 12 months. This will see around half of Target’s 284 store affected, according to a news.com.au report.

It also revealed $780 million of write-downs 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”, according to the news.com.au report.

 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 in the report, 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,” he said.

A Target spokeswoman also news.com.au in a statement that the decision

to transform the Target store network, and particularly the very difficult decision to close stores, is not one that is made lightly.

“Our number one priority is talking to and supporting our teams. The majority of these changes will occur next year, and we are committed to looking for redeployment opportunities for affected team members in Kmart, Catch and other Wesfarmers businesses, including guaranteeing job offers to all Target team members in converted stores.

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, according to the news.com.au report.

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 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 in the news.com.au report that 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,” he said.