A rocket for retailers

Yesterday’s dip in retail sales is yet another bit of bad news for a beleaguered sector.

Poor old Russell Zimmerman, head of the Australian Retailers Association, seems to be getting bleaker and bleaker in his public statements. Yesterday his release on the latest sales data announced sadly that the retail outlook had “slowed to zero”.

As the Australian Bureau of Statistics was publishing its latest data, executives from conglomerate Wesfarmers – owners of Bunnings, Officeworks, Coles, Kmart and Target – were holding a marathon strategy day, taking analysts through the broad scope of their business.

The presentation is well worth having a look at (although you might like to skip through some of the 297 pages), as it sets out exactly how Wesfarmers is trying to engineer improved performance throughout its businesses.

But perhaps the most interesting presentation is from Dene Rogers, the new managing director of the Target discount department store chain.

Rogers, who took over from Billabong’s new chief Launa Inman, who left Target last September, yesterday unveiled a plan to turn around the business, which saw earnings before interest and tax dive 26% to $280 million last year.

Central to the plan is what Rogers is calling a re-engineering of Target’s supply chain, with an aim of stripping out $30 million to $40 million in costs in the 2012 financial year.

The planks of the re-engineering are familiar. Rogers plans to cut out middlemen by doubling the proportion of direct sourcing Target does, rationalise the number of factories Target is supplied from, and create a network of distribution centres throughout the Asian region to  cut the amount of time it takes for fashion to get to Target’s shopfloor.

According to reports, it can take six to seven months to get products into a Target store, compared with three or four weeks at a chain like Zara.

Target will also improve and expand its online offering and increase the way it targets customers through social media.

It all sounds like exactly the sorts of thing that investors want to hear about Target’s transition to an “omni-channel” retailer.

But, for me, there’s one problem – it’s at least five years too late.

While Rogers has only taken the top job at Target, it beggars belief that these sort of strategies weren’t put in place years ago.

Zara might have only arrived in Australia in the last 12 months, but the idea of fast fashion – cutting the time between clothes moving from the catwalks to the shelves – has been a dominant theme of retail in Europe for years.

Why wasn’t Target trying to get its lead times down below six months long before now?

Similarly, the idea of direct sourcing isn’t exactly new. Over at Kmart – a business that is also owned by Wesfarmers, remember – the chief executive Guy Russo has boosted the number of staff involved in direct sourcing overseas from 30 to 300 in the last year.

Why on earth wasn’t someone from Target talking to someone at Kmart? Couldn’t they have worked together?

The online push is exactly what we’ve heard from Myer and Harvey Norman and David Jones and every other retailer that missed the boat and is now scrambling to catch up.

Expanding your online range, using social media, taking great photos – it’s all great stuff, but it should have been done in 2005 or earlier.

I have sympathy for Australia’s retail sector, which has been dealt blow after blow.

But the ways things like online retailing, direct sourcing and supply chain re-engineering are rolled out as new strategies only serves to underline how far behind the big guys are.


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