Guy Russo to pass the Kmart and Target baton on: Inside the retail trailblazer’s playbook

“Kmart is a ‘bottom of the food chain’ business”: Kmart boss Guy Russo tells it as it is

He’s credited with making Kmart the retail success story it is today, but come November, Guy Russo will no longer be leading the discount department store.

Russo has worked for Kmart parent company Wesfarmers for 10 years, first as managing director of Kmart before taking on the added responsibility of turning around Target since 2016.

In a statement last week, Wesfarmers said Russo will retire as chief executive of its department stores division at the end of October.

Ian Bailey, who is currently managing director of Kmart, will take on Russo’s role from November 1, and Marina Joanou, who is currently the chief financial officer of Wesfarmers’ department stores division, has been promoted to managing director of Target.

Russo will continue to be involved with the business, serving as an advisor to Wesfarmers and its department stores division until the end of the current financial year.

Kmart’s successful turnaround has been well-documented and Russo is lauded for his role in taking the “basically bankrupt” retail chain and transforming it into the profitable and popular retailer it is today. Just last week, Wesfarmers announced a 21.5% increase in profits — to $660 million — for its department store division in the 2018 financial year.

But Russo started his working life the same way many Australian teenagers do: flipping burgers at McDonald’s. From working in the McDonald’s outlet in Kingsford in Sydney in 1974, he eventually worked his way up to becoming managing director and chief executive of McDonald’s Australia, and later, president of McDonald’s in greater China.

In October 2008, Russo joined Wesfarmers and took control of Kmart, which had been slated for sale. What followed was a process of drastically reducing the number of products sold in Kmart stores, refreshing the look and feel of the stores, and moving to the ‘everyday low’ pricing model that has won Kmart legions of fans.

In March 2016, Russo was handed the task of also turning around Kmart’s sister brand Target, which has been floundering in recent years and continues to carry a large number of unprofitable stores.

Earlier this year, Russo outlined a bold plan for Target to take on the likes of H&M, Zara and Uniqlo, as well as a move to reduce the retailer’s physical store selling space by 20%. And there’s some evidence to suggest his efforts are paying off: while Kmart continues to grow its earnings at a faster rate than Target (8% growth in 2018, compared to a 4.7% decline at Target), the declines in same-store sales at Target has narrowed from 14.9% in the 2017 financial year to 5.1% in 2018.

So what are the ingredients in Russo’s recipe for retail success? And what can SmartCompany readers learn from his leadership at Kmart?

Here are seven key insights from the SmartCompany archives (and a video interview too).

1. Make your customers a priority

Speaking at a Retail Doctor Group event in March 2016, Russo said his strategy at Kmart was about getting back to basics, and this meant putting customers at the heart of what they were doing.

For retailers like Kmart, Russo was frank: shoppers “don’t need” what they’re selling.

“Love them. Because they don’t need to buy one thing in Chadstone,” he said.

“I know you all shop at shopping centres, but I’m telling you that you don’t need anything that we sell. So if someone walks in, smile at them and while we’re a self-service business, see if there’s a way we can help them”.

2. Retail is a volume game

At the same event, Russo revealed his number one tip for boosting profits in a retail business: buy in volume.

“It allows you to lower cost,” he said.

“And if you can lower cost, it allows you to drop prices. I’m happy for every retailer in this room who is my competitor to know that formula. It ain’t that complex. Buy volume.”

Speaking to SmartCompany in 2015, Russo explained this strategy meant moving away from offering regular promotions and one-off discounts.

“The marketing guys said, ‘We are doing 50% off that’, then a couple of weeks later, ‘We are going two for one’ … I said, ‘Why are we going percentage offs?’” he recalled.

“Let’s get rid of discounting and drop the prices. Why would we want a special for customers to come in one week? Wouldn’t you want them coming in every day?

“If you are going to drop your prices, you can’t have a lot of product.

“You only win a really low price strategy by buying something in volume. We used to sell 100,000 pairs of jeans. You’d say $15 a pair. If I said I wanted 10 million, then the price halves.”

The strategy is also about reducing complexity, he added.

“It wasn’t just about getting rid of non-profitable products. On the shop floor, we found there were eight different black shirts. Then we cut back to two. All of a sudden, the team didn’t have to go to eight different suppliers, eight different cities, eight different materials,” said Russo.  

“The simplicity of the strategy ended up helping all of us out. Variety in our case gave us more complexity and less product.”

3. It’s okay to not have all the answers

Speaking to SmartCompany in 2015, Russo admitted he “did a lot more shutting up at Kmart than I did at McDonald’s”.

“Everything was foreign to me. At least in the first six months, I was so nervous about so much new jargon”.

At the Retail Doctor Group event in 2016, Russo recalled how, in the first few days at Kmart, he was asked to sign off on a new line of women’s underwear. This involved having to touch the fabric and comment on whether it would be suitable for customers.

“In my first 100 days, I really thought, ‘what the hell have I got involved in’,” Russo said, commenting that he was not the right person to decide what Australian women should be wearing under their clothes.

But the decision had fallen to him because it was a longstanding protocol.

“I needed leaders with no egos who would say to the women’s team, ‘no, that is not my area’,” he said.

4. Listen to your staff, really listen

While it might be tempting to call in external consultants when something is not right in your business, Russo said in 2016 his preference was to hear from frontline staff instead.

“I had all the consultants I wanted,” he said.

“They were in the building, they were in the stores. When I asked what was wrong — with customers, suppliers — my team knew what was wrong.

“It was about giving space to allow them to come up and say what’s really wrong.”

5. Don’t try to be something you’re not

“I think sticking to the knitting is important,” said Russo in 2015.

“If you are going to go outside of that … be very, very careful of it.”

“Kmart is a ‘bottom of the food chain’ business. It really has, in my mind, at least for the next 10 or 20 years, no reason to be playing in the mid-level space.

“It would be like McDonald’s all of sudden starting to sell T-bone steaks with knives and forks.”

6. Rethink who your competitors are

When revealing his plan to shrink Target’s overall store footprint earlier this year, Russo also revealed which retailers he thinks are Target’s main competitors. And it’s not Kmart or Big W.

“H&M, Uniqlo and Zara is the thing we are going after,” he said at a Wesfarmers strategy day in June.

Russo said he was no longer talking to the Target team about Kmart and Big W as the main source of competition and was instead focused on the international giants of fast fashion.

This means offering a competitive fashion offering, as well as improving product differentiation and making further use of online channels.

Russo said work was already underway on the fashion front, with new designers on board.

“We’re already dropping items similar to those three brands at around half their price,” he said.

7. If you’re going online, know why

Not all retailers need to sell online, said Russo back in 2015, when it was clear there was one company already dominating the online arena: “Amazon owns online,” he said.

“I’d say to any retailer that’s got bricks and mortar, if you’re really doing online, just make sure you focus on whether it’s giving you the right return to your shareholders. I think there are lots of companies that shouldn’t even bother.

“Everyone says it’s the future, does that mean you need to do it?”

Watch the video below to learn more from Guy Russo:

NOW READ: How to succeed in retail: Four tips from Boost Juice chairman Jeff Allis

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