Wesfarmers has unveiled a mammoth restructuring of troubled department store Target which will see up to 167 of its stores either closed or converted to sister brand Kmart.
The downsizing will leave Target a shadow of its former self as the Perth-based conglomerate’s chief executive Robb Scott looks to find a place for the brand in Australia’s fast-changing retail landscape.
Under the plan, between 122–167 of about 285 Target stores across Australia will either close or be converted to Kmart by the end of 2021.
Kmart will be significantly expanded under the move, poised to gain as many as 92 new locations.
Target’s support office will also be scaled back significantly, raising the spectre of job losses at the struggling business, although Wesfarmers says it will try to redeploy staff.
In a statement circulated Friday morning, Scott suggested Target was not poised to deal with disruption in the retail sector and must be restructured into a viable business.
“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,” he said.
Wesfarmers will book $120–170 million in restructuring costs from the closures, inventory write-offs and further cuts to Target’s support office, while taking a $430–480 million non-cash impairment on Target’s brand and other assets.
The restructuring will see Target Country closed entirely, with 52 such stores expected to be converted to small Kmart locations and a further 50 to be shutdown.
Between 10–40 large format Target stores will become Kmart locations, subject to landlord support, while between 10–25 other stores will be shut down.
Target has long been Wesfarmers weakest retail brand and has struggled to generate consistent earnings growth over the last decade amid structural changes in the retail sector and the introduction of new competitors such as H&M, Zara and Uniqlo.
These changes have hit all legacy department store businesses, including Myer and David Jones, hard in recent years, with Target’s sister brand Kmart emerging as the only success story with its command over cheap products.
Wesfarmers has previously shaved parts of Target’s portfolio off to Kmart, but Friday’s announcement is the largest such shift the conglomerate has ever embarked on.