Target Business Model Reset Complete, Says Wesfarmers

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Target is now a “smaller, simpler company with a significantly reduced fixed cost base,” according to Wesfarmers, who hosted a strategic briefing this morning.

At the start of the year, there were 258 Target stores nationwide. Today that number has fallen to 142, with many smaller format stores closed or renamed Kmarts.

Target ditched small format stores altogether, with a single large format setup and a significant reduction in cost base. The supply chain has also been streamlined from three distribution centers to two.

A reduced floor space comes with a reduced rent. Target’s lease liability fell from $ 1.1 billion in June 2020 to $ 800 million in April 2021. One-time pre-tax non-operating costs related to all Target store closures and conversions were also cheaper than from a previously estimated cost of $ 90 million to $ 110 million to a planned amount of $ 60 to 70 million.

Support office costs were also reduced by 30% as a result of the restructuring.

Target’s business model reset is complete, according to Wesfarmers.

“[The] the short-term priority is to stabilize and achieve constant and sustainable profitability ”, explains the group, while future growth will be“ supported by the acceleration of digital capacities and the investment in data and digital capacities for improve the customer experience and offer personalized experiences ”.

Kmart Group has also seen the acceleration of Catch, its online shopping center.

The mainstream online retailer now has more than three million active customers in Australia, with more than two million individual products available in more than 1,900 marketplaces. Catch has opened a 62,000m² automated distribution center in Melbourne to meet demand, although sales are expected to slow through 2021 as the world normalizes.

Catch also plans to build a 30,000 square meter automated distribution center in New South Wales, which will open in 2022.

Unsurprisingly, for one online retailer, the pandemic has been good for Catch, with a gross transaction value of $ 1 billion throughout 2020. These figures from GTV have been negative in recent months, as business is back to normal.

Its Click and Collect feature is available at over 400 Kmart, K ​​Hub and Target stores, strengthening the bond between these online-only retailers and physical stores – while its Amazon Prime-style membership club, Club Catch, offers free shipping and discounts for members only.

From an environmental standpoint, Kmart Group is committed to using 100% renewable energy by fiscal year 25 in all of its activities. Target is on track to use 100% sustainably sourced cotton for its branded clothing, bedding and towels by July 2021.

Kmart Group will also ban single-use shopping bags by July 2021, as well as removing 10 priority private label products from shelves – a move it says will remove more
500m of disposable plastic articles per year from the environment.

“Kmart Group remains well positioned to generate sustainable long-term growth,” according to Wesfarmers. He plans to do so by leveraging scale and product development capabilities, completing the store conversion program, and implementing digital initiatives.

Although the Wesfarmers Group has not released any financial information, Citigroup says the market expected Kmart Group sales to increase by 8%.


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