major department stores under pressure in 2019

It is the definitive example of a retail turnaround. The ugly duckling of Australian shopping that became the golden goose, adored by customers for its natty Nordic homewares and cheap jocks, and by shareholders for its ever-fattening profit margins.

But is Kmart losing its lustre?

Last year, the discounter booked profits of $470 million on sales growth of 5.4 per cent. However, in a trading update earlier this week, Kmart’s owner Wesfarmers said sales had slipped by 0.6 per cent. Hardly huge, but a worrying wobble nonetheless.

A retail analyst has said: “Kmart’s streak of like-for-like sales growth outperformance in discount department stores has likely come to an end.”

Even Kmart’s own boss has admitted to in store hiccups last year, including a women’s wear range that failed to inspire and taking the pedal off price cuts.

Rob Scott, managing director of Wesfarmers, which owns both Kmart and Target, said there was “more work to do” on the brand.

“Kmart is in a period of transition and the team are working through improving productivity and efficiency to support its next phase of growth,” he said.

It’s not the only department store under pressure as Australians throttle back on spending.

On Thursday, corporate restructuring specialist James Stewart from turnaround firm Ferrier Hodgson said foot traffic at shopping centres had plummeted in the run-up to Christmas. He told The Australianthe retail market was the “worst in 20 years” with the number of shoppers down 15 per cent year-on-year in the week before Christmas.

Already this year menswear chain Ed Harry has entered administration while Kathmandu has revealed it had a dire Christmas period.

Retail spending in Australia rose by a paltry 0.2 per cent in November from the month before.

The Westpac-Melbourne Institute consumer sentiment index rose by just 0.1 per cent in December. The authors seemed surprised that it had gone up by that much noting: “With falling house prices in Sydney and Melbourne, falling share markets, ongoing concerns around global trade wars and political uncertainty, it is reasonable to question why consumer sentiment has held up so well.”

There are tentative signs Big W and Target could be getting back into their stride. But don’t be surprised if in 2019 some well-known department stores on the Australian main street struggle.


Wesfarmers’ revelation that sales at Kmart has dropped by 0.6 per cent in the 2019 first half came as a shock.

With Wesfarmers’ sale of Coles last November, the success of Kmart is even more critical to the ongoing health of its parent’s bottom line.

The sales slowdown comes at a concerning time for Kmart. CEO Guy Russo, who was widely credited with turning around the chain by stripping out brands and cutting prices, retired in November.

One theory is Woolworths’ Big W has got a whole lot sharper in pricing and range with full year sales up 0.7 per cent.

Citi retail analyst Craig Woolford said in a note analysing Christmas trading that Kmart could begin to stutter: “After four strong years of outperformance, Kmart sales productivity appears to be stabilising at a high level.

“Kmart’s streak of like-for-like sales growth outperformance in discount department stores has likely come to an end, with Big W and potentially Target outperforming it in the second quarter of 2019.”

Wesfarmers’s Mr Scott said fewer price cuts and its ranging were behind what he described as a “slowing in momentum” at Kmart.

“In the prior corresponding period, Kmart lowered prices significantly and achieved very strong volume growth. In total last year we sold over one billion units across the entire Kmart range. That placed a lot of pressure on stores and the supply chain.

“This year the Kmart team continued to drop prices but not to the same extent. They tried to get the balance right but didn’t get the same volume growth.”

Mr Scott said in the crucial womenswear category, Kmart needed “to make sure that we have products that are resonating strongly with customers.” But the homeware category — all those Nordic nik-naks — was doing well.

“We have more work to do to improve our efficiencies and the flow of stock, to manage the sheer volume of product we are selling. When we get our offer right, we generate good sales,” he said.

Mr Scott declined to comment on a controversial decision that has ruffled some customers’ feathers — the moving of the check-outs from the front to a bank in the middle of the store.

He’ll be hoping something as seemingly simple as that doesn’t send people elsewhere.


For some time, Wesfarmers’ other department store chain Target has been the firm’s sickly child.

Its traditional market has been under siege from Kmart’s low prices and H&M and Zara snaffling away style-conscious customers.

Last year, Target booked a $306 million “impairment charge” as sales sank. Speculation was rife its store network would be slashed or merged into Kmart and the Target name consigned to history.

But something has changed. Wesfarmers said this week comparable sales at Target increased by 0.5 per cent. It’s a modest rise but it’s given the brand a lifeline.

Mr Scott was upbeat: “There has been an improvement in Target, off a low base, but we are pleased with the ongoing improvement we are seeing.”

Many an analyst has questioned the logic of Wesfarmers owning brands that are effectively in competition with one another. Mr Scott doesn’t see it that way.

“We see both Kmart and Target as having distinct offers to customers — Kmart will always focus on maintaining price leadership, delivering better products at even lower prices, and Target is focused on delivering amazing fashion and quality.

“We believe there’s a lot of market share we can access without fighting against each other. Some of our best performance Kmart stores are along strong performing Target stores in the same centre.”

Still, if Target can’t sustain its growth, questions on its future will remain.


It’s been six months since John King took up residence in Myer’s Melbourne HQ. He has a huge task ahead of him with Myer reporting a whopping loss of $476 million just before he signed on the dotted line. Last year sales declined 3.2 per cent.

“Myer is always in sales decline. It has been for the last 10 years as overseas retailers like Uniqlo, Sephora and Amazon take away from the heartland of department stores,” Retail consultant Brian Walker, of the Retail Doctor group, told

Stuck between David Jones and discounters, Myer had struggled to provide a clear reason for people to head in store, he said.

“The only real path is for Myer to downsize, grow online, sell exclusive brands and keep building loyalty,” he said.

That’s exactly what it was doing, said Myer which pointed to comments Mr King made at the company’s annual general meeting in November where he said the customer was now the chain’s “absolute focus”.

However Mr Walker said there was a bigger problem — long running and expensive leases on less than spectacular stores that were difficult to wriggle out of.

Mr King said Myer was meeting with landlords and was looking at “right sizing”, read downsizing, some of its stores.

“It’s a floor here and floor there. Typically with three floors we fill it with stock but we can get the same level of space out of two (floors).”

He didn’t rule out store closures but insisted 60 out of 62 stores were profitable and they had a plan for each branch: “What we do is Townsville is different to what we do in Chadstone”.

David Jones was in a better position, Mr Walker said. The company had a clearer demographic and was experimenting with smaller format stores that cost less.

But crucially DJ’s was turning its stores into destinations in themselves. Its flagship Sydney CBD store now boasts a “shoe heaven” floor that will soon include a Champagne bar overlooking the Manolo Blahniks.

“Physical retail will change in terms of less shops but much more experience and interaction around them and that what retailers are toying with,” he said.

But even DJs has found Christmas a struggle, revealing on Thursday that sales growth had slowed during the festive period.

“Can Australia support both Myer and David Jones? The answer is no and we don’t rule out an acquisition of Myer.”

Source link Finance News Australia

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