Goyder denies Target is 'broken' after earnings slump
Oh, how times have changed. On Thursday, Target chief Stuart Machin - at the time of his appointment the third boss of the struggling retailer in 15 months - agreed with one analyst who described the business model as "broken", with a return to sales and pre-tax earnings momentum as much as three years away.
The recent full-year results for Target, which has launched a new marketing blitz using British fashionista Gok Wan, showed just how much pain the business is in, as fiscal 2013 earnings slumped 44.3 per cent to $136 million and sales went backwards by 2.1 per cent to $3.66 billion.
It was the only retail division within Wesfarmers to post negative earnings growth, with stablemate Kmart almost facing overheating cash registers as its pre-tax earnings jumped 28.4 per cent.
Mr Goyder on Thursday said his upbeat description of Target in 2007 was correct, with its headquarters in Geelong protecting it from the poor culture at Coles HQ in Melbourne. But the caravan had moved on.
"Now Target has got to change because the business it's in, which is on-trend fashion at affordable prices, that game has moved a fair bit in the last couple of years," Mr Goyder said. "If you think about Zara, Topshop, GAP and [the] online area, a lot is going on ... and the Target team will pull Target into making sure we are very competitive in that space and we are on-trend in fashion, and there is a bit of work to do."
He did not believe the business was "broken", with eight senior executive appointments to help revive the company's fortunes.
However, inventory problems that plagued Target earlier this year would spill into the new season, further exacerbating the retailer's dependency on clearance sales and pinching margins.
"We ... have too much winter inventory, we will have to clear that through - because of that we will get a delayed start into spring and summer and that will impact the first half of the year," he said. "But I'm already seeing signs in the business that ... quality things are happening and we will start seeing that later this year and in the following year, but it will take some time."
Frequently Asked Questions about this Article…
Target’s fiscal 2013 earnings slump was driven by weaker sales, inventory issues and heavy reliance on clearance activity that hurt margins. The retailer reported a 44.3% fall in earnings and said excess winter stock and other inventory problems forced more discounting, which weighed on profitability and sales momentum.
In fiscal 2013 Target’s pre-tax earnings slumped 44.3% to $136 million, while sales fell 2.1% to $3.66 billion, making it the only Wesfarmers retail division to post negative earnings growth that year.
Target chief Stuart Machin acknowledged an analyst’s comment that the business model was ‘broken’ and agreed the business needs significant change. However, Wesfarmers boss Richard Goyder disagreed that the business is broken, saying Target can be revived and has structural strengths such as its Geelong headquarters.
Management warned that a return to sales and pre-tax earnings momentum could be as much as three years away, noting there is work to do and improvements may take time to flow through the business.
Kmart, a fellow Wesfarmers retail division, performed strongly over the same period — its pre-tax earnings jumped 28.4% — highlighting the contrast with Target’s negative earnings growth.
Target said it had too much winter inventory, which would need to be cleared through discounting. That clearance activity will delay the start of spring and summer ranges, hurt first-half trading and pinch margins as the business works through excess stock.
Wesfarmers has made at least eight senior executive appointments to support a turnaround, and Target has launched marketing initiatives (including a campaign featuring British fashion figure Gok Wan). Leadership says the team will focus on becoming more competitive in on-trend, affordable fashion and addressing operational problems.
Management pointed to fast-moving fashion competitors and the growth of online retail—naming brands like Zara, Topshop and GAP as examples of the shifted competitive landscape—saying Target must become more on-trend and competitive in both store and online channels.
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