Store wars: set for new campaign
But the sideshow - the discount department store war - is shaping up to be every bit as interesting. This segment is proving to be as competitive as the three main combatants, Big W, Kmart and Target, as they vie for the value-conscious consumer.
Woolworths' Big W managed to produce like-for-like sales growth that was up a tepid 0.8 per cent. And after adjusting for Easter growth came in at negative 0.8 per cent.
When questioned by analysts as to what Woolworths is going to do about these lacklustre sales, the answer was simple - we are trying. But to date it is not experiencing much success.
Wesfarmers - the conglomerate that owns Coles, Target, Kmart, Bunnings - is in no position to criticise.
Its discount department store strategy has resulted in a performance which has had mixed success. Earlier this week Wesfarmers ordered a changing of the guard and installed a new chief executive in its problem child, Target.
Target's comparative store sales for the half to December fell by 1.8 per cent and earnings before interest and tax fell 20 per cent.
The war to capture the entry-level department store shopper has been intense.
The winner of late is clearly Kmart whose results have been better than anyone expected, but for Wesfarmers it must be something of a hollow victory given the numbers suggest that most of the gains have been at the expense of its sister-store Target.
The trouble for Big W is that it has also sustained damage as a result of Kmart's success and Target's search for a market segment.
The discount department store sector appears to be in a state of flux. Kmart has taken ownership of the bottom end of the market.
It has taken prices down, pursued the house brand strategy and reduced costs, aided by the high dollar.
It has marketed itself as the lowest price operator.
Big W may have won on product but not on price. Target is sitting in a marketing no man's land.
It is viewed neither as a value proposition nor an upmarket brand-centric department store.
Like all retailers, Big W was stung by discounting in the home entertainment segment. While this is part of its problem it ignores the wider problems. It is positioned between Kmart and Target and gets squeezed in the middle.
Meanwhile, back at Wesfarmers HQ, there will be plenty of debate about what to do with Target.
Selling Target throws up a whole raft of problems - not the least of which is the potential introduction of a new and robust competitor for Kmart.
The smart money suggests closing Target and badging some of the stores Kmart.
This week's appointment of a new chief executive at Target suggests Wesfarmers is willing to take another shot at a strategy refurbishment. But how long the West Australian conglomerate is prepared to tolerate Target's underperforming returns is something one can only speculate.
Frequently Asked Questions about this Article…
Woolworths reported third-quarter sales showing its food and liquor division is the group's engine room and is performing reasonably well, although its growth rates are not matching those of Coles.
Big W posted like‑for‑like sales growth of 0.8%, but after adjusting for Easter the figure was negative 0.8%, indicating its underlying sales momentum remains weak.
The sector is highly competitive as Big W, Kmart and Target aggressively vie for value‑conscious shoppers. Shifts in pricing, house brands and marketing have intensified the battle for the entry‑level department store customer.
Kmart has taken the bottom end of the market by cutting prices, pushing house brands and reducing costs (helped by a high dollar). Its marketing as the lowest‑price operator has lifted its results but appears to have taken market share from both Target and Big W.
Target saw comparative store sales fall 1.8% for the half to December and earnings before interest and tax drop 20%. Wesfarmers has responded by replacing Target’s chief executive, signalling it will try a refreshed strategy to fix Target’s underperformance.
Big W is being squeezed between Kmart and Target: it has lost ground on price to Kmart, faced discounting pressures in categories like home entertainment, and sits in the middle without a clear value or upmarket positioning.
Options discussed include refurbishing Target’s strategy under new leadership, closing underperforming Target stores and rebranding some as Kmart, or potentially selling Target. Selling carries the risk of creating a new, robust competitor for Kmart, while closures would be disruptive and strategic choices are still uncertain.
For everyday investors the sector’s flux means returns and fortunes can shift between brands: Kmart has recently been the clear winner, Target is under pressure, and Big W is vulnerable. It’s sensible to watch sales trends, margin pressure from price competition, and any strategic moves (like leadership changes or store rebranding) that Wesfarmers and Woolworths announce.
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