Store wars: Target on the dark side

The microscope was focused on Woolworths' food and liquor division when the company released its third-quarter sales figures. Based on the numbers, the group's engine room is pumping along well enough, albeit not matching the growth rates of Coles.

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 and 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 at 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 on which one can only speculate.