THE DISTILLERY: Right on Target

Department store Target wasn’t always the weak spot in the Coles Group that Wesfarmers picked up in 2009. That was Kmart. Three business commentators examine the cannibalisation that one has done for the other and the significance of Wesfarmers boss Richard Goyder picking one of his top turnaround executives as Target’s new boss.

The Australian’s John Durie notes that Stuart Machin will be Goyder's fifth Target boss in the five years that Coles Group has been under Wesfarmers’ control, something that might not have been imagined in the beginning.

“When Wesfarmers spent $19 billion buying the Coles retail network, Kmart was deemed the most likely brand to be dumped. But it has prospered under Guy Russo, with return on capital increasing from 15.9 to 22.5 per cent, making it the undisputed star of the retail division. While Target’s earnings fell by 20 per cent in the six months ended December to $148 million, Kmart’s earnings increased by 25 per cent to $246 million. As much as Goyder plays down the impact of cannibalisation, it’s hard to conclude otherwise.”

The Australian’s Damon Kitney notes, as do many, that Machin has been integral to the turnaround team at Coles, which can now undoubtedly be considered a success.

“As director of stores development and operations director at Coles, Machin has been integral to improving the look and feel of the stores and rolling out its new offerings for shoppers. For instance, he played a key role in the reinvention of the Coles offering at the giant Southland complex in Melbourne, which Coles proudly claims to be the nation’s best supermarket. Now he is about to ply a similar trade at Target.”

Business Spectator’s Stephen Bartholomeusz asks whether the appointment of one of Goyder’s key lieutenants speaks about his mindset when it comes to Target, given the executive’s background at Sainsbury's, Tesco and ASDA Walmart in the UK.

“The decision to shift Machin from the Coles team to head up Target would suggest that Goyder’s patience with the pace and/or nature of the turnaround is wearing a little thin. There is still considerable upside in the renovation of Coles and Wesfarmers would be anxious not to jeopardise the progress still being made in food and liquor, which suggests there is some perceived urgency in addressing Target’s decline.”

Meanwhile, Fairfax’s Michael Pascoe reports that Australian petrol prices are set to dive by more than 9 cents thanks to weakness in the oil price. While that’s not particularly interesting in itself, the way Pascoe comes up with the prediction is.

“The main international benchmark, Brent crude, closed at an eight-month low on Friday night and America’s West Texas Intermediate crude dipped below US$92 a barrel at one stage with traders talking about a price in the 80s possible in coming weeks. But Australian petrol prices are more closely correlated to Singapore’s Tapis crude – and much more closely correlated to Singapore’s MYOPS95 petrol benchmark, which plunged spectacularly at week’s end.”

This might be more widely known than The Distiller is aware, but for all the commentary about petrol prices every damn year, it’s interesting that this fact is hardly, if ever, mentioned. Thanks Michael.

Staying with resources, The Australian Financial Review’s Matthew Stevens says the collapse of Hanlong’s bid for Australian-listed Sundance Resources highlights the fundamental problem with the blond argument that this country needs more foreign investment. The conventional investment rules aren’t always followed.

In other company news, Fairfax’s Elizabeth Knight revisits the debate about car industry subsidies in the wake of more sackings at Holden. There’s nothing really new in the piece because this debate is well-worn.

The Australian Financial Review’s Chanticleer columnist Tony Boyd speaks exclusively to the highly regarded Westpac institutional bank boss Rob Whitfield, who believes that Australia will be hit by a “wall of money” over the next two years as central bank printing fuels a search for risk and yield.

“He says that the current investment markets in Australia remind him of 2006. One year later there was an asset price bubble that burst causing the global financial crisis.

And finally, The Australian’s Judith Sloan argues that the union movement’s resistance to a royal commission into governance and conduct is not endearing.