“Accelerating our transformation”: Why Target is axing 80 head-office jobs

Wesfarmers-owned department store Target is slashing 80 jobs from its head office in a bid to accelerate its transformation strategy.

In a bid to further differentiate itself, Target is doubling down on long-standing plans to move further up the market as it seeks to etch out a sustainable business in the maligned department store category.

The move comes after upmarket brand David Jones was forced to wipe a further $437.4 million from its balance sheet earlier this month, amid ongoing disruption to the core of the department store business model.

In a statement, a Target spokesperson said the company was “accelerating” its transformation and “evolving” its product offer.

“We are focusing more on the core categories that customers know and love Target for, such as apparel, soft homewares and toys,” a spokesperson said.

“This means that today some roles within head office needed to be restructured to meet this challenge … these decisions have not been made lightly.”

“Target is working hard to ensure the best outcome for these team members and looking at possible redeployment to other parts of the business or within the Wesfarmers business,” the spokesperson said.

Wesfarmers revealed in June that Target’s second-half-to-date comparable sales had decreased by 2.3% amid “very competitive” conditions that also led to increased price investment and higher levels of promotional activity.

The retail conglomerate said at the time the sales highlighted a need to reposition Target, as price competition impacts the margins of both Wesfarmers’ department store brands.

How did Target get here?

But whether the business will find refuge further up the market is an open question Wesfarmers executives have been grappling with for years.

Retail expert and Queensland University of Technology professor Gary Mortimer says Target began to “blur the lines” with sister brand Kmart back in 2016 when then-managing director Stuart Machin attempted to replicate Kmart’s successful every-day-low-pricing strategy.

“Loyal Target shoppers began to notice this shift to $4 kids T-shirts, $10 bath towels and $7 kettles,” he tells SmartCompany.

That, Mortimer contends, is an often-made mistake. “Once confused, shoppers headed to Kmart, [which was] offering a very clear price promise.”

When Kmart chief Guy Russo moved over to oversee a turnaround of Target in 2016 — after Wesfarmers booked a $1 billion or so impairment on the business — he kickstarted a plan to revamp the department store’s fashion offer and improve overall quality while maintaining value-based pricing.

Russo maintained publicly he saw a differentiated future for Target and began vertically integrating the retailer, cleaning up unprofitable lines, such as the once-famous annual Target toy sale, and hiring new buyers to reposition its fashion offer.

However, all the while efforts were also being undertaken that brought the Target and Kmart businesses closer, including Wesfarmers’ decision to begin reporting earnings for the businesses together, and a network “right-sizing” strategy that has seen some Target locations become Kmarts.

In 2018, Target announced it would improve sales density by closing 20% of its selling floor space, an initiative which has also been undertaken to varying degrees by other department stores in recent years, such as Myer.

Russo, who has since moved on for a gig as chairman of Mexican chain Guzmen Y Gomez, was of the view Target was “handcuffed” by its leasing commitments, which were forcing the business to stick it out in unprofitable locations.

What now?

Fast-forward to 2019, with Target still struggling to find sustainable momentum and brand identity, Mortimer — who has long been of the view Kmart either needs to take over Target or move ahead with differentiating the businesses properly — says the business faces a risky ride either way.

“It makes very little sense to own two discount department stores, offering similar products, to the same market. The costs of duplication increase and you end up competing with yourself,” Mortimer says.

This week’s announcement indicates Target has decided to differentiate, with Wesfarmers chief Robb Scott saying earlier this year there’s more work to do in order to transition Target to a smaller, more profitable retail business.

There, the likes of Harris Scarfe and Myer await, along with global brands such as Uniqlo, H&M and Zara.

“Clearly, the middle market is crowded and becoming increasingly competitive, with Myer and Harris Scarfe already struggling to gain traction in this sector,” Mortimer adds.

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