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Retail shakeup: Wesfarmers to restructure leading Australian brands

Wesfarmers is undergoing a restructure of its retail brands, focusing efforts on increasing Kmart, Target and Catch digital offerings by leveraging on the recent e-commerce boom. The restructure will include the closure or conversion of up to 167 Target stores.

Announced to investors on Friday morning, Wesfarmers has completed the first phase of the Target review and deemed that up to 167 Target and Target Country stores will be shut or converted to Kmart sites.

“Kmart Group has identified a number of actions to accelerate the growth of Kmart and address the unsustainable financial performance of Target,” the Group said in a statement.

“The reduction in the Target store network will be complemented by increased investment in our digital capabilities, following the continued strong growth in online sales across the Kmart Group and the pleasing progress in Catch since its acquisition in August 2019.”

Rob Scott, Wesfarmers Managing Director told media on Friday morning that the Group has experienced significant e-commerce growth and the restructure will leverage the Group’s digital channels.

“We are pleased to be the largest e-commerce retailers in Australia. Catch enables us to offer a number of new brands and categories and we’re really interested in expanding its market,” he said during a media and analyst briefing.

“Together with exciting digital channels, it’s about utilising Catch and what products make sense within the physical stores,” he said.

Rob revealed the Group has recently undertaken a trial at the Target retail store in Highpoint, one of Australia’s largest shopping centres, located in Melbourne’s western suburbs.

The Highpoint trial involved strategically placing products to reflect Catch’s popular offerings and lines on the website.  Rob also said it makes sense to leverage click and click and further evaluate Catch within retail stores footprint.

“The expansion of its digital offer will provide customers with access to the Kmart and Target products they love, together with over two million products from the Catch marketplace, via home delivery or click and collect,” he said.

Through an expanded click and collect offering, the full range of Kmart, Target and Catch products will be available at all stores across the Kmart Group, including ‘Kmart Hub’ stores.

The Managing Director said that for some time now, the retail sector has seen significant structural change and disruption, and the group expect this trend to continue.

“With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption,” Rob said.

“Kmart will enhance the overall position of the Kmart Group, while also improving the commercial viability of Target.”

Wesfarmers will book $120-170 million in restructuring costs and a $430-480 million impairment charge as a result of the overhaul.

As a result of restructuring, along with the recent partial sale of its interest in Coles, Wesfarmers also expects pre-tax gain on sale of 10.1 per cent interest in Coles of $290 million, and one-off pre-tax gain of $221 million on the revaluation of the remaining Coles investment.

The Group is continuing its assessment of strategic options for a commercially viable Target and its remaining store network, including further optimisation of the store network and changes to the operating model.

An update on this assessment will be provided at the Group’s full-year results in August 2020.

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