vers have downplayed the threat of the two retailers on the basis that their store rollout is slower than they expected. Those analysts apparently don’t understand the challenge of weaving through state planning laws to secure development approvals for large-format retail stores. Costco and Kaufland might well have moved a little quicker if they had picked up some of the Masters Home Improvement sites from Woolworths, but both chains are approaching site selection prudently. Changing dynamics in discount Both chains are pursuing standalone sites where they have maximum exposure and total operational control rather than shopping centre tenancies. Costco has already had an impact on the sales growth, margins and profits of Woolworths’ Big W, Target and The Reject Shop and no doubt other retailers such as Best & Less, Harris Scarfe and Aldi. Kaufland potentially looms as an even greater threat and, if Costco and Kaufland aren’t a big enough problem, there is also the competitive threat of the expanding TK Maxx chain, which currently has 35 stores nationally. An indicator of the changing dynamics in the discount category, TK Maxx’s latest store in the Forest Hill shopping centre in Melbourne’s eastern suburbs has replaced a closed Big W. TK Maxx is a US retailer that has opened stores in other countries. The chain claims to be the “world’s leading off-price retailer of home and apparel fashions” and is expanding from a base established with the Trade Secrets chain in Australia. There are more Big W stores set to close following a review of that chain and the over-shopped and fiercely competitive discount category. It is likely that the landlords saying farewell to a tranche of 30 Big W stores will be knocking on the door of TK Maxx to replace them. Big W actually increased like-for-like sales in the first half of the 2019 financial year by 3.8 per cent. It posted an $8 million net loss, but that was $2 million better than the comparable half in FY18. The chain lost $110 million in the full 2018 financial year after a $151 million loss in FY17. There was speculation that Woolworths’ review of the Big W store network might result in up to 60 stores being closed, but the current plan is to shutter 30 stores and two distribution centres over the next three years at a cost of around $270 million. Most of that writedown – together with further provisions in the accounts of around $100 million – will be booked to the current financial year accounts. Brad Banducci, Woolworths CEO, points out that Big W’s trading performance has strengthened somewhat with the second-quarter results of the current financial year, indicating a positive response by customers to new initiatives. Big W tips $100m loss But profitability going forward required a “right sizing” of Big W to ensure it can effectively compete against the new entrants to the market as well as the rival Kmart and Target chains. Banducci has already flagged a full-year loss of up to $100 million for FY19. The surgery to the Big W chain follows action by Wesfarmers to turn around the struggling Target chain, which appears to have responded to restructuring and integration with Kmart’s operations. However, the Target gain may be dragging on Kmart, which has been the most successful chain in the discount category for several years. Kmart’s sales increased just 1 per cent in the latest half year with a small decline on comparable sales. The earnings before interest and tax for the half for the combined Kmart and Target chains slipped 3.8 per cent and the future is only going to be more challenging.