New approach for Target
Target has embarked on a four year transformation plan in a bid to reinvigorate the discount department store chain which MD, Stuart Machin, claims has a brand potential beyond many of its competitors.
Machin moved from Coles food and liquor division to Target in April last year, and has since been clearing bloated inventories and identifying issues that have taken the chain from the star performer in the Wesfarmers retail portfolio to cellar dweller, with falling sales and profits.
The chain’s stores showcase the major problem, with a cluttered confusing merchandise offer that follows Target’s China-centric direct sourcing policy.
Machin has been working to reduce inventory levels and tighten supply chain for the past 12 months and, as part of the transformation, will cut Target’s product range by 40 per cent by June 2016.
The move is part of a plan to better match ranging to customer needs and demographics and lift stock availability from around 75 per cent to more than 90 per cent. A year ago, stock availability was down to 64 per cent.
He is keen to rebuild profits by focusing on fashionability and value rather than discounting, and intends to close underperforming stores, ditch the Target Country brand, and reduce the number of suppliers.
In a presentation to analysts, Machin conceded Target has had an over reliance on China for product supply and is now looking to other countries, including Sri Lanka, Cambodia, Vietnam, and Indonesia for merchandise that meets criteria for quality, cost, and ethical conduct.
Target wants to ensure stores are more productive, that it has a more flexible supply chain, leaner, more effective support structure, and efficient working capital.
It has 313 stores nationally, but Machin has already identified 15 stores for closure as leases expire.
Going forward, the focus will be on an optimal store size of around 4500sqm and above, with the Target Country stores to be rebadged and reconfigured to the Target small store format to achieve brand consistency and reduce operational costs.
A focus on products that drive sales and margins will also be embraced, with Target already reducing its inventory by 10 per cent in the past year.
Edited ranges for each season and will “build further confidence in the buying teams to back volume”.
Machin concedes that Target customers are “overwhelmed by range and store layouts”, and a store review has developed an enhanced allocation and replenishment plan for stores and an optimum ranging program for declining categories.
Stores will be refreshed to contemporary formats tested in several existing stores.
Other key strategies in the transformation plan include relaunching the designers for Target program, reducing reliance on catalogues, relaunching the brand through a ‘Target is changing’ campaign, and building its online presence.
Target has already lowered its average selling price by 12 per cent, but is working to establish clear price points across its product ranges.
Machin expects significant direct sourcing benefits in the next four years, with a new sourcing management team recruited and a sourcing operational plan developed that incorporates new geographic sources of supply, greater control over fabrics, and a more cohesive relationship between head office and Asian offices.
Longer trading hours and improved customer service will also be introduced, funded by productivity improvements.
The chain has already cut is cost of doing business by around five per cent in the past year, with supply chain costs reduced by 13 per cent.