Why Wesfarmers is joining Kmart/Target at the hip

Guy-RussoWesfarmers has announced a new department stores division aimed at bringing Target and Kmart closer together on a logistical and operational level.

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The new division will be led by current Kmart MD, Guy Russo, who will take charge of both the Kmart and Target businesses. As part of the restructure, Target MD, Stuart Machin, will continue in his current role until July 2016, after which he will take on a new, as yet unconfirmed, senior role in the group.

“We wouldn’t be doing this unless we thought there were significant benefits,” Wesfarmers MD, Richard Goyder, said in making the announcement at Wesfarmers’ half-year results conference last week.

Goyder said Wesfarmers’ decentralised business model has allowed individual brands to “get on with things”, but that, “this is the right time to draw together some functions of the individual businesses to ensure we get maximum reward from the strong work that has been undertaken in both”.

“The newly formed division will allow streamlined coordination of functions, where it makes sense to do so, such as in property, finance, and corporate affairs and sustainability.”

Target, under Machin’s leadership, has worked towards direct sourcing in the last few years, said Goyder. “But there’s a capability in Kmart which we think we could leverage to Target without Target losing its sourcing identity,” he said.

Goyder said having Russo oversee both businesses will give the retail giant better coordination over both businesses.

“We think now, with the competitive landscape and with the condition both businesses are in, it’s a time that we can really put our foot down and get improved performance out of both businesses and across both businesses.”

As part of the “optimisation on property”, the restructuring of the department store divisions could see Target and Kmart stores interchangeably rebranded.

“There may well be some Kmart stores that should be Target and some Target stores that should be Kmart,” said Goyder. “So we think in the existing fleet and future outlooks, there’s some significant benefits on that.”

Retailers performed strongly across Wesfarmers portfolio in the first half of FY16. Kmart and Target stores earnings grew 9.5 per cent, to $393 million. Wesfarmers lifted its first-half net profit 1.2 per cent, with strong performances from Coles and Bunnings largely offset by its loss making coal business. Net profit for the six months to December 31 was up $17 million to $1.393 billion, compared to $1.376 million for the prior corresponding period.

“It’s worth pointing out that both Kmart and Target have obviously had a depreciating Australian dollar when they are an importer, and so I think the performance of both businesses in the last half is a pretty strong performance with that headwind as well,” said Goyder.

Coinciding with the announcement of its department store division, Monday saw Wesfarmers complete the STG340 million ($A658 million) acquisition of UK home improvement chain, Homebase. The takeover of UK and Ireland’s second largest home improvement and garden retailer adds 15,000 employees to Wesfarmers’ charge.

Tim Bult, moves to the new role of director, associate businesses and international development, in order to oversee the group’s investments and develop Wesfarmers’ offshore business development networks.

“I am very pleased that Tim Bult will be based in the UK to provide support for the Bunnings and Homebase teams during the important phase of integrating the Homebase business,” said Goyder. “We welcome our new employees and are excited about the opportunity to bring the best of Bunnings to the UK and Ireland” managing director Richard Goyder said on Monday.

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