Wesfarmers flags store closures for Target as part of major restructure
The owner of the Target in Australia has signalled stores will be shuttered as part of a new plan to revitalise the struggling department chain after a plunge in sales throughout April.
Wesfarmers chief executive Rob Scott told The Age and The Sydney Morning Herald while the Target brand would not disappear from Australian shopping malls, the chain required a significant facelift to be commercially viable.
Wesfarmers will accelerate its strategic review of struggling department store Target.Credit:Pat Scala
"The future of target will inevitably be a smaller number of stores and a much stronger online business, and it should be able to be a successful, profitable and growing business on that basis," he said.
Following the restructure, Wesfarmers could look to sell or spin-off the business as it did with supermarket Coles, though Mr Scott did not indicate his preference, saying "all options are on the table".
Wesfarmers was prompted to accelerate its review of Target after both revenue and profit took a "significant" hit through April as fewer Australians visited shopping centres.
The company first flagged the review its full-year results last August, and today told investors Target's "unsatisfactory financial performance" would be swiftly addressed to make the company commercially viable.
Target has been a longstanding issue for Wesfarmers, with the struggling discount retailer dragging on the company's otherwise solid earnings and faring far worse than cult-favourite Kmart.
Wesfarmers has embarked on a mission to bring Target's product offerings into the mid-market, though some analysts believe it may then compete too closely with the likes of Myer.
Mr Scott highlighted the company's large-format stores and associated high rental costs were unsustainable in the current retail environment, saying the current business model was "not fit for purpose.
A new approach could see a raft of Target's 290 stores shut and a significant amount of its business moved online, with Mr Scott saying the business has been in conversations with landlords over stores were sales had declined dramatically.
Wesfarmers chief executive Rob Scott.Credit:Janie Barrett
"We don't see those sites being commercially viable over time," he said.
The prominent chief executive also backed calls for a redesign of retail leases, showing support for rents based on a percentage of the tenant's sales, or rental agreements with "pandemic clauses" which facilitate for unprecedented events such as the coronavirus.
"The coronavirus crisis has highlighted normal lease arrangements simply don't accommodate a downturn like this. There isn't fair risk sharing under traditional lease agreements," he said.
"In many ways, this has brought forward some of the difficult decisions that landlords and tenants needed to face into around the viability of certain sites."
Wesfarmers' other businesses, Bunnings and Officeworks, have continued to perform throughout the third quarter and into the fourth. Sales for Bunnings have continued to grow in line with the first half of the financial year: 5 per cent at Bunnings and 11 per cent at Officeworks.
Having recently pocketed a $2.1 billion windfall from the sale of 10 per cent in supermarket giant Coles, Wesfarmers said it remained well-positioned to weather any long-term effects of the coronavirus crisis.
The company has also extended its debt facilities by $2 billion to a total of $5.3 billion, which Mr Scott indicated would allow Wesfarmers to pursue any potential investment opportunities.
However, Mr Scott remained tight-lipped on if collapsed Virgin Airlines could be one of those opportunities, saying the company would not comment on potential acquisitions or investments.