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Struggling department chain Target unveils radical plans to focus online after shutting 167 stores

Battling department chain Target has revealed its long term business focus will be online sales as it pushes forward with plans to close 167 stores across Australia.

Ian Bailey, who oversees the operation of both Target and Kmart, confirmed the future business direction over the next few years.

'I certainly believe online (sales) will be a very, very important part of the Target business and we are certainly investing in the growth of online for Target,' he said.

'It's already a very profitable channel for us, and we think it has a lot of potential to grow.'

Target (pictured above in Sydney) has announced the closure of almost 170 of its stores

In store and online sales for Kmart are encouraging, but the business needs to keep evolving to survive (stock image)

Both Kmart and Target are owned by Perth-based retail conglomerate Wesfarmers, who decided in 2020 to axe dozens of stores as part of a radical $800 million restructure.

Mr Bailey also stated it was 'unlikely' Kmart would one day completely replace Target, as shopping in-store remains popular with many loyal Target customers.

Sale numbers at both department chains were generally encouraging during the Covid pandemic, despite the decision to reduce stock, following overseas models.

It was a decision they lamented, with countless items flying off the shelves at some stages last year, according to the Sydney Morning Herald.

In May last year, with the pandemic in full swing, Target announced it was closing 75 of its stores, and converting a further 92 into Kmarts.

Following a financial review, the company revealed plans to drastically restructure as the brand suffered a $67 million sales slump.

Ten to 25 large Target stores were poised to be closed, alongside 50 smaller Target Country stores.

An additional 25 regional Target Country stores were set to be converted into small Kmarts, while between ten and 40 large stores will become bigger Kmarts.  

Owners Wesfarmers told investors at the time the restructure would reduce Target's 'unsustainable' cost base and allow it focus on the more-profitable Kmart. 

Target staff were to be offered jobs at Kmart or other Wesfarmers companies, including Bunnings and Officeworks. 

The closures and conversions were expected to cost between $120 million and $170 million. A further $140 million was allocated for one-off store conversion and stock clearance costs.

Wesfarmers chief Rob Scott confirmed the company will look to channel its energy on growing online sales.

Ian Bailey, (pictured above) who oversees the operation of Target and Kmart, knows online sales are the future

'The actions announced reflect our continued focus on investing in Kmart, a business with a compelling customer offer and strong competitive advantages,' he said last year.

'We are also improving the viability of Target by addressing some of its structural challenges by simplifying the business model.

'While accounting standards require us to recognise an impairment of assets within Target to implement the restructuring, these actions will allow us to enhance the overall value of Kmart Group and further strengthen Kmart.' 

But the company warned that even more stores could be shut entirely if landlords don't help with the costs of converting stores into Kmarts. 

After announcing the conversion of some stores, Wesfarmers said it was subject to 'landlord support'. 

'To convert stores costs money and there are some stores that are not commercially viable in the current structure,' Mr Scott commented.

'In some cases it's better to close stores than to keep pursuing unviable stores. 

'The opportunity is to work out how we jointly share the costs and share the benefits.' 

On April 28 last year, Wesfarmers fast-tracked a review into the commercial viability of Target after a worse than expected slump in sales.

Many stores will be converted into Kmarts (pictured in Sydney) with the store still offering popular items

Target designer Dannii Minogue (pictured) at the brand's fashion show during Melbourne Fashion Week in 2015, as the company tried to inject some glamour

The department store chain's revenue and profits took a 'significant' hit during the coronavirus lockdowns, which have left shopping centres deserted as retailers temporarily close their doors.

Announcing the fast-paced review, Mr Scott highlighted Target's 'unsatisfactory' financial performance in a trading briefing to investors, and said store closures were 'inevitable'.

While sister department store chain Kmart remained profitable in deteriorating trading conditions, Target's earnings slumped significantly.

In February 2020, Kmart swung to a 5.5 per cent first-half comparable sales growth from a 0.6 per cent decline a year ago, with revenue at the discount department store up $241 million or 7.6 per cent to $4.99 billion.

Target's comparable sales went the other way, though, falling 2.3 per cent compared with 0.5 per cent growth a year ago as it recorded a worse-than-expected $67 million sales slump.

Target is Australia's largest department store chain, with 284 stores across the country at its peak.

Established in 1926, the retailer was originally known as Lindsays until 1968, when Myer Emporium bought the chain of 16 stores across Victoria, which were renamed Lindsay's Target.

Wesfarmers fast-tracked a review into the 'unsatisfactory' performance of Target (pictured), which has resulted in the closure of some stores

The retailer was renamed Target Australia in 1973.

Market strategist Evan Lucas, from IG, explained why Target was 'consistently under-performing.'

He said part of this was down to a change in the market, with the introduction of other high street clothing brands such as Topshop and Zara. 

'Target has consistently underperformed as it's been wedged in that space now dominated by the interlopers,' he told the Herald Sun.

'They have much bigger turnover in apparel, which used to be Target's strength, and can offer higher discounts. 

'Target now finds it has an inability to compete on price, these raiders can use cheaper labour from overseas.' 

It has been a difficult time for the retail sector, with many shops closed for months due to the coronavirus outbreak (pictured, shoppers in face masks in Sydney on April 27 last year)

It comes off the back of a series of major closures changing the face of the Australian high street.

Household names like Harris Scarfe, Bardot, Roger David and Napoleon Perdis dropped like flies in recent years, with dozens of stores closing resulting in heavy job losses.

Experts claim that the could be the tip of the iceberg as consumers continue to turn more to online shopping over bricks and mortar stores.

In 2020, Australian retail growth was at its worst level since the early 1990s recession and international giants like Amazon and Aldi look likely to further shake things up.

Entrepreneur Dick Smith believes the outlook is so bad, high-profile collapses will accelerate until there's very little left. 

'We will end up with just Amazon and Aldi and basically all the Aussie companies will be sent to bankruptcy,' he told Daily Mail Australia. 

'All those famous brands will go. Some of them might exist in name only but will be taken over by overseas companies.'

Experts have warned Bardot (pictured) and Harris Scarfe are just the start of the downfall of big-name Aussie brands

Kmart (pictured in Chatswood on May 6) has stayed open throughout the pandemic, attracting queues of customers

Mr Smith watched the electronics chain that bore his name crash in 2016, decades after he sold it in 1980. 

The collapse was one of Australia's biggest retail failures. 

Target's boss Mr Scott admitted the department store faced 'a number of structural challenges', blaming the size of the shops and high rental costs.

'A lot of the structural challenges facing department stores relate back to the number of stores, the size of stores and the nature of occupancy costs in a world where online is more relevant,' he told The Australian Financial Review.

'Target is growing online sales quite strongly – it's timely to review the store network.

'That could mean store closures, it could mean conversion of some Target stores to Kmart, and it could mean reviewing the size of the stores we have in the network.' 

People are sen walking around an empty Melbourne on March 19 (pictured) as city centres resembled ghost towns at the height of the pandemic

'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.' 

As well as crippling a number of beloved high street stalwarts, the coronavirus crisis left thousands of Australians unemployed.

The jobless rate soared from 5.2 per cent in March, before the shutdowns of non-essential businesses, to 6.2 per cent in April last year. 

It was the highest rate since September 2015 as a record 600,000 Australians either lost their job or gave up looking for one.

A similar number had their hours cut, leaving Australia with a record unemployment rate.

Unemployment was above the levels of the global financial crisis a decade ago, following the closure of pubs, clubs, gyms and cinemas to slow the spread of coronavirus. 

Sonia Kruger (pictured) showcases designs during the Jean Paul Gaultier x Target show during Melbourne Fashion Festival on March 9 2016

Kmart (pictured, the Broadway store in Sydney on March 22) is popular for its low-priced homewares

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