A Tale of Two Retail Chains: Target and Kmart - Marketing Under the Microscope #5

Content and infographic developed by the IT - Content Team

In March 2020, it was announced that Target will be closing the doors of up to 167 of 284 stores across Australia, with some to be converted into Kmart. This means approximately 1000 out of 1300 jobs will be retrenched. So what “it-factor” does Kmart have that allows it to stay afloat in today’s cut-throat retail market, despite Target entering the Australian market almost half a century earlier than Kmart and the fact that Kmart itself was almost subsumed into Target only a little more than a decade ago?

Wesfamers’ management of Kmart and Target is a classic example of cannibalism, in which a company offers two alternate sets of brands, products or services which compete with each other. Cannibalism fails when these offerings are too similar and target the same market.

The rise of Kmart

Kmart’s success story started when it attempted to differentiate itself from other mid-market businesses (e.g. Big W and Target) by price through its quarterly sales. Although this promotion encouraged greater spending from customers, it conditioned consumers to delay large purchases until sales occurred. As a result, Kmart switched to the “everyday low prices” (EDLP) model we see today, selling a small range of products at cheap prices, appealing to price conscious customers who desire value for products.

Furthermore, continual market research conducted by Kmart, taking inspiration from international designers and feedback from fans and influencers, allows it to stay on top of consumer trends, putting it ahead of slower competitors.

Another factor contributing to Kmart’s success is its comfortable in-store experience; its cleaner and wider aisles and absence of bargain bins contrasts that of Target, which places low-cost items next to higher-priced celebrity and designer collaboration products with bins of miscellaneous products scattered around the store, making it less appealing and attractive for customers.

The fall of Target

Instead of an EDLP approach, Target continues its model of periodic sales and competes in the previously successful and oversaturated, competitive mid-sector market. As consumers see little difference between mid-range and low-cost businesses and are more willing to purchase lower priced products, Target lacks competitiveness in today’s retail market. Its inability to see this trend is what made it fall behind.

In fact, it is not just Target with unsustainable financial performance and falling sales. Big W, the other mid-sector business that previously dominated the market has also seen losses since 2016.

Options for Target

There are three main options available to Wesfarmers regarding the previously successful Target:

-Close or sell it - But the truth is, shoppers still enter Target. They just don’t buy anything. Closing it will also result in countless job losses and further costs

-Merge Target with Kmart - However many Target stores are located close to Kmart stores, and most landlords want both brands simply because they are drawcards

-Differentiate Target’s offering enough so that it complements Kmart’s range rather than competing

This is what led to Wesfarmers’ recently announced decision, satisfying the maximum number of stakeholders, which is a mix of all three options: shrinking the number of Target stores and focusing on quality and style. This complements Kmart’s range with its cheaper and home-brand dominated offerings.

References:

https://7news.com.au/lifestyle/kmart/these-are-the-target-stores-that-will-close-and-those-that-will-turn-into-kmart--c-1054931

https://www.businessinsider.com.au/heres-why-people-are-ditching-target-for-kmart-2016-5

https://www.smh.com.au/business/companies/how-kmart-became-the-cool-mum-of-australia-s-discount-retailers-20200207-p53yn1.htm

https://www.smh.com.au/business/companies/missing-target-battle-to-the-death-for-bargain-retailers-20191029-p535dg.htmll

https://insideretail.com.au/news/how-kmart-made-cheap-cool-201703

https://mpk732t12016clusterb.wordpress.com/2016/05/02/every-day-low-price-k-mart-pricing-strategy/