Despite the headlines, Target Australia is not going anywhere – but it may not look like the classic department store it has been since 1926.
As many as 1000 Target workers will lose their jobs during a time when even the most profitable retailers are struggling to keep the doors open.
Consumers mourned what appears to be the first death rattles of Target, but according to retail experts the path for Target no longer exists in department stores.
“If Target was a popular, profitable business with a good point of difference with a good story – like a Bunnings or an Officeworks – then none of this would’ve happened,” retail expert Brian Walker told 9News.com.au.
“So Wesfarmers takes the shareholders perspective and goes okay, this model is getting swamped by the competition and our cost base is becoming unsustainable.
“If they do nothing, it will just be a loss-making exercise from this point on.”
According to Mr Walker, Wesfarmers has hinted the direction Target will take in the form of “dark” stores and online marketplaces.
“Wesfarmers acquired Catch Group about six months ago, which is an online marketplace a bit like Kogan,” Mr Walker said.
“So what I think they’ll do is take Target and transform it into an online marketplace because it is a very well-known brand. “They’ll most likely leave a few physical stores open for services like packaging and click and collect.”
But the online space is not without its own risks.
“It’s not as easy to make money online as many think. You’ve got high distribution and packaging costs and a very high return ratio,” Mr Walker said.
“Up to a third of online merchandise is returned and approximately 50 per cent of that third is then unsaleable.”
Faced with high rental costs, low consumer foot traffic and pricing that put it in between discount retailers and high-end offerings, Mr Walker said Target’s offering was simply a “duplication of costs” for Wesfarmers.
“It’s probably in many respects an overdue thing to happen. Whilst we have great sympathy for the employees, the reality is that we’ve been saying for years that this sector is going to shake out,” Mr Walker said.
“There was the GFC and smaller episodes but this time is the first time the retail sector has encountered a global health crisis.
“And retail is all about human contact, ultimately.
“And when that stops, the business stops.”