Target to axe jobs in push to cut costs

Eli Greenblat
June 6, 2013
The Age

The dip into red has cast Target as the problem child of Wefarmers’ retail empire.

Struggling retail chain Target is primed to announce hundreds of job cuts and a possible operational restructure following its profit warning last month, as the Wesfarmers-backed business tries to dig itself out of a financial hole.

The shake-up has already begun, with the axe falling at the chain’s marketing department last week, and speculation is rife that up to 200 more back-office jobs are to be carved out of the company.

It comes at a bad time for Geelong, where Target is based, with car maker Ford announcing last month it would close its manufacturing plants there and in Broadmeadows in 2016, costing 1200 jobs. It adds to a string of job cuts announced by Australian corporates, including ANZ, Crown, Telstra and pharmaceutical giant GlaxoSmithKline.

Led by Stuart Machin, Target’s third boss in two years, the attack on the retailer’s cost base is prompted by destructive forces, including excess inventory, increasing theft from stores and a poor start to sales for the second half, exacerbated by the late start to winter.

Already floundering because of sluggish consumer sentiment and the dour economic outlook, Wesfarmers shocked investors two weeks ago with a profit downgrade for Target, flagging a potential second-half loss.

Wesfarmers chief executive Richard Goyder warned full-year earnings before interest and tax at Target would drop to between $140 million and $160 million against EBIT of $148 million in the first half. This could see second-half earnings sink to an $8 million loss or, at the upper end, a $12 million profit.

Wesfarmers also owns Kmart, supermarket chain Coles, hardware group Bunnings and Officeworks.
The dip into the red has cast Target as the problem child of Wesfarmers’ retail empire, with Kmart and Bunnings thriving.

If Mr Machin cannot turn around Target, it will add to pressure on Wesfarmers to finally do away with the troubled chain. Previous options canvassed have included selling it to a private equity buyer or carving up Target stores among Wesfarmers’ other retail banners, to be transformed into liquor stores – under the First Choice, Liquorland or Vintage Cellars brands – or Kmart and Officeworks outlets.

The current round of job losses is part of a wider push to reshape Target, which will see a greater emphasis on direct sourcing and squeezing the supply chain – a move that has raised earnings and profitability for Coles.

It is a strategy Mr Machin has become expert at with the executive part of the British team that helped resurrect Coles after Wesfarmers bought the underperforming supermarket business more than five years ago. Before shifting to Target in April, Mr Machin was director of Coles’ store development and operations.

A spokesman for Target said the company was reviewing all aspects of the business and had taken a number of actions to turn around its performance. ”There have already been a number of team changes as part of this review and more changes are likely. However, we will work these through with the Target team and they will be kept informed of any changes that may arise.”

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