Target’s Collapse Reinforces Retail Shift — The Decline of Retail

Yesterday we saw the iconic red circle wave the white flag.

Target, an iconic department store brand, is on its last legs.

Controlling entity Wesfarmers confirmed that 167 Target stores will be no more. With 92 set to become refurbished Kmarts and 75 set to close for good.

A move that will cost the company upwards of half a billion dollars in restructuring and impairment.

Truth be told though; it’s been a long time coming.

The decline of Target hasn’t been a sudden one. It’s a brand that has struggled for years now. Continually falling lower despite numerous attempts to salvage it.

At the end of the day, Target and Kmart just became too similar.

The difference is Kmart has always been a discount department store. A place where low prices are the key appeal for shoppers.

Target on the other hand has had a more varied identity. And while I think most would still agree that it is a discount department store at heart, that hasn’t always been clear to consumers. It has simply flip-flopped between too many different images.

Wesfarmers ultimately failed to find the right niche for Target. And that in turn is why the business is now failing.

Granted, there is much more nuance to this story than this simple conclusion. But it is certainly the root of the problem in my view.

The bigger question though, is whether it is indicative of a broader retail decline…

‘The Coronavirus Portfolio’ The two-pronged plan to help you deal with the financial implications of COVID-19. Download your free report

Buying habits

As I’ve discussed a few times in recent months, retail is a tricky sector to evaluate right now.

And I’m not even talking specifically about the pandemic.

Granted, it is still a huge factor. We just learned this week that for the month of April, retail turnover fell by 17.9%. A record-breaking collapse.

In the grand scheme of things, that is like rubbing salt in the wound.

See, even before the virus, many brick and mortar stores were already struggling. The sad decline of Myer Holdings Ltd [ASX:MYR], Harris Scarfe, and David Jones are prime examples.

Once the stalwarts of Australian retail, these department stores are now fighting for life. A sign of the changing times.

It’s certainly not just a local problem either.

All around the world department stores are crumbling. Companies and brands that have been around for decades. There just doesn’t appear to be any place for this retail model in our modern society.

I doubt they’ll be the last either.

Retail as a whole is in a state of flux. Both for traditional outlets and online stores. Each of which have their positives and negatives.

In this regard, it is too simplified to say that e-commerce is the only way forward.

However, if you were a retailer, you’d be foolish to ignore online channels.

For many retailers — particularly smaller, niche stores — this will be a good thing. If they can adapt.

Online channels give them an ability to have a bigger presence than a physical store may be able to offer. Not to mention, save on potential overheads or supply chain costs.

One of my favourite examples of a retailer that embraced this potential is Temple & Webster Group Ltd [ASX:TPW]. A furniture retailer who has proven that an online-first approach can be successful.

They have been a pioneer for modern retailing in my view.

But, not every retailer will have the ability or the means to do what they’ve done. For some, going digital will be a challenge in of itself.

Fortunately, there is an easy solution to this problem.

Friend or foe?

When it comes to modern retail, the one name that always comes to mind is Amazon.

Sure, in Australia they’re still not quite up to par. At least compared to their US and European counterparts.

But most people at least understand the dominance that Amazon has over e-commerce. They are easily the biggest name in Western retail.

As such, all other retailers should see them as the competition. Right?

Well, not all retailers.

At the end of the day, Amazon is still really just a platform. Sure, they have their in-house products, but they also host a plethora of small retailers.

In fact, roughly half of Amazon’s sales come from independent retailers. Small- or medium-sized companies that are using their platform to get ahead.

Some reports have even demonstrated that retailers who sell on Amazon are twice as likely to see ‘rapid growth and hiring growth.

As the saying goes: if you can’t beat them, join them.

Or, they could join one of the many other platforms out there. Like eBay, AliExpress, Google, or soon Facebook.

Mark Zuckerberg announced this week that Facebook Shops is still happening. A platform that will aim to offer retailers a direct alternative to Amazon’s.

I’m not sure if Zuck will be able to beat Bezos, but I reckon he’ll give him a run for his money. And for the rest of the retail sector, this competition will be a good thing.

In fact, if this project delivers how they hope it will, it could be more reminiscent of a traditional retail experience:

Unlike Amazon and Walmart, which appeal to shoppers who already have some idea of the product or brand they are looking to buy, Facebook and Instagram continue to push the idea that their apps can encourage discovery and the type of serendipitous shopping behaviour that an older generation would have experienced by visiting a mall.

I’ll believe it when I see it, but if they can make that happen it will be remarkable.

For small and medium retailers looking to make a breakthrough, this could be a game changer. A platform that gives them the chance to spruik their wares like never before.

As for the likes of Kmart and Target, well I’m not so sure. For now, there is still a need for the convenient and value-oriented offering they have.

Whether they will be replaced by Amazon or Facebook in the near future though, I cannot say. It is definitely a possibility.

For retail as a whole though, things are looking much brighter. Sure, we may see fewer physical stores, but we’re bound to see more competition.

Retail is changing, but it is for the better.

Regards,

Ryan Clarkson-Ledward,
Editor, Money Weekend

PS: Why Bitcoin Is Unstoppable ⁠— The story of bitcoin’s rise and the case for holding some now. Claim your copy now.


Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


Leave a Reply

Your email address will not be published. Required fields are marked *

Money Morning Australia