Big change coming to K Mart stores

The huge impact of the Delta and Omicron outbreaks on Kmart and Target have been laid bare, but there’s one store that’s overperformed.

Waves of new Covid-19 outbreaks have hammered the performance of Wesfarmers’ Kmart and Target chains, with sales slumping and costs rising, while staff shortages has even forced it to cut back on trading hours at some stores.

In an update on Monday, the Perth-based group said total sales for the two businesses dropped 10.3 per cent in the six months to December 31 compared to the same period a year before and 5.2 per cent against the first half of 2019-2020 – before the pandemic took hold.

It also reflected the permanent closure of 14 underperforming Target stores and 48 Target Country stores.

Just as trading picked up in the final months of the year as Delta restrictions eased, customer traffic to stores took a hit as Omicron caseload surges in multiple states, particularly during the critical Christmas trading period, Wesfarmers said.

Wesfarmers forked out extra cash to keep stock levels high in a bid to counter global supply chain disruptions but high levels of pandemic-related absenteeism in key NSW and Victorian distribution centres prevented the delivery of enough product to stores to meet customer demand.

This calendar year has so far proved just as tough, with customer traffic to stores remaining “subdued” while ongoing staff absenteeism has necessitated a reduction of trading hours in some stores and affected stock availability, Wesfarmers said.

“These issues are expected to persist while Covid-19 cases and the number of team members requiring to isolate remain elevated,” it said.

Officeworks’ performance was also dented by pandemic-related disruptions and costs, but a 44 per cent surge in Target and Kmart’s online sales helped the group’s overall first half result from being worse, while hardware giant Bunnings remaining a lucrative business.

Wesfarmers expects to report net profit of between $1.18bn and $1.24bn for the period, in line with current consensus expectations.

That compares to $1.39bn for the previous first half.

Meanwhile, the path is clear for Wesfarmers to take over Priceline owner Australian Pharmaceutical Industries after rival bidder Woolworths bowed out of the battle earlier this month.

Originally published as Stock build-up strategy at Kmart, Target scuppered by staff shortages amid Omicron wave

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