Department store giant Target will shut down its Melbourne distribution centre and cut 100 jobs in the process, as the company attempts to transform itself by focusing on leaner and faster delivery times.
The decision comes alongside a suite of changes being implemented at the company, to help transform the Target brand so it can stand above low-cost rivals such as Big W and Kmart, both of which have been encroaching on the company’s territory.
The company confirmed this morning it will shut down the Melbourne distribution centre, which employs about 100 workers, with a view to expanding the number of regional distribution centres to improve delivery times. The company will try to find positions within the company for those made redundant.
Managing director Dene Rogers – a former executive of US department store Sears who replaced Launa Inman after her move to Billabong – told The Australian the company will open four new regional distribution centres across the country.
The plan is to supply stores with more stock sooner to reduce waiting and delivery times. Under the current model, he said, stores can run out of stock during periods of high sales.
“The cost of operating pull replenishment is higher, but we believe it will keep us viable as a retailer,” he told The Australian.
In a statement, he said the company’s vision is to be the “mid-tier department store destination of choice…and we are continually reviewing every aspect of our operations”.
The move echoes a trend common among retailers to open more distribution centres, or place them closer to groups of stores, in order to compete with online retailers through delivery times.
But the decision to expand distribution centres is also a testament to Target’s transformation plan. The business is facing harsh competition from discount rivals Kmart and Big W and needs to set itself apart, according to experts.
David Gordon, partner at consultancy Bentley’s, says the philosophy of Wesfarmers has been for managing directors of individual companies to operate in a vacuum. That strategy cannot continue while facing such direct competition, he says.
“At the moment, Kmart is effectively targeting that space,” he says.
For Target to improve, the company will need to focus on its product offering, Gordon argues. “Particularly the women’s wear and children’s wear,” he says.
However, it would be unfair to say Target hasn’t been doing anything. Since Rogers’ arrival, the business has been focusing on strengthening its brand. And there’s a few ways the company has been setting a good example.
Here are three lessons businesses can take away from Target’s transformation strategy.
Management
Although Launa Inman left to manage Billabong, the decision to bring in an ex-Sears executive is a solid one. Rather than simply put a placeholder executive in charge, Wesfarmers has shown it is capable of choosing someone who has experience in building and maintain strong department store chains.
Distribution
Fashion group Zara has been able to gain a reputation for putting fashion in its stores quickly by putting a lot of work into its distribution strategy. Target realises the importance of this and is doing the same.
If you want to sell product, it needs to go in stores quicker than ever. Don’t leave your distribution model by the wayside.
Online strategy
Over the past few years Target has been focusing on upgrading its online site, and now it’s become one of the more popular clothing retail destinations online. It seems intuitive for businesses to allow customers to buy product online, and although Target took a little longer than necessary, the company is in a good space to capitalise on that demand.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
