Dumb decision that almost killed Kmart
IT'S the discount department store darling, raking in profits of half a billion dollars a year, sending shoppers into paroxysms of pleasure over cheap essentials and responsible for a burgeoning trend in homeware hacks.
Kmart is doing so spectacularly well, its owner Wesfarmers said on Wednesday that it was inevitable a large number of struggling Target stores (which it also owns) would be rebranded under the big red, very profitable, K.
But rewind not too far in the past, and the opposite was being spoken about. Of converting some Kmart stores to Target.
And there was an even more radical strategy planned - to get rid of the Kmart brand altogether. Like Safeway, Grace Brothers and Fossey's before it, while the stores would have remained, the name above the door would have disappeared.
Kmart stores would have been rebadged under the Coles name. It was a bizarre plan that was only thwarted when the entire company was bought out for $20 billion by current owners Wesfarmers.
A branding specialist has told news.com.au that ditching the Kmart name would have been a "brave move" that had failed with other retailers.
RUNT OF THE RETAIL LITTER
Guy Russo, the head of Kmart, is the longest serving retail head at Wesfarmers. His long tenure is due to the remarkable turnaround he executed on the chain.
Head back to late 2006, when Kmart was owned by Coles, and while the supermarkets were chugging along nicely, Kmart was the runt of the retail litter.
Profits at the discount store were down 3 per cent year-on-year and customers were fleeing to rivals such as Big W. Yet, over at stablemate Target, things couldn't be rosier. There, profits were up 16 per cent and the chain was making four times the profit of Kmart.
BYE KMART. HELLO COLES SUPERCENTRE
Something had to be done, decided then Coles chief executive John Fletcher.
"Coles, Bi-Lo, Liquor, Coles Express and Kmart will be progressively integrated with single buying, marketing, operations and support structures," Mr Fletcher announced in September 2006.
"Over the next few years, we will create a new integrated 'everyday needs' business, selling everything our customers need every day under the trusted 'Coles' brand."
It was nothing short of open heart surgery on what was then a clapped-out Kmart.
Twenty stores would be converted into Target stores. Stores that were physically next to Coles supermarkets would have their walls removed. The resulting stores would be massive and, similar to US giant Walmart, would feature food, fashion and homewares.
The Kmart name would be gone. Instead, these mammoth stores would trade under the "Coles Supercentre" banner with as many as 80 branches nationwide.
It was likely the rump stand-alone Kmart stores would have become "Coles Living".
Kmart wasn't the only big name to go: Liquorland would become Coles Liquor and Bi-Lo stores would simply become Coles. Only Target and Officeworks would be safe from the rebranding rampage.
Dr Dean Wilkie, a branding expert at the University of Adelaide, told news.com.au consolidating brands can make sense on paper.
"The managerial reason is because having multiple brands can be seen as an unnecessary expense as opposed to the economies of scale with one brand.
"The investment in Kmart advertising as well as Coles advertising in favour of having just one Coles ad, for instance."
But the plan was fraught with difficulty.
REBRAND AT YOUR PERIL
"It's a very brave move to replace a familiar brand. A lot of us have an association with brands we have built up over decades and when we change a brand we are asking people to change the way they think and that takes years of saying the same message," he said.
"Also, if you take two brands and merge them into one, you then have less flexibility in how you can position both of them."
Dr Wilkie wondered if the Coles brand would translate to Kmart products.
"Fresh food doesn't transfer over easily to kids' clothing or bicycles. If someone knows Coles for food, would buying a jumper under that name be too much of a jump?
"Walmart works but it took time to build that brand up. Coles shareholders would have wanted results today but that positive result could have taken five to 10 years," he said.
Initially, Coles set about rebadging Bi-Lo stores and began rolling out a new logo on some supermarkets and petrol stations.
And then, just a few months later, it was all off. In November 2007 Wesfarmers shelled out $22 billion for the Coles Group, including Kmart, and Mr Fletcher was out. After ruminating about whether to sell the Kmart problem child, Wesfarmers decided to stick at it, possibly one of the wisest punts taken in retail.
For the last financial year, Kmart had sales of $5.5 billion and profits of $500 million, up 17.7 per cent. Target's sales amounted to $3 billion with the embattled chain losing $10 million.
On Wednesday, Wesfarmers chief executive Rob Scott said it was likely many Target stores would be rebranded to Kmart, a complete turnaround from the situation 12 years ago.
Dr Wilkie said it was the Target brand that was now fighting for its life.
"They need to work out how they can disrupt the market with Target and change the way people shop.
"Not in an incremental way, in a major way. Anything incremental and competitors will copy or exceed."
Later this year, Wesfarmers has said it will demerge Coles, finally severing the link to Kmart.
OTHER FAMOUS NAMES THAT HAVE BEEN REBRANDED
Safeway to Woolworths
While Woolworths had set up about rebranding branches in other parts of Australia to its own name, such as Purity in Tasmania and Action in Western Australia, it left Safeway in Victoria well alone for much longer.
An established brand for two decades, Woolies took over Safeway in 1985 and south of the Murray retained the Safeway name; even going as far as to convert its own stores in Victoria.
But in 2008, Sydney-based Woolworths bit the bullet and began renaming its Victorian branches. The final Safeway sign was removed just last year from a store in Wodonga.
Grace Brothers to Myer
Like Woolworths, Myer was initially reluctant to rebrand Grace Bros whose name was strong in NSW and Queensland. The Grace Bros name remained in place for a decade after Myer's takeover but in 2004 it was pensioned off.
Franklins to Big Fresh
At one time Franklins supermarkets rivalled Coles and Woolworths for market share, particularly in NSW. The chain pioneered discount retailing and the No Frills private label range led Woolworths to eventually develop Homebrand.
But a move into fruit and veg, with the conversion of stores to the Franklins Big Fresh banner, was a disaster.
"It failed because there was that inconsistency that Franklins was seen as cheap and Big Fresh tried to be premium," Dr Wilkie said.
Franklins limped on until 2010 when it was sold to IGA.