As Kmart moves into the next phase of its price and product overhaul, Melinda Oliver explores how the new strategy is resulting in changes to the apparel sector for the retail giant.
A decade-long sales plateau was a clear sign to Kmart managing director Guy Russo that a major shake-up of the national department store retailer was vital. After taking on the top job at the price-conscious chain in 2008, Russo was determined to shift sales from an average of $4 billion annually, skyward.
Russo and his team undertook a long, detailed review of the business, looking at international success stories such as Primark, Tesco, Asda and Walmart for inspiration. Kmart quadrupled its research budget, consulting employers, suppliers and a sample of its two million weekly customers to find out what they wanted from the store. This led Kmart, owned by retail giant Wesfarmers, to completely rework its module to offer a key point of difference from its competitors, such as Big W.
Focusing on the needs of families on tight budgets, Kmart set out to provide what it terms as ‘everyday items’ at the lowest possible prices. It decided to scrap traditional high to low sales structures in favour of providing low prices all year round.
Dividing its floorspace into the four key areas of kids, living, clothing and events, it cut its product offer from 100,000 down to 45,000 SKUs, ensuring that all remaining goods fit the ‘everyday items’ theme. At a presentation in the group’s Chatswood (Sydney) store late last month, Russo said this meant larger orders of essential items are placed, ensuring the volume equates to cheaper costs for consumers.
In addition to price, he said cleaning the stores, removing product from main walkways and simplifying its marketing message across print and television were all key moves. Service has been reviewed, with simple gestures such as greeting and thanking customers revisited.
More self-service checkouts have been placed in stores and opening hours extended to 24 hours in 23 of its 184-store network across Australia and New Zealand.
Earlier this year, Kmart general manager of apparel Andre Reich outlined to Ragtrader the changes that were to take place in the clothing division as a result of the new module.
He explained that it had implemented a more refined approach to its ordering – selecting key, on-trend items and basics, lifting the ‘taste-level’ of prints and colours, and ordering larger quantities of essential goods, in the most popular sizes.
With an estimated 20 minutes spent in store by each customer, Reich said it is essential that they can find what they want at speed. Therefore goods on the floor were re-merchandised into racks of items all at the same price, with all prices clearly signed. Simple prices such as $6, $10 or $15 are used, with all cents removed.
Six months on, Reich said the results of this tactic are proving positive. Major success has been seen in childrenswear and womenswear, with changes to the menswear category still in development.
“Eighty per cent of [womenswear] product on the floor is $19 and below and 90 per cent is $29 and below,” he said. “It is a big shift because we had prices going up to $99 just a month ago.”
He said women’s product such as basic singlet tops, t-shirts and leggings are proving the strongest sellers at around $6 a piece. Long fashion tops with trend-driven motifs, French-style stripes or embroidered detail now hit the $19 mark.
“What we have been able to do now is get that Zara, H&M and Sportsgirl look at incredible prices,” he said.
The variety of jeans styles offered has been simplified to cover the most on-trend looks, with prices reduced from $39 or $29 to $19 a pair. Reich said this has resulted in thousands of additional sales.
“We haven’t had a strong denim business in the past, so this is an area that we will grow,” he said.
For men, Reich said that cutting the price of a classic jean from $20 to $10 has seen sales go from 100,000 units to 800,000 units.
In footwear, buying key styles such as ballet flats in bulk and simplifying prices to either $10 or $15 a pair has seen units sold grow from 300,000 to one million.
Further changes under review include cutting back on swing tags, coat hangers and transport packaging. While each may only contribute a five or 50-cent price drop per garment, the impact across a bulk order is significant.
Reich said as stronger deals are being made with suppliers in India and China, a greater level of detail and fashionability will be injected into the product. New apparel is dropped into store every two weeks, with distribution becoming increasingly streamlined to avoid product piling up out the back of stores.
Communicating the new approach to customers began back in March, with a television advertising campaign themed ‘Expect Change’, along with a complete overhaul of catalogues.
A second round of television advertisements was released in late July, focusing on the customer experience in store and exemplifying the low prices. Kmart general manager of marketing Paul Church said the company is determined not to ‘shout’ about the low prices to customers, but to communicate it honestly and simply.
He said the objective is to gain customer trust and develop a long-term connection with the brand.