Objective

The focal point of the report is not only restricted to identifying the issues that Kmart and

Target were facing rather a solution or recommended actions are also discussed in the report

so that the remedies can be identified properly. As a result of that, both Kmart and Target will

be benefitted to restore business properly, then Wesfarmers will produce long term wealth

and increase shareholder profits in the long run.

Advantage
Differentiating To deliver a brand identity for both Kmart
and Target and creates strong market
capitalisation so that both the companies
will get strategic advantage as well
Disadvantage
Before copying K's strategy, T's
business activities were not really
effective, which led to a decline in
revenue in the last 5 years.

To gain competitive advantage in the retail

market of Australia.
Merging Be able to stop losses To lose the brand value
produce a long-term wealth
Selling Gain amount of money immediately To lose the brand value
reduce competitive advantage

Options Advantage Disadvantage

- Before copying K's strategy, T's

business activities were not really
- To deliver a brand identity for both Kmart
effective, which led to a decline in
and Target
revenue in the last 5 years.
- To create strong market capitalisation so
that both the companies will get strategic
Differentiating - Need to change the
advantage as well.
organization's operations to pursue
- Gain competitive advantage in the retail
a differentiation strategy.
market of Australia.
- Establish sustainable business environment.
-Need to take quite a long time to
implement the strategy

-To lose the brand value

- Reduce competitive advantage at
- Be able to stop losses produce a long-term
Merging the high and middle customer
wealth.
-Expand the market share of Kmart. segments
 - Gain amount of money immediately
- To provide additional funding to support and
Selling Reduce competitive advantage
accelerate other investment projects of
Wesfarmers

Solution

In order to improve the feasibility and effectiveness of resolving internal competition issues

of Kmart and Target, the following options will be carefully analyzed and considered so that

Wesfarmers can choose the right solution for meeting initial objective.

 Differentiation strategy is identified as the first measure that Wesfarmers must

implement in order to deliver a brand identity for both Kmart and Target and creates

strong market capitalisation so that both the companies will get strategic advantage as

well. It is very important for both Kmart and Target to understand the obligation

towards Wesfarmers and creating a strategic measure for the parent organisation so

that Wesfarmers can get profitability also through the process In addition to this, it

can be stated that the measures have to be carried out by both Wesfarmers and the

subsidiary companies like Kmart and Target in order to establish sustainable business

environment. However, according to Wesfarmers’ annual report, before replicating

Kmart’s strategy, Target's business practices were not really effective, which led to a

gradual decline from $3,825m in 2010 to $3,456m in 2016 and drastic reduction from

2016 to the present; moreover, the proportion of revenue between Kmart and Target

in the department store division gradually changed from 51/49 to 65/35.

 Selling Target is considered as second option in order to help Wesfarmers stop losses

and gain amount of money immediately. The market price of Target can be estimated

by using P.E of department and discount retail of 24.63 (csimarket.com) multiplied by

 Target’s profit after tax of $123.3m; so its result is approximately $3,037m. This will

also provide additional funding to support and accelerate an opportunity for Kmart to

perceive in-depth knowledge regarding the customers and their interests so that it can

identify the right business strategy for the future. Otherwise, according to Deloitte

Access Economics, volume of retail sector in September illustrated the worst result

since the GFC period, dropping 0.2% yearly. In addition, burden in retail price keep

strong, eroding the growth because of high debt level as well as low wage growth.

Therefore, selling Target will lead to the fact that all of the above combined with

fierce competition in the Australian retail market will reduce Wesfarmers' business

efficiency and competitiveness in this market.

 The merging Target into Kmart would be the last option for this problem. This will

help stop Target's inefficient business operations and expand the scale of Kmart by

inheriting the market share of 5.6%, chain of 289 stores, customers relationship,

management teams of 13,000 members. Besides, Kmart will get more business capital

and ability to access new funds, diversify risks and enhance financial transparency as

well as reducing operating costs by minimizing duplication in distribution networks,

saving operating costs and management costs. However, Target is ranked 57th in the

100 most valuable brands in 2019 (brandirectory), down 10 places compared to 2018

and its brand value is estimated at $400 million, so Wesfarmers may lose Target's

brand and intangible assets if the merger is made.

Implementation plan:

In order to meet the initial goals set out, a detailed plan preparation for differential

strategy is essential to reduce risks, time and costs as well as increase the feasibility of

the project. Therefore, the plan should be carried out step by step below:
  Stage 1: Evaluating the market trends and customer needs

Proper assessment of the market trends and customer demand is also

considered to be a pertinent aspect for Wesfarmers to be followed for restoring

the business of Target. It is important to note that there are still some chances

for Target to revive its brand value at the cost of understanding the market and

setting proper customer segments that will be loyal to Target only. The market

trends and analysis in this regard, can develop an opportunity for Wesfarmers

to perceive in-depth knowledge regarding the customers and their interests so

that it can assist to identify the potential customers and bring distinctiveness in

the process of creating a target market base for both Kmart and Target.

The given table will show expenditure of market research

(vernonresearch.com)

Market search methods Minimum Average

budget budget
Focus Group $4,000 $6,000
Individual in-depth $200 $300
interviews
Online surveys $15,000 $35,000
Analysis of the competition $14,000 $18,000
A study of market share $12,000
Statistical modelling of $25,000
customer behaviour
Product tests with $7,000 $12,000
consumers

This stage is expected to take about 6-8 weeks

 Stage 2: Repositioning Target's brand

The role and responsibility of Wesfarmers is very crucial in this process where

the organisation is going to play the role of a leader or guide for the subsidiary

companies to foster their strategies properly through setting different

objectives for the Kmart and Target which will be distinct and clearly

identified the different aims and objectives of Kmart and Target. The role of

aims and objectives will also help Kmart and Target to create effective

strategies so that there will be no clash between the two companies in doing

business effectively and gain strategic advantage in the market. The

implementation will consist of keeping the product line of Kmart and

reposition the product of Target. In particular, Target should cooperate with

major brands in fashion, furniture, home appliances because it was not popular

to sell private products with cheaper price range to the customers (Mitchell

2019). Rather the strength and uniqueness of Target was vested on its selling

of branded products with reasonably low price. In addition to this, Target

should promote a fierce advertising campaign to increase customer awareness

and perception of the brand. Moreover, KPI is set based on some metrics,

including: Customer conversion rate of 20% and 2% for physical store and

online store respectively (Hausmann, V., & Williams, S. (2016)), the growth

rate which is equivalent to the industry average of 2.1% (modorintelligent), ,

sales per square foot of $350, ROA, ROI, ROE which are equivalent to the

industry average of 5.53%, 11.38%, 15.21% respectively. Monitor social

media activities are important in the KPIs. For example, the company's like,

shares and comments are some of the key elements that indicate the success of

the campaign or otherwise. Increase in comments and shares is key indicator

of the success in the campaign. (I’m looking for specific KPI of social media

activities in retail market)

This phase is expected to last for 2 years and evaluate every half year. If KPI

is not met, a research of individual in-depth interviews will be conducted to

find the cause and a proposed budget for recovery is $100 million. If KPI is

not met for the next audit, the differentiation solution will be canceled and a

plan for Target merging into Kmart will be considered.

(I am quite confused about the contingency plan, if I choose another solution

as the backup plan, is that reasonable? So why wasn't it chosen as the primary

solution in the first place?)