Brand portfolio’s need to be managed as a collective, not as individual stand alone brands.
A 44 per cent slide in Target’s earnings before interest and tax (EBIT) to $136 million in the June year confirms that Wesfarmers has a major challenge on its hand. The interesting thing is that it cannot be simply blamed on a soft retail sector. Kmart another brand from the Wesfarmers’ stable posted a stunning 28.4 per cent jump in EBIT to $344 million in the same period. Kmart has posted double-digit EBIT increases for four successive years. Both Target and Kmart are in the same market, both are classed as discount department stores, but that is where the current similarities conclude.
Kmart has been credited with a strategy that has been cutting the store’s range (from about 50,000 products to 12,000), lowering prices (priced as cheaply as possible every day), sourcing directly from China to improve margins, reducing costs and focusing strongly on the Mum’s of this world with everyday products in the areas of clothing, homewares and children’s ranges.
Whereas all we are hearing about Target is that it is a ‘broken business’ with deep rooted issues. That is a huge downward spiral from 2007 when it was perceived as the best performing brand in the Coles group acquired by Wesfarmers. So what are the lessons for brand portfolio managers?
The number one lesson is that the owners of a portfolio of brands need to simply do that…own the portfolio. Manage the different brands as a collective, so that the individual brands work synergistically. If you take the counter view and decide that the brands should operate as individual business units, whereby they sink or swim on the merits of their individual management teams, you have failed. You have potentially walked away from a shared corporate knowledge that may well shape your greatness. Kmart has managed its product sourcing and supply chain brilliantly, while Target has stumbled season after season in these areas. Surely Wesfarmers and its shareholders would be better off if both businesses had agreed their respective market positioning from a consumer perspective and then worked collaboratively to fulfill that desired market positioning. Kmart and Target should be brothers in arms against their respective and shared competitors, not competitors. Any sourcing competencies that an individual Wesfarmers business has that is relevant to another Wesfarmers brand it should be shared.
Stuart Machin is the relatively new Managing Director of Target, and what Wesfarmers should be decreeing as mandatory is that he work collaboratively with Kmart’s CEO Guy Russo. In fact there is a strong case to suggest that Russo, the driver behind Kmart’s turnaround should also be managing Target. If he was then you would assume he would be forced to gain absolute clarity on the respective marketing positioning of the brands and then harness his exacting capability in executing that strategy.