The decision to relocate Target’s head office – coupled with the poor returns from the retailer – will drag down the returns of parent company Wesfarmers by up to $1.3 billion.
The group revealed this week the write down of its Target business, mainly on its goodwill, reflected the lower value of the discount department store.
Target’s restructuring costs and provisions would add another $145 million to the bill, Wesfarmers added.
The restructuring costs includes about $30 million for the 240 head office redundancies and relocation, $35 million to streamline the supply chain and $80 million in inventory write-downs to clear old stock, rationalise the range and delete unwanted products.
Target is expected to declare a significant loss, expected to be as much as $50 million, after sales declined against lower margins.
Wesfarmers managing director Richard Goyder said the group believed in doing what was right for the long term future of its businesses.
“We have never shied away from taking tough action in the short term if that is what is required,” Mr Goyder said.
“The decisions reflect more difficult market conditions but we remain confident that operationally we have the right plans to improve future performances over time.
“Whilst Target has made operational progress in recent years, market competition and disruption has continued to accelerate, including from the very strong performance of Kmart.
“Within this context, the group created the new Department Stores division with a mandate to deliver a higher long term earnings outcome for the overall division.
“Under Guy Russo’s leadership, the new management team has completed a detailed assessment of business opportunities and begun revising strategic plans, which will include greater property co-ordination as well as accelerating activity in Target to ensure that it has the best foundation possible on which to build future success.”
Wesfarmers said the accounting impairment in Target was the non-cash in nature and had no effect on current trading.
