Target customers fuming over axed toy sale (article)

[Megatran]

This article appeared on Australian msn.com site.

http://www.msn.com/en-au/money/company-news/target-customers-still-fuming-over-axed-toy-sale-but-guy-russo-forges-ahead-should-business-turnarounds-have-a-plan-b/ar-AAjuoW2?li=AAgfYrC&ocid=mailsignout


Target customers are still upset at the retailer’s decision to axe its popular toy sale earlier in the year, and experts are skeptical about chief executive Guy Russo’s assertion that Target will stick with its turnaround plan as promised, despite a 22% drop in sales for the quarter.

A first quarter sales update on Wednesday revealed Target’s decision to end the annual toy sale saw $75 million in sales evaporate. In the post-mortem, analysts pressed Russo on whether the move was a wise decision and whether it’s here to stay.

“The toy sale is an unprofitable event,” he told analysts, according to news.com.au.

“We costed it end-to-end. It involves six months of holding and managing stock and extended Christmas lay-by. In the long term it was the right thing to do.”

The decision to axe the major toy lay-by event was met with outrage from some shoppers at the time, and several customers continued to express their displeasure after the numbers were released.

“Seriously stupid decision not to have a Christmas sale!” said one shopper.

Russo told analysts earlier this week Target will not know the full fallout of the sale’s cancellation until the end of the year.

Michael Stapleton, a founding member of the Association of Virtual CFOs, told SmartCompany when advising his clients on a big turnaround, he’d question whether a sales event like the Target toy sale even needed to be cancelled completely.

“I’d probably say, ‘we know the sale isn’t working, let’s try to do it differently,’” Stapleton says. This could involve running the event but without the depth of discounts, he believes.

To remove a key part of operations like this, “it has to be pretty disastrous”, Stapleton says.

But Russo told analysts the sale has always delivered a blow to Target’s bottom line, and customers will likely pick up similar products as Christmas shopping gears up in November and December.

Russo also heads up sister retailer Kmart and analysts questions him about the merits of both discount department store chains operating on an everyday low price model. He said he remains confident in the strategy, despite admitting he “probably went too fast” in the first six months.

“I don’t have a plan B,” he said.

“I’ve got 300 stores that knew how to win in this space about a decade ago. The only difference is a lot of new competitors are there now. We do need to set Target as a volume fashion retailer.”

Stapleton says he would always advise clients to have more than one possible turnaround plan, because a strategic overview was about constantly monitoring results.

“It’s about continuous improvement,” he says.

“You’re constantly measuring whether things work and if they don’t, you go to the next plan.”

In the past quarter Target booked sales of $643 million, a decrease of comparable store sales of 21.9% compared with the previous quarter.

The company has had to interact with several customers online who were initially disappointed by the inability to place toys on lay-by for the Christmas period, and continue to be unhappy with the lack of available online lay-by payment options in store.

The online lay-by debate has run across several discount department stores, with customers also demanding better payment methods at Big W and Kmart.

Target Australia told SmartCompany this morning the decision to end six-month lay-bys for toys this year came from the changing buying habits of customers.

“Parents told us that buying toys six months in advance was becoming difficult as kids were changing their minds on what toys they wanted due to promotional new releases,” a spokesperson said.

“We can confirm we still hold a Target Toy Event that takes place in July with over 550 new toys available,” saying this will involve the “everyday low price” that customers have come to expect from the retailer.

“We have worked hard to offer our customers the best possible prices all year round – so customers don’t have to wait for a sale to know they are getting great value,” the spokesperson said.

[Sinnertwin]

“The toy sale is an unprofitable event,”

But Russo told analysts the sale has always delivered a blow to Target’s bottom line


“Seriously stupid decision not to have a Christmas sale!”

If the majority of consumers actually honoured their part of the agreement and completed their laybys, Target probably wouldn't be in this predicament in the first place. Let's just blame Target anyway :rolleyes:

[griffin]

I don't see why customers should be that upset over a sale not going ahead. It's not like they "need" the toys, or that there aren't other toy sales on anyway. It just sounds like a journalist trawling for the best quotes for the spin they need on their article.

It also sounds like it's just the Layby portion of the sale that loses them money... but instead of fixing the layby system (either by increasing the layby fee, or the cancellation fee, to cover the cost of storing the stock and discounting it when it returns to floor after the products are no longer available), they are axing the entire promotion it was attached to, as if the sale can't exist without it.
I say, have the toy sale, but scrap the cheap extended layby... or fix it by charging more for it to cover its own cost.
Target chose to have a layby scheme that didn't charge people enough in fees to cover it's cost, or to penalise those who were financially irresponsible to greedily pile up on a layby that they were never going to be able to pay for... all for the promotion of it to get people into the store. If a particular promotional doesn't benefit the business, then drop it, not the whole sale.

A sale brings in revenue and customers, otherwise they wouldn't have them... but to not have a sale just because the one-off element they chose to have attached to this particular sale (the cheap extended layby), is neutralising any benefit of the sale... that seems like a really bad business decision, and not a surprise that Target is struggling if they are making those sorts of decisions (scrapping money-making elements that are paired, but not bound, to loss-making elements).

I don't usually see too many people here noting that they went to the Target toy sale (or any of the major toy sales) to layby the Transformers toys that were on sale... most of the people who go for a sale item are posting about buying it. If there is something there that you can't afford to buy outright, then maybe it isn't something you "need" to buy. Even Christmas items for kids - if it costs too much to be able to afford, or buy later, maybe too much is spent on gifts, just because marketing has made it a requirement to spend billions on materialistic gifts, with many kids no longer valuing the items to really appreciate the sacrifices getting them, or even looking after them.... because they will just want more stuff later, or better stuff next Christmas.

[BigTransformerTrev]

I don't see why customers should be that upset over a sale not going ahead. It's not like they "need" the toys, or that there aren't other toy sales on anyway.

It was the only toy sale that ever happened in our town. 1 toy sale for the entirety of each year was all we had and now it's gone.

Not everyone lives in a big city mate.

[Fungal Infection]

As a person who has cancelled their layby after a toy sales event at Target, I have to agree and say that the cancellation of extended laybys is a good measure. However, that being said, I would never have cancelled my layby if I didn't see the same item being offered by Target on ebay with a 20% off offer. So really a case of Target shooting themselves in the foot here!! And just for reference, the item I originally had on layby was the Target exclusive Lego Batman Batcave set which retailed at $399, but was later available on their ebay store at 20% off!!

[griffin]

It was the only toy sale that ever happened in our town. 1 toy sale for the entirety of each year was all we had and now it's gone.

Not everyone lives in a big city mate.

Sorry... the second half of my sentence would of course only apply to us big city folk... but the first half (we don't "need" the sale, and obviously, all life didn't end without the sale), applies to all of us.

[BigTransformerTrev]

Sorry... the second half of my sentence would of course only apply to us big city folk... but the first half (we don't "need" the sale, and obviously, all life didn't end without the sale), applies to all of us.

No dramas.

Personally the last toy I layby'ed was Energon Omega Supreme - if I can't afford it I don't get it.

[DaptoDog]

The whole lay-by issue is a sideshow. Russo is employing the same play book he did at Kmart. This time it has an even better chance of working because he now controls both Kmart and Target. His methods of using of flat pricing (EDLP) at Kmart has won trust with customers who just used to wait for things to go on sale (previous hi-lo strategy).

It works particularly well in clothing, he cuts the price, lifts the volume and then secures better terms with Chinese etc factories. He then lowers the price again which drives volumes further. The drop in sales is simply a rebasing of the business to set it up for growth. Also, Kmart for the same period posted 8% same store sales growth, so he got some of the lost Target sales back there.

Big W is really struggling, there is some chance that it becomes loss making as Target eventually gets turned around and Kmart powers on. It is rudderless and likely will be sold off by Woolworths.

[reillyd]

I can't see this as being anything other than the fault of the managers (lay-bys policy, distribution and sale prices) and the toy buyers. Toys are plastic crack and both parents and kidults line up to buy them. But if you offer the wrong toylines and only old wave 1 stock of any line you aren't going to sell it even at sale prices. Target are glutted with old Tmnt, Marvel and Dc..... But they're also full of RC car stock and wrestling figures they bought big on too. Barbie and DC Supergirls too.... Yknow, if you're in to that sort of thing ;)

We all know how people shift their retail habits to the store that has the stock. Simply by getting your stock on shelves instead of in a distribution center means you scoop the other big two and THEY get stuck with Wave 1 instead of you.

[DELTAprime]

I never see anyone in my local Target (formerly branded as Country Target) and the last several time I went into Target in Rocky it was deserted also. Whatever it is that is keeping customers away needs to change or they may as well just shutter the stores.

[Tetsuwan Convoy]

I love this line

“I’ve got 300 stores that knew how to win in this space about a decade ago. The only difference is a lot of new competitors are there now...
He's essentially saying that the stores who were winners before were because there was no competition. Now that there is competition, they can't handle it.
Australian retail in a nutshell ladies and gentlemen

[Mythirax]

If the majority of consumers actually honoured their part of the agreement and completed their laybys

The anger I personally feel inside. I never thought I would hear 600 different excuses a day on why they never bothered to make a payment.

[prjkt]

The anger I personally feel inside. I never thought I would hear 600 different excuses a day on why they never bothered to make a payment.

I remember working a midnight open toy sale at Kmart. People waiting in the queue for literally hours. Served someone at the entertainment counter at 1am, saw her leave just before 5am. There are multiple prams/strollers in the store, and almost no on me buying outright (hence being sent from the front end registers to the entertainment counter)

Something like 60% of those laybys never had a single payment, and even more were never paid off in full...

That was the last no deposit layby toy sale they ever ran.


Legally when laybys are being cancelled, retailers are allowed to only do a partial refund, to cover the cost of any price change/loss they'd make trying to sell the product again - eg if something was $50 at the time of layby, but on clearance for $20 the retailer is entitled to only refund $20 to offset their loss. I wonder what would happen if the big box retailers started doing this...

[Lint]

The whole lay-by issue is a sideshow. Russo is employing the same play book he did at Kmart. This time it has an even better chance of working because he now controls both Kmart and Target. His methods of using of flat pricing (EDLP) at Kmart has won trust with customers who just used to wait for things to go on sale (previous hi-lo strategy).

It works particularly well in clothing, he cuts the price, lifts the volume and then secures better terms with Chinese etc factories. He then lowers the price again which drives volumes further. The drop in sales is simply a rebasing of the business to set it up for growth. Also, Kmart for the same period posted 8% same store sales growth, so he got some of the lost Target sales back there.


I'm doubtful if the same trick will work twice. He's turned Kmart into the Walmart of Australia which has stolen business from both Big W AND Target.

It'd be interesting to see how that 8% growth stacks up against Target's losses. Oh wait here's a chart.

http://i.imgur.com/2GQ1ufx.gif

To be fair the large dip in the end for Target is caused in part by exorbitant spending to give stores a facelift. Though keep in mind Kmart have been doing the same thing these past couple of years and have barely bent a fender.

I'm selfishly not a fan of the competent direction Russo is taking these stores. It's going to result in big retailers realising that toys just aren't as profitable anymore now that we are the in 'app' generation and subsequently exiting the market (like DJ's did years before). This means more expensive toys for us.

[DaptoDog]

I'm doubtful if the same trick will work twice. He's turned Kmart into the Walmart of Australia which has stolen business from both Big W AND Target.

It'd be interesting to see how that 8% growth stacks up against Target's losses. Oh wait here's a chart.

http://i.imgur.com/2GQ1ufx.gif

To be fair the large dip in the end for Target is caused in part by exorbitant spending to give stores a facelift. Though keep in mind Kmart have been doing the same thing these past couple of years and have barely bent a fender.

I'm selfishly not a fan of the competent direction Russo is taking these stores. It's going to result in big retailers realising that toys just aren't as profitable anymore now that we are the in 'app' generation and subsequently exiting the market (like DJ's did years before). This means more expensive toys for us.

You're correct that Kmart has been profiting from Target, in fact since Wesfarmers bought out Coles group it's mostly been a zero sum game.

2009 EBIT
Kmart $109m
Target $357m
Total $466m

2015 EBIT (since 2016 is somewhat distorted as you noted)
Kmart $432m
Target $90m
Total $522m

Mind you, they were being run independently with very different strategies. We will see I guess.

I agree it's definitely not good from a collecting point of view. Target till now has been far more focused on brands, while Kmart is very much private label driven. I can see Target ranging far less Generations line Transformers under the new leadership. Thankfully, Myer and TRU seems committed and we now have PC and other great international online retailers to satisfy our plastic cravings.

[DELTAprime]

Something like 60% of those laybys never had a single payment, and even more were never paid off in full...


The no deposit layby has gone away at Big W exactly because of this. The first reaction of customers when I told them was WTF, then when I go on to explain how people were abusing the no deposit layby to do exactly what prjkt explained they realised it was a good thing because then stock wouldn't be held up in layby limbo that legit customers wanted to purchase or layby.

[Sinnertwin]

I'm selfishly not a fan of the competent direction Russo is taking these stores. It's going to result in big retailers realising that toys just aren't as profitable anymore now that we are the in 'app' generation and subsequently exiting the market (like DJ's did years before). This means more expensive toys for us.


Guy's restructuring will mean less product sitting in the back of house, less interest paid on stagnant stock & quicker product turnover. They'll also still have their in house brands in amongst the traditional ones.
Hot Wheels, Lego, Star Wars, Barbie, Monster High, VTech, Nerf, WWE, Monopoly etc... all of these are being sold & haven't fallen victim to the Kmart brand.

You'll still see toy product levels increase to meet demand during the traditional mid year school holiday and Christmas periods -it's the quieter periods in between that'll need to have the store inventory controlled and maintained.

If toys weren't as profitable as they are for Target, the company would have removed them from stores just like they did with the Pets and Luggage departments & utilise the floorspace with clothing and accessories.

Target just need to find their place in the retail hierarchy again and not try to compete with the likes of Myer and David Jones. Cafes, playgrounds, shoe fitters, bra fitters, cosmetic consultants... all they were missing was the car wash and mechanic :rolleyes:

[DELTAprime]

BTW, Kmart didn't exactly do a great toy sale this year, do we know sales numbers for Kmart 2016 sale vs 2015 sale?

[Keidatron]

Kmart stopped doing no deposit toy sales years ago. I think the last one would have been when Animated was still new... It was absolutely the right thing to do.

[tron07]

I'm doubtful if the same trick will work twice. He's turned Kmart into the Walmart of Australia which has stolen business from both Big W AND Target.

It'd be interesting to see how that 8% growth stacks up against Target's losses. Oh wait here's a chart.

http://i.imgur.com/2GQ1ufx.gif

To be fair the large dip in the end for Target is caused in part by exorbitant spending to give stores a facelift. Though keep in mind Kmart have been doing the same thing these past couple of years and have barely bent a fender.

I'm selfishly not a fan of the competent direction Russo is taking these stores. It's going to result in big retailers realising that toys just aren't as profitable anymore now that we are the in 'app' generation and subsequently exiting the market (like DJ's did years before). This means more expensive toys for us.

Target seems to have lost their direction.

To me, Target is suppose to be slightly more upmarket then kmart, where their product are more expensive and slightly better compare to kmart with their cheap eletricals, clothing, etc... but when they start to sell the same cheap china made stuffs like kmart and their home brand products, they are like abandoning their own customer base and try to entince Kmart customer base. Kmart customer will always stick to kmart or just pick the cheaper product that suits their need, thus Target is on losing end.

Also the no plastic policy hurt them as well as customers seems to go else where so now they have seem to bring back the plastic bags again.