Kmart’s $7.50 Product Sustains Turnaround, Saving the Retailer from Extinction

Kmart, once on the verge of extinction, has revealed how a simple $7.50 product played a crucial role in its remarkable turnaround. Ian Bailey, the Managing Director of Kmart Group, which also includes Target, discussed the retailer’s revival and the expanding global presence of its Anko brand in an exclusive interview with news.com.au.

Bailey attended the 2024 Retail Big Show event in New York, where he highlighted Kmart’s rise to becoming one of Australia’s most popular retailers. In a stark contrast to its current success, Kmart was struggling in 2006 when Bailey joined as chief financial officer. Ranking third out of three discount department stores, Kmart faced potential rebranding as “Coles Living” under Coles ownership.

However, a pivotal moment occurred in 2007 when chemicals conglomerate Wesfarmers acquired Kmart, preserving its name and providing a lifeline. The turning point for Kmart’s revival came with the introduction of a $7.50 white plastic kettle, serving as a profitable entry-point for the retailer. Bailey admitted that initially, concerns arose over the quality of the product as a significant number of customers returned the kettles. Despite this setback, the data revealed a lower percentage of returns compared to higher-priced branded kettles, prompting them to improve the kettle’s workmanship.

As part of its transformation, Kmart also reduced the number of brands on offer, paving the way for the success of its house brands, notably Anko, which now accounts for 85% of sales. Kmart exited certain categories such as barbecues and televisions, focusing on becoming a leader in specific areas. However, the exclusion of barbecues resulted in a decline in sales for surrounding product categories. Consequently, Kmart reintroduced barbecues until they found a suitable category to expand into, replacing lost sales.

Kmart’s revival stemmed from a three-pronged approach: excelling at basic everyday products, offering slightly higher-priced items with added value, and continuously seeking new product opportunities. The expansion of its toy range, particularly wooden toys under the Anko brand, proved successful. Recently, Kmart entered the youth apparel market, targeting 16 to 22-year-old girls and women, resulting in positive outcomes.

Regarding Target’s future, Ian Bailey reassured customers that the appearance of Anko homewares on Target shelves did not indicate the demise of Target as a standalone store. The incorporation of Anko products in Target serves to avoid duplicated general merchandise across Kmart and Target, allowing Target to focus on differentiated offerings. For instance, Target can excel in selling premium pure wool jumpers, which might not be feasible at Kmart’s price point.

Furthermore, Kmart’s Anko brand has extended beyond Australian borders, notably into Canada through a partnership with major retailer Hudson's Bay Company. Zellers, a subsidiary of Hudson’s Bay Company, currently stocks 85% of Anko products. Kmart has also collaborated with toy giant Mattel to resell a range of Anko wooden toys under Mattel’s brand. Additionally, Kmart is exploring opportunities to expand the Anko brand in South and Southeast Asia.

Kmart’s impressive turnaround, now serving as one of Australia’s leading retailers, can be largely attributed to the introduction of a $7.50 kettle. With strategic adjustments to its house brands, product offerings, and expansion into international markets, Kmart has defied its earlier struggle and now stands as a flourishing retail powerhouse.