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Kmart’s worrying sales trend shows how bargain store’s profits plummet

Kmart has suffered tumbling year-on-year profits sparking fears for the hugely popular discount store.    

Annual earnings are the lowest they have been in five years, despite shelves being stripped throughout the coronavirus pandemic.

Profits have dropped $130million for the year – moving from $550million in 2019 to $414million for 2020.

In what turned out to be a terrible mistake, the chain delayed orders from suppliers throughout the pandemic instead of stocking up.  

Managing director of Kmart Group Ian Bailey told that the decision was made because many ‘retailers around the world suffered excessive inventory’.  

‘In New Zealand this proved to be accurate,’ he said.

However, this was not the case in Australia, which saw store shelves stripped bare and left without stock for months. 

Mr Bailey said having ‘too much inventory is a difficult problem for us to manage’ as it forces stores to put unwanted products on sale – bringing down profits and ‘dragging down the vibe’ of the shop.

Parent company Wesfarmers labelled sales growth in Kmart in the year’s second half as ‘volatile’. 

‘Sales in April were impacted by reduced foot traffic due to physical distancing requirements, store capacity limits and customers spending more time at home, as well as the government-mandated temporary closure of New Zealand stores,’ the report read. 

‘While sales momentum has improved, significant growth in high-demand categories such as home resulted in stock availability issues, which impacted sales in June.’ 

Despite falling profits, Kmart’s total sales increased 5.4 per cent for the year as well as comparable sales by 4.3 per cent.

The chain also opened nine new stores – including two replacements – closed one store and completed 14 store refurbishments. 

‘Kmart recorded solid earnings for the year despite challenging retail conditions, cost inflation due to the implementation of the new enterprise agreement, higher shrinkage and unfavourable foreign exchange movements impacting the result relative to the prior year,’ the report read. 

While Kmart admitted mistakes had cost them during the pandemic, JB Hi-Fi experienced a profit increase of 32 per cent and Officeworks fared a growth of 13.8 per cent to $197 million for 2020.

Bunnings also reported an increase in sales growth and store-on-store growth of 14.7 per cent.

Wesfarmers reported a profit of $1.69 billion after tax for the year ending June 30, 2020.

The net earnings of the group – which owns Kmart, Bunnings, Officeworks, and Target – was 31 per cent of the $5.5 billion it made in 2019. 

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