Kmart Australia will beat Amazon prices, CEO Ian Bailey says

KMART managing director Ian Bailey has a simple message for Amazon: bring it on.

The department store boss is ready to do battle with the e-commerce giant when it launches in Australia later this year, striking fear at the heart of the nation’s $300 billion retail sector.

And its greatest weapon will be its ability to compete on price like no other, Mr Bailey told news.com.au.

The budget department store chain, which has just announced a swathe of dramatic price cuts after opening a new “mega factory” in Indonesia, has been on a winning streak in recent years after a successful turnaround.

Such is its popularity that Kmart has sparked Facebook fan pages with hundreds of thousands of followers, and with every new store opening shoppers queue up to get their taste of its famous “cheap chic” wares.

Mr Bailey wants to reassure them that Kmart is not going anywhere, despite all the fuss about Amazon’s war cry of coming to “destroy Australian retail”.

AMAZON PRICE MATCH

“Our goal will be to be at or below Amazon,” Mr Bailey told news.com.au, adding: “I think the question will be whether they match us or not.”

And, unlike some other retail bosses to have proclaimed their readiness to do battle with Amazon, he’s got form.

Kmart’s success is based on its consistent, lowest price strategy, which has seen it rise to dominance over competitors — even its Wesfarmers stablemate Target, with the unintended effect of “cannibalising” the mid-market department store.

Its product range is 80 per cent home brand, making it possible to get prices right down using economies of scale.

“On the price front we’re pretty aggressive,” Mr Bailey said. “We keep dropping our prices because we know it’s great for customers, and makes it difficult for our competitors to match us.”

The chain’s best defence against Amazon, he said, was to “be the best Kmart we can be”, while striving for its “ambitious” goal of doubling in size within the next five years.

“We’re certainly not trying to go after Amazon, we’ll let them do what they do and I’m sure many customers in Australia would appreciate them.

“But in the same way, there’s an awful lot of customers who we know appreciate us, and if we do the right thing for those customers, I think that will continue into the future.”

BEHIND THE LOW PRICES

This week’s 20 per cent price drop on 320 products has come as a result of a new deal to produce the items at a “mega factory” on the Indonesian island of Java.

Among the reduced items are a women’s T-shirt priced at $4.50, down from $5; $3 undies, down from $3.50; bras for $5, down from $7; kids’ T-shirts for $2.75, down from $3; men’s sock for $5, down from $6; and $8 yoga mats, down from $10.

If there’s one factor that makes these cheap prices possible, Mr Bailey said, it is scale.

The chain sells massive volumes of its wares, meaning it can buy them at a low price — and it is constantly working to reduce costs.

Moving some of its production from places like China and Bangladesh to Indonesia has helped crunch the bottom line.

“The reason we like Indonesia is they do very good large scale production, but of a very good quality,” Mr Bailey said.

“It’s not the cheapest labour in the world, but what they do have is production on a huge scale, and that’s why it works for retailers like us that buy such large volume.”

He said the company worked closely with the factory’s management to ensure that workers’ pay and conditions met international standards.

Wage rates were set by regional governments, he said, and workers put in “a very modest amount of overtime” for which they were paid penalty rates according to local laws.

Asked if the new factory would kill off Australian jobs, Mr Bailey answered with an emphatic “no”.

“With a bit of luck, it’ll cause them to increase,” he said. “As we keep rolling out stores, we keep employing more people — our numbers are up to 30,000 and each time we open a new store we employ another 150 or so. We’ve been opening roughly 10 a year for quite awhile, which continues to be our plan.”

HOW DID KMART BECOME COOL?

Once considered drab and daggy, Kmart has become a place where stylish Australians rub shoulders with those on struggle street — and unashamedly flaunt their bargain buys on social media.

Mr Bailey puts the brand’s incredible turnaround down to “a lot of hard work by a lot of very capable people”.

Products that were once only available in specialty stores, priced upwards of $50, are now sold at Target for as cheaply as $8. Want a marble chopping board to go with your cheap kitchenware? You got it.

“Price is very important,” Mr Bailey said. “Just getting things to an affordable price we know makes a real difference to people who are finding it hard to make ends meet.”

Going forward, he aims to replicate the success of Kmart’s homewares section across the rest of its product range, and improve the in-store experience for customers.

“If you go into our store and look at our home products they feel like they’re all related, they look like they’re brothers and sisters and they belong together,” Mr Bailey said.

But in other parts of the store, he said, the products were “not quite as connected” and lacking in “a clear style”.

“You think about some of the best clothing retailers in the world, you walk into the store and know what to expect,” he said.

“We would love customers to walk into our clothing section and know what our style is.”

Check-outs were also due for a revamp, Mr Bailey said, with executives acutely aware of the buying process as one of the main customer irritations.

Despite customer interest, Kmart has no immediate plans to introduce Afterpay, but it is planning to roll out Click and Collect across all of its stores “in the not too distant future”.

When it comes to online, Kmart has moved slowly and steadily, a strategy that Mr Bailey said was intentional.

“We’ve deliberately kept it quite small as we learn how to do it in a profitable way, because one of the challenges of online is it can end up with some pretty large costs,” he said.

dana.mccauley@news.com.au

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