Guy Russo Promoted to Manage Kmart & Target

Wesfarmers is shaking up the management of its department stores with the promotion of Kmart managing director Guy Russo to run both Kmart and Target.

Russo, who started his career at McDonalds in 1974, is one of the rising stars at Wesfarmers having delivered several years of extraordinary profit growth at Kmart.

He will take up the newly created position of chief executive of department stores on Wednesday. The current managing director of Target, Stuart Machin, will answer to Russo.

Russo was appointed managing director of Kmart in 2008 while Machin was appointed Managing Director of Target in early 2013.

Machin, who previously worked in Coles as operations director, is in the middle of a long term transformation plan at Target.

The plan involves driving sourcing and supply chain efficiencies, accelerating store renewal, reducing the number of products on offer and embedding a “first price, right price” strategy.

Russo is expected to bring his successful Kmart management techniques to Target. There is expected to be an emphasis on joint procurement policies for both Kmart and Target.

Also, Russo will likely take advantage of the opportunity to extract value from the Target property portfolio in order to significantly lift Target’s return on capital.

Target has been the problem child at Wesfarmers for many years. It suffered from excess inventory after changes in strategy left warehouses full of stock. The purchasing managers at Target made decisions that did not resonate with customers.

Target had annual revenue of $3.4 billion last financial year and earnings before interest and tax of $90 million. That translated to an EBIT margin of 2.6 per cent and return on capital of 3.6 per cent.

That is in stark contrast to Kmart which earned $432 million before interest and tax last year on revenue of $4.55 billion. That was an EBIT margin of 9.5 per cent and return on capital of 32.9 per cent.

Citi analyst Craig Woolford is tipping Target will have EBIT of $100 million in the first half of this financial year, an increase of 43 per cent. EBIT margin for Target is forecast to be 5.1 per cent, according to Woolford.

Russo’s Kmart is expected to have earnings of $332 million before interest and tax and an EBIT margin of 12.2 per cent, according to Woolford.

One of the keys to Russo’s success has been his focus on price leadership, close management of the costs and continued investment in the network of stores.

Machin’s shift sideways could prompt him to leave Wesfarmers. But it is believed the senior management would like him to stay.