Target toy sale cut costs company $80m

The company made a controversial decision to axe the annual toy sale which has cost the company millions. Photo / 123rf

Target's controversial decision to axe its popular toy sale cost the business AUD$75m (NZD$80m) and saw overall sales drop a whopping 22 per cent in the first three months of the financial year.

Wesfarmers department stores chief executive Guy Russo, however, is standing by the move. "We're never happy with a less than positive result, but we are transitioning this business," he told analysts during the company's first-quarter sales update on Wednesday.

Pressed by Merrill Lynch's David Errington on the wisdom of cancelling the toy sale and losing the halo effect of mums and kids shopping in-store, Mr Russo was defiant.

"The toy sale is an unprofitable event," he said. "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."

Target's total sales for the quarter were $643m (NZD$690m), a decrease of 17.1 per cent on the same period last year, while comparable store sales were down 21.9 per cent.

Mr Russo blamed the poor result on the toy sale cancellation, as well as lower promotional activity as the company moves to an everyday low pricing model, and a slow start to summer seasonal sales.

He said the full effect of the toy sale cancellation would not be known until the end of the year. "The comparable sales number has the lay-by effect of the toy sale from the first quarter, and this game is about the November-December period," he said. "It's hard to predict what the pick-up will be."

Mr Russo said as the company moved to everyday low pricing on toys, customers would start to "come back and buy those products in November and December".

Pressed on the wisdom of muddying the waters by moving both Kmart and Target to an everyday low pricing model, Mr Russo said he was "confident" but admitted 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.

"Our products are ordered nine to 12 months out, so some of the changes to getting fashion and low prices right takes time. Confidence is the right word. The team is really wanting to get Target back to where it belongs and not be chasing the bottom end of the market."