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Thursday 31 May 2012

Kmart: Guy Russo interview - "We've served 20 million more people in last 3 years."

I like a retail MD that says what we're thinking: that most Aussie mums (86.4%, in fact) are under financial pressure and have had to reassess spending.

That's what MD of Kmart Guy Russo [above] acknowledges, and this figure has climbed enormously since similar Roy Morgan Research in July 2011, where 78.7% of mums reported being under financial pressure.

In fact, according to this poll, 85.5% of mums say they have to sacrifice spending on themselves to keep up with necessities, and 57.1% say increases in prices of electricity, fuel and other household costs have impacted enormously on the family budget.

Mums are cutting down on beauty products, clothes for themselves and home décor in favour of spending what they have on their kids and food (nooo! But in all honesty, yes... this happens in my house, too).

Mr Russo says Kmart has reduced the prices of many products across the store by around 30% over the last eight months and has just dropped prices again on another 330 products, demonstrating Kmart’s commitment to keeping prices as low as possible for Australian consumers.

Mums have said they want a retailer to understand they are doing it tough – 72% of mums think that it is important that retailers they shop with regularly understand the increasing financial pressures that their family budget faces.  69.9% of mums think it is very important to shop with a retailer who understands and supports them in difficult times.

Guy Russo took some time for an interview with Josie's Juice to answer some questions: 

"About a year ago, we decided that instead of complaining about what was happening with pricing on ‘the outside’, we decided to look at ourselves internally. What we know is that Australians are paying too much at retail level, and the retailer should be part of the solution here, by finding ways to reduce their prices at the cash registers.

"So I have actually turned this on its head by saying, well instead of blaming this on the economy or outside factors, what is it we can do to remove costs in doing business, and then drop our prices. Because if we drop our prices – which we have done significantly since we last met you at the Broadway store opening [late 2011], we end up getting more value for our customers, which is crucial when its time for them to have to tighten their belts and really save money.

"My starting point is forgetting how bad the econony is, and just remembering that there is stuff that mum needs and dad needs, and the kids need; we’ve got to find ways to keep finding ridiculous, gob-smacking prices and deliver them to people. Like $8 jeans, and cups and saucers for $1, and girls and boys t-shirts for $4.

"Everyone thought, it can’t be done! The good news is: we’ve done it.

"And, we’ve dropped our prices by 30 per cent since last year – and that’s every day. We don’t discounts anymore, we just drop prices.

"And now we are dropping prices even more in next few weeks.

"What l've learned is that I think every other retailer is overcharging, and now I get it. We had the wrong model for four years.

"And in the last two or three years - by putting price as king - we’ve served about 20 million more people."

But: how on earth is Kmart still staying so profitable, I ask Guy.

"It’s a volume game in the end. The formula is simple, but it’s very difficult to execute, I think. The formula is that you buy direct - that’s the most important thing. If you have many middle men you’re paying every one of the those middle people before the product even gets to your back door.

"So, step one is buy direct. We always bought from overseas, which meant we always had four or so people between us and the factory. The second thing is, buy volume. And what I said to the buyers is, instead of having 50 styles of jeans, which denim retailers proudly show off, just bring those 50 styles to 10, and then back them in volume.

"And so when you buy volume of a few items, you then can buy them at a lower cost because you’re dealing wih the supplier direct, and then sell at the lowest price. And that's the last part of the formula. 

"And what retailers do: they don’t sell at the lowest price because they want to do this things called 'sales', which I am dead against. Sales mean mum comes in at '30% off this weekend', and those sales are forcing the consumer to buy when the retailer wants the customer to buy, versus selling them at a low price 365 days of the year.

"David Jones and Myer could do the same thing with their products instead of trying to trick mum into a mid season sale, and soon as the mid season is over - which who knows when that is, as there seems to be one of those sales every three weeks - they then bump the price up twice.

"Not only are Australian retailers charging too much, I think that model is so out of date, and if you listen to the results - which they publish every quaerter or every month - they’re all complaining about margins and sales being down. The problem is internal not external; they’re running off an old model that is based on tricking comsumers on when and what to buy. 

"Whereas we take the simple approach of low prices every day of the year. Our challenge is to find the right products because we've got to make sure you have what the consumer wants. We pick the everyday items, things that people need every single day.

So, what’s next for Kmart?

"Continuing to find lower prices for consumers. Mum is so selfless – she feels the financial frustrations and pressures, and we know that.

"I don’t want my team to ever let go of finding ways to help families save money. This price journey for me is very important. As is the quality, and the ethical sourcing, which I very a big thing right now. 

"Consumers want to know that when we're sourcing from overseas we're buying products from overseas that are using reputable labour. And the factories are treating their staff right.

"Price, quality, and ethical sourcing are a must for me.

"If I found any factory doing something that was not acceptable to global standards, I would stop dealing with them immediately.

Below are some of the bargains you can nab at Kmart. 

And here are some of the more recent price changes:

- an entire men’s outfit for $22 (was $27)
- women’s jeans $8.50 ($10)
- eight-piece non-stick Hudson cookware $29 (was $39)
- women’s plus tees $7 (was $10)
- two kids singlets $4 (was $5)
- Five litre stainless steel slow cooker $19 (was $25). 

For more, see: http://www.kmart.com.au/ or go visit your local Kmart store!

And check out this page FULL of lower prices: http://www.kmart.com.au/LowerPricedProducts.aspx

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