Target suppliers claim management is missing in action at the discount department chain. Photo: Jane Dyson
Target suppliers claim the Wesfarmers-owned chain is in disarray amid expectations department store chief Guy Russo will announce an impairment as early as next month, when he unveils the "Karget" blueprint.
One supplier, who would only talk on the basis of anonymity, said Target buyers had cut back on orders and were contradicting each other on the strategy for the chain.
The appointment of Mr Russo, the former Kmart boss, to head up Wesfarmers' department store chains division has brought Kmart and Target under the control of a single leader. But there is still considerable uncertainty over how sales at Target can grow without cannibalising Kmart.
Wesfarmers declined to comment.
"The buyers at Target don't seem to have any direction from management on what they are doing," the supplier said.
Target's orders accounted for more than one-fifth of this suppler's total orders in calendar 2015, compared to just 3 per cent of its total invoices so far this calendar year.
Suppliers and manufacturers are already taking Christmas orders and one producer said Target needed to get its house in order if it wanted to cash in on the seasonal spending spike.
"The buyers are totally at sea, some of them tell us Target is going down the Kmart path and they've got to get low prices every day through deeper stock orders but we're also hearing they're trying to close out the financial year on low inventory levels," he said.
"They have also been slow in paying invoices ... our bank asked us if we were going OK with Target because it was hearing they were delaying payments," he said.
Merrill Lynch analyst David Errington said parts of the Target business were dysfunctional following the abrupt departure of management under difficult circumstances.
Outgoing Target boss Stuart Machin exited the business in early April amid revelations supplier rebates were used to bolster Target's first-half earnings by as much as $21 million.
The chain then announced job cuts, representing as much as 25 per cent of the workforce and plans to relocate Target's head office from Geelong to Melbourne.
Wesfarmers' discretionary retail chains are also facing considerable currency head winds, according to Merrill Lynch as the hedging arrangements that boosted the conglomerate's first-half earnings before interest and tax by more than $250 million come to an end.
"We think Kmart is is likely to suffer the most , being one of the largest direct importers of products in Australia," Mr Errington said.
"We expect earnings, in terms of margins, to contract, particularly for Kmart as the benefits of past currency hedging have played out, we think it is likely that Kmart and other retailers will need to start increasing prices."
He said volume increases at Kmart have offset recent margin pressure associated with the lower Australian dollar but it was not clear if this sales growth would continue if prices went up.
One source close to Target said he expected Mr Russo would call out some sort of impairment against inventory at Target but he said until the release of the strategy everything was "on hold".
While Mr Russo fine-tunes his Karget strategy, Woolworths is driving the turnaround of its discount department store business Big W.
Big W has already flagged a second-half loss as the weaker Australian dollar squeezes margins and it clears out inventory and rebuilds the Woolworths-owned business.
And chief Sally Mcdonald dispatched about 40 buying staff from the chain's head office last week as part of a restructure of the chain's overseas sourcing.
"An interesting question is where is Target relative to Big W, Sally [Mcdonald] is making decisions," he said.
"I've struggled to see the relevance of these brands for a long time, Target actually means something whereas Kmart is just dirt cheap but I'm not sure about the others.
"Guy Russo's challenge is to find a way where all of Kmart's growth is not just coming from beating up Target," he said.
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