How Kmart Group Australia successfully upended its business model

Kmart Australia’s decade-long transformation from traditional discount chain to innovative, modern retailer started with a $5 tea kettle.

“We started with the basics around 2008, 2009, and we just tried to do basics really well,” Ian Bailey, managing director for Kmart Group Australia, said at NRF 2024: Retail’s Big Show.

While looking at the sales and return rates for tea kettles, Bailey and his team noticed that many were being returned due to quality issues. “When we looked at return rates, return rates even then were lower than the [other] brands, but because we sold so many, it’s still a lot of returns. That got us into really understanding the IP that goes into every product,” he said in the conversation with Euromonitor International’s Global Lead of Retail and Digital Consumer Insights Michelle Evans.

Soon, Kmart Australia took design into its own hands, focusing on the heating element, the quality of the plastic, the cord and the plug. Eventually, the company launched its own in-house brand of home goods, called Anko.

Clarity of purpose

Anko has allowed Kmart Australia to connect with customers on two levels, according to Bailey. One is the rational: low prices for budget-conscious customers. The second is making high design — typically seen in more expensive brands — more readily available.

“The core insight that drove our business was, ‘Let’s deliver lowest price without compromise.’ I think when you associate low price, that generally comes with some caveat — the caveat might be on the design, the quality, the store experience,” Bailey said. “We very much wanted to create an environment where customers felt that they didn’t have to compromise. And we found it’s been a very powerful driver for our business.”

The tea kettle lesson led to another business revelation: To hit low price points, a retailer needs volume. So, Bailey and his team went through the process of figuring out which products and categories to replace with the Anko brand and even which products to remove from stores completely.

In the case of Anko, Bailey said the retailer focused on basic home goods like small kitchen appliances, linens and towels, and laundry room items, and stayed away from non-profitable items like TVs and BBQ grills.

Empowerment through technology

Over the last 10 years, revenues for Kmart Australia have doubled; the Anko brand makes up 85% of the retailer’s products today. The products have a massive fan base of devotees who often share their enthusiasm for products like the brand’s $3 tea towels and $99 coffee maker on social media through dedicated pro-Anko accounts.

Bailey believes the social media appeal has a lot to do with the fact that having an in-house brand and complete design offerings in several categories across all 325 Kmart Australia stores simplifies and co-ordinates the selection, allowing customers to move around the stores seamlessly.

“The net result is a complete offering across category in a small space,” he said, noting that Anko products rank as number one or two in “pretty much every category we play in.”

One unintended consequence of having Anko on the shelves has been even greater data and lower inventory overall.

“The data quality we get from one brand is exceptional,” he said. “Because we run one product, and then we’re running pretty much at everyday pricing model, the net result is we get incredibly clean data. And that enables us then to get very good at demand forecasting, which then means we can have great availability with relatively low stock levels. That gives us the ability to then start testing new products, to drop them in because we’ve got the inventory capacity to do so. So, all of that comes out of data.”

From local relevance to global expansion

The popularity of the Anko brand has led to global opportunities. Anko products can be found in Hudson’s Bay stores in Canada including Zellers, and it’s just signed a partnership with Mattel to sell Anko’s popular line of wooden toys at major U.S. retailers. Bailey and his team are also looking at opportunities for partnerships and expansion in Southeast Asia.

Whether they are buying a tea kettle at Kmart Australia, wooden toys in the United States or tea towels in Southeast Asia, Anko customers can be sure they are getting the best value without compromise, Bailey said.

“The thing I think that’s unique for us is we’re generally trying to figure out, ‘How do we create a better product and make the price lower?’,” he said. “Most retailers do the opposite. They’re trying to figure out, ‘How can I justify charging a little more?’ We’ve really made it our mission over time, to constantly find ways to pass that value back to our consumers.”