The art of Kmart- why the discount retailer is thriving while rivals such as Big W struggle

After undergoing a significant transformation over the past several years, Kmart Group has begun to deliver impressive profits for its owner, Wesfarmers, much to the envy of competitors.

This week marked the closure of the last full-sized Kmart in the U.S., highlighting the challenges that traditional department stores face in an era increasingly dominated by online shopping. However, Kmart in Australia is defying this global trend, emerging from years of rebranding and revitalization. As a result, the retailer has reported substantial profits, with revenues jumping nearly 5% to $11.1 billion last financial year, even amid rising cost-of-living concerns that have affected many shoppers. In contrast, rival Big W has seen a decline in revenue.

According to UBS analysts, Kmart’s transformation has gained momentum post-pandemic, as the retailer now attracts an equal mix of low, middle, and high-income customers, breaking away from its past image as a mere discount store. Notably, Kmart has effectively cannibalized its own brand, Target.

Experts attribute Kmart’s strong performance to its popular home brand, Anko, which has positioned the retailer as a product creator rather than just a seller of others’ goods. Kmart’s strategy involves replicating popular items—such as shapewear similar to Skims—but at more affordable prices. The brand has built a robust social media presence, targeting lucrative demographics like young adults and parents through influencer marketing.

“Suddenly, their range became more relevant, and their products became more attractive,” says Brian Walker, CEO of Retail Doctor Group. “They created a parallel social media marketplace that really made it cool and a bit chic to shop at Kmart.”

While Kmart and its U.S. counterpart once shared a market strategy under a common shareholder, the Australian store has strategically evolved to meet today’s challenges. Walker points out that while Kmart has effectively tackled the online threat posed by giants like Amazon, it will need to continue adapting as new online competitors, such as Temu and Shein, emerge and claim market share.

“The big box retailer was predicated on the assumption that they wouldn’t encounter these big online players,” Walker explains. “Now, these online companies are starting to dominate the value segment, which is the core of the discount department store model.”

Shoppers have found many of the same products available from online-only retailers, which can undercut prices by eliminating brick-and-mortar costs.

In comparison, Big W, Kmart’s main competitor, has experienced inconsistent revenue since the pandemic. While Big W saw a rise in 2021, it fell in 2022, went up again in 2023, and has dipped once more in 2024. Woolworths Group, which owns Big W, described the retailer’s recent performance as “challenging,” with value-conscious customers opting for other options.

First Sentier Investors has reportedly called on Woolworths to divest Big W, suggesting it hampers the more profitable supermarket side of the business. UBS analysts note that while Big W primarily sells branded products, Kmart has developed a sufficient scale with Anko, enabling it to offer its own range at competitive prices.

Though Kmart is thriving, Target has lagged in revenue before being integrated into Kmart’s operations, further blurring the lines between the two retailers as shoppers now find Anko products available at both stores. Revenue has also dropped sharply for Catch Group, an online retailer owned by Wesfarmers.

“While Kmart repositioned itself, Target didn’t have a clear direction to follow, leading to the situation where Kmart effectively cannibalized Target,” says advertising professor Robert Crawford from RMIT University.

The challenge for discount retailers lies in enticing customers into their stores, given they were never designed as destination shopping venues. “Discount department stores never aimed to be magical places,” Crawford notes. “They emphasized efficiency—come in, grab what you need, and get out quickly.”

Kmart has experimented with relocating checkouts to the center of stores to reduce congestion and energize the shopping experience, but customer responses have varied. Despite these challenges, Kmart has successfully embraced digital strategies, competing with online-only retailers by tapping into influencer-led trends.

Numerous social media posts feature consumers showcasing their Kmart “dupes,” products designed to emulate more expensive brands. Professor Billy Sung from Curtin University emphasizes that Kmart has cultivated an emotional connection with shoppers that typically more prestigious brands strive to achieve.

“It’s not just about luxury or premium status; it’s about people feeling they are getting a good deal,” Sung explains. “Kmart has branded itself as the place to find similar products at lower prices than elsewhere.”