German retailer Kaufland gets set for Adelaide: Will it close in on Target and Kmart?

The launch of German hypermarket Kaufland into the Australian market looks one step closer, with reports the company has bought a large retail site in Adelaide, as retail experts warn this will launch a new chapter of the discount department store wars.

The ABC reports Kaufland, which is owned by German retail giant Schwarz Group, has purchased the site of iconic South Australian retailer Le Cornu furniture, which closed at the end of 2016.

Kaufland confirmed its plans to enter the Australian market in March, outlining details on its website of an interest in plots of land of a minimum 10,000 square metres. Fairfax reports the Le Cornu site, which is 36,000 square metres, was purchased for $25 million.

Kaufland has been tight-lipped on exact launch dates for the business, and did not respond to requests from SmartCompany for comment prior to publication. However, its Australian website advises job hunters to check back soon for updates on recruitment, citing “great career opportunities and tremendous scope for growth for employees in an exciting startup atmosphere” when the business launches.

Retail expert and associate professor at the Queensland University of Technology Business School Dr Gary Mortimer says the hypermarket’s decision to start operations in South Australia is “surprising”, but probably comes down to the heat currently in the commercial real estate market across the country.

“This could simply be about the availability of retail space. We know that pricing in Melbourne and Sydney is very expensive,” he says.

Mortimer says the South Australian groceries and consumer goods market is fragmented. As a result, he believes it will be interesting to see how Kaufland interacts with customers in a market already accommodating discount department stores, Aldi, the big supermarkets and an independent supermarket presence through IGA’s Foodland.

It’s likely Kaufland is also looking to get ahead of Aldi’s ability to secure a market in South Australia, given it only launched into the state at the start of 2016, Mortimer says.

Overall, however, the presence of Kaufland in Australia will no doubt have an impact on the discount consumer goods space, from Target to Big W, he says.

“I believe that all the food retailers and discount department stores are exposed here. Aldi is exposed, businesses like Target and Big W will be under pressure, and Kmart will be too.” 

The Kaufland ‘hypermarket’ model relies on a large number of private label goods as well as named brands across both food and lifestyle goods. Mortimer says it offers a point of difference with this range of merchandise.

News of Kaufland’s big buy also comes as retail sales numbers suggest traditional shopping centre and consumer goods bricks-and-mortar formats are struggling to keep up with the range of shopping options across the nation.

IBISWorld figures on the state of play in the shopping centre space suggest annualised revenue growth between 2018 and 2023 will be around 2.2%, while “consumer goods” retailing will grow at 1.8%.

This is compared with online shopping, which is expected to grow at 9.4% a year until 2023.

With expectations that Christmas trading this year will be subdued, IBISWorld analyst Kim Do explained the pressure is pushing bricks-and-mortar-stores to become more holistic, one-stop shop entertainment offerings.

“It is likely that shoppers will experience diversifying tenancy mixes at their local shopping centre, which are expected to include a greater range of lifestyle services, such as health and beauty services, dine-in restaurants, cinemas and bowling alleys,” Do says.

Retail experts have previously told SmartCompany that the Kaufland model already relies on the premise of being a “destination retailer”.

Chief executive of The Retail Doctor Group, Brian Walker, explained back in March that the Kaufland model already operated like a self-contained general merchandiser, offering everything “from fresh food, bulk item groceries, electronics, and even services like a florist and a bakery” within one retail site.

Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on Twitter, Facebook, LinkedIn and Instagram.