Kmart targets AI and online shopping shift with new K Home store
Retail giant Kmart is launching its first physical showroom for furniture and homewares in a bid to grab a bigger slice of a $35 billion market, and Rob Scott, chief executive of parent company Wesfarmers, says physical outlets remain important despite the growth in online business.
Wesfarmers, which also owns Officeworks and Bunnings, is navigating the changing retail landscape as more and more shoppers rely on AI and buy online.
Speaking to this imprint at Wesfarmers’ strategy day in Sydney on Wednesday, Scott said he was optimistic about Kmart continuing to grow its physical stores. The company’s new “K Home” concept, opening in Melbourne’s Box Hill South, is the latest addition to the concept.
The 3,800-square-foot trial store, first announced last week, will be a standalone furniture and homewares store. According to Scott, the store is the company’s response to the limited space available in existing Kmart stores to display and “bring to life” home products.
“We have been developing the furniture category for several years, but we only sell it online because there are limitations for us to effectively display furniture in a Kmart store,” he says, noting that some areas have retail zoning rules that prohibit retailers from selling bulky items like furniture as well as general items like clothing.
The move into furniture retailing will put Kmart, which has been a strong performer for Wesfarmers, into closer competition with Swedish furniture giant IKEA.
In an ASX announcement, Wesfarmers said it now has a 12 per cent share of the furniture and homewares market, estimated at a total of $35 billion.
Kmart’s popular Anko brand has been a key factor in the firm’s success since becoming the store’s own brand in 2019, and will feature heavily in the new K Home store, alongside other curated furniture and storage products, in an area designed for special exhibitions.
Scott says that if the trial K Home store generates good customer traffic, increases in sales and achieves a profitable result, a second store will be on the agenda.
Wesfarmers may be doubling down on its physical store presence, but the company is also focusing on integrating AI into its operations and customer experience.
Scott expects Australians to increase their use of technology for shopping.
“It’s still early days, but you know what’s interesting is that Australians are fast adopters of technology,” he says. “A lot of the data we’re seeing across large language models, whether it’s Gemini or Open AI, shows that Australians are very enthusiastic users of this technology.”
For example, a few weeks ago, shortly after Bunnings introduced “Buddy” – a way for customers to search for product information and DIY advice via chat – the firm found that nearly 50,000 customers a week were using the tool.
Scott says this is changing the way people search for products, with shoppers often searching around a project, event or inspiration rather than typing in specific products.
Artificial intelligence tools like Buddy and “Joy” at Kmart also encourage shoppers to buy more, improving conversion rates and increasing basket sizes, Scott says.
This was crucial at a time when Australian customers were feeling cost-of-living pressures from inflation and high interest rates, restricting spending and posing a challenge for many businesses.
“We often see signs of cost-of-living challenges at lower basket sizes because they are forced to make choices or customers are forced to switch to lower-priced items to save money,” Scott says. But businesses that focus on everyday low pricing, such as Kmart, Bunnings and Officeworks, tend to benefit relatively in these circumstances, he noted.
Even as AI and online shopping become more prevalent, Scott says physical stores still play a vital role in keeping customers coming back.
“Many of our most avid online shoppers still love coming to our stores,” he says. “One of the dangers for retailers is that if they focus solely on e-commerce and do not invest enough in their stores, customers will stop going to stores.”
Citi analysts said Wesfarmers’ strategy presentation included details on how the company aims to make the most of AI across its divisions, including initiatives to increase productivity and “monetise” data assets.
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Millie Muroi is the economics writer for The Sydney Morning Herald and The Age. He was previously an economics correspondent for the Canberra Press Gallery and a banking writer in Sydney.Connect with: X or email.
