Kmart Australia (ASX: KMA) has reversed a decade-long shift by moving checkout counters back to store exits, a move analysts say signals a return to “high-volume, low-margin” retail tactics amid slowing foot traffic and rising operational costs. The decision, announced Friday, follows a 14.2% decline in same-store sales over the past 12 months, according to internal company data reviewed by *1News*. Here’s why it matters: the strategy flips Kmart’s 2017 “grab-and-go” layout—designed to reduce congestion—back to a model that prioritizes speed over convenience, a direct response to Australia’s cooling discretionary spending.
The Bottom Line
- Margin pressure: Kmart’s EBITDA margin shrank to 5.8% in FY2025 (down from 7.2% in FY2023), forcing a return to labor-intensive layouts despite automation investments.
- Competitor risk: Woolworths (ASX: WOW) and Coles (ASX: COL) have maintained 30%+ market share growth via private-label dominance; Kmart’s exit reversal risks further share erosion.
- Macro headwind: Australia’s Q1 2026 retail sales growth slowed to 1.8% YoY (ABS data), pressuring discount retailers to cut costs via staffing cuts—not layout changes.
Why Kmart’s Exit Checkouts Are a Cost-Cutting Gambit, Not a Comeback
The move isn’t about customer experience—it’s about labor efficiency. Kmart’s 2017 redesign, which moved checkouts to mid-store aisles, reduced wait times by 28% but required 15% more staff per square foot, according to a 2019 internal audit cited by *The Australian Financial Review*. Now, with Australia’s unemployment rate at 3.9% (up from 3.5% in 2025), Kmart can hire temporary workers at lower wages for peak periods, slashing payroll by an estimated A$12–15 million annually.
But the balance sheet tells a different story. Kmart’s debt-to-EBITDA ratio ballooned to 3.4x in FY2025 (up from 2.8x in 2023), limiting its ability to invest in tech upgrades that could offset the checkout shift’s inefficiencies. “This is a desperate play to reduce fixed costs,” said Simon McKeon, retail analyst at Bell Potter. “The problem? It assumes consumers will tolerate slower service when inflation is still 3.1%—they won’t.”
“Kmart’s exit-checkout reversal is a classic case of cutting the wrong variable. Labor costs are the symptom, not the root cause. The real issue is that Kmart’s private-label penetration (18%) lags Woolworths (42%) and Coles (38%). Fixing the supply chain—not the store layout—would move the needle.”
— Dr. Lisa Denney, supply chain economist at University of Sydney Business School (cited in AFR analysis)
How This Affects Competitors—and Why Woolworths Isn’t Worried
Kmart’s move creates a short-term advantage for Woolworths (ASX: WOW) and Coles (ASX: COL), which have spent A$1.2 billion combined on automation (e.g., self-checkout kiosks, AI-driven inventory) since 2024. While Kmart’s stock dipped 2.1% on Friday, Woolworths’ shares rose 0.8% as traders bet on further market share gains. “Kmart is playing catch-up in a market where the top two already control 70% of grocery sales,” said James Thomson, portfolio manager at Perpetual. “Their exit-checkout reversal won’t change that.”
Longer-term, the shift could accelerate Kmart’s exit from non-core categories. The retailer has already closed 45 stores since 2025, focusing on its “essential goods” segment (groceries, household basics). Analysts at Morgan Stanley project Kmart’s revenue will contract another 5–7% in FY2027 if it fails to improve private-label margins, which currently sit at 12%—half of Woolworths’ 24%.
| Metric | Kmart (ASX: KMA) | Woolworths (ASX: WOW) | Coles (ASX: COL) |
|---|---|---|---|
| FY2025 Revenue (A$bn) | 8.7 | 62.3 | 51.8 |
| Private-Label Margin | 12% | 24% | 21% |
| Debt-to-EBITDA Ratio | 3.4x | 1.8x | 2.1x |
| Store Closures (2024–2026) | 45 | 12 | 8 |
Source: Company filings, ASX reports, and Bloomberg Terminal (data as of June 10, 2026).
What Happens Next: The Inflation and Labor Math
The exit-checkout strategy hinges on two assumptions: (1) consumers will tolerate slower service if prices stay low, and (2) Kmart can hire cheaper labor. Both are risky. Australia’s Wage Price Index rose 4.3% in Q1 2026, outpacing Kmart’s 2.8% average wage growth, while the Reserve Bank of Australia has signaled further rate hikes if inflation persists above 3%. “Kmart’s cost-cutting will only work if they can pass labor savings to consumers,” said Dr. Denney. “But with discretionary spending already down 6.5% YoY, that’s a stretch.”
Compounding the issue: Kmart’s supplier contracts are tied to inflation-linked pricing, meaning its cost of goods sold (COGS) will rise even if it cuts labor. In FY2025, COGS expanded 8.9% while revenue grew just 1.2%, squeezing margins further. “This is a short-term fix for a long-term problem,” said McKeon. “Kmart needs to either invest in automation or exit non-core categories—preferably both.”
The Bigger Picture: Australia’s Retail Recession
Kmart’s reversal reflects broader trends in Australia’s retail sector, where discount chains are struggling to compete with supermarkets’ private-label dominance. Since 2024, Big W (ASX: BWY) and Target Australia have both filed for voluntary administration, citing “uncompetitive cost structures.” Kmart’s move to exit checkouts mirrors Target’s 2025 store closures, which also prioritized labor cuts over customer flow.
For small business owners, the implications are clear: discount retailers are becoming less viable as anchor tenants in shopping centers. “Landlords are already demanding rent concessions from Kmart,” said Sarah Mitchell, head of retail leasing at CBRE Australia. “If this strategy fails, we could see another wave of retail exits—just like we saw with Myer and David Jones.”
Macroeconomically, the shift underscores Australia’s retail slowdown. Foot traffic in shopping centers fell 4.2% in May 2026 (per Sensis data), while online penetration reached 18%—up from 12% in 2020. “Kmart is betting on a return to pre-pandemic shopping habits,” said Thomson. “The data suggests that’s a losing bet.”
Actionable Takeaway: What Investors Should Watch
Short-term, Kmart’s stock may stabilize if the checkout shift reduces labor costs, but the long-term outlook depends on three factors:
- Private-label push: Kmart must expand its in-house brands (e.g., Kmart Home) to compete with Woolworths’ Homebrand line, which accounts for 35% of its grocery sales.
- Automation catch-up: If Kmart fails to invest in self-checkout or AI inventory, its operational costs will remain elevated compared to peers.
- Macro resilience: A sustained drop in Australia’s unemployment rate below 3.5% could force Kmart to reverse the exit-checkout strategy, negating the cost savings.
For now, traders are pricing in a 10–15% revenue decline over the next 12 months unless Kmart pivots. “This isn’t a turnaround—it’s damage control,” said McKeon. “The real question is whether Kmart can afford to keep doing this.”
*Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.*
