Kmart is running rivers of gold as shoppers hunt for bargains amid the cost-of-living crunch, with the retailer seeing a massive hike in sales despite the stalling economy.

The Wesfarmers owned Kmart posted a 52.3 per cent rise in annual earnings, to $769 million, on Friday.

It is now looking to expand its range of cosmetics, youth apparel and storage to attract budget conscious families.

Ian Bailey, managing director of Kmart Group, told investors on Friday  the retailer was seeing “great results” across its expansion priorities, as other retailers struggled.

“We feel like we’re delivering better value than the majority of players in the market,” he said.

“That’s encouraging customers to come to us … we’re seeing solid growth across all the main categories.”

Excellent position

There aren’t many retailers with such positive results at the moment: JB Hi-Fi, Myer, and Rebel owner Super Retail Group are all seeing sales slow.

But Kmart, owing to its vertically integrated supply chain, doesn’t play by the same rules and is looking to take market share off other players with cheaper prices and a wider range.

“Everything we sell is the lowest price,” Mr Bailey told investors on Friday.

Brian Walker, a retail expert and director at Retail Doctor Group, said a slowing economy is an opportunity for Kmart because it’s one of few brands in Australia that can thrive on skint consumers.

“They’ve positioned themselves particularly well – they’ve worked out the price and volume metrics,” he said.

“They’ve invested into new categories particularly well and have built a strong brand.”

That strong position delivered Kmart $10.6 billion in sales over the past year.

Rise of Amazon

However, Kmart is facing strong competition from Amazon.

Amazon has quickly become one of the biggest mass merchandise retailers in Australia, able like Kmart to offer a range of private label brands while also selling big brands, Mr Walker said.

“Amazon on its current trajectory will be Australia’s largest mass merchandise retailer on the value end within the next five to seven years,” he said.

That underscores why Kmart is so keen to expand its range as the next few years will be crucial as consumers hunt for bargains.

Amazon and Kmart are battling it out. Photo: AAP

Target changes

Kmart Group’s fortunes will also be tied to Kmart’s flagging sister brand, Target, which it is increasingly incorporating into its own operation, both in terms of supply chains and stores.

About 25 per cent of Target’s range will soon be Kmart’s private label Anko brand, Mr Bailey said on Friday, which the company hopes will deliver a much needed uplift in sales for toys and home products.

The ongoing conversion of Target stores to Kmart has also delivered better profits than expected, according to Wesfarmer’s new remuneration report.

Mr Walker said Kmart’s consumption of Target would help the company grow its strongest department store brand in the face of competition from Amazon.

“The rebadge helps them scale up Kmart and effectively downscale the physical scale of Target,” he said.

“Target will morph into a regional brand and ultimately an online marketplace brand,” he said.