Kmart is going from strength to strength despite the broader retail sector suffering a recession, with experts saying its success is down to its ANKO brand.

The discount department store has increased sales by 4.4 per cent over the past financial year, with cash-strapped shoppers flocking to the retailer for its cheap products.

University of Sydney retail expert Lisa Asher said Kmart is “killing their competition” with an own-brand model that prioritises value for consumers struggling with cost-of-living pressures.

“They have done well on their ability to follow trends and modern design at a low-cost price,” Asher said.

“Their ability to do this has assisted them in winning younger shoppers all the way through to older [shoppers], particularly with prices once you’re in there.”

ANKO products are often the subject of buzz on social media, particularly on TikTok where users rave about the range of cheap goods and “dupes” of name-brand expensive items.

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Essentially, Kmart has invested not just in selling products, but also designing and making them, giving it more control than competitors over the goods on its shelves and how much they cost.

Upwards of 85 per cent of products in Kmart are now ANKO and the brand is also expanding into Kmart’s sister business Target this year, helping to lift its sales growth out of the doldrums.

But Asher said that ANKO prices are so low for a reason, with questions about the sustainability of their model and a lack of transparency in how their overseas supply chains are being run.

“[They’re] sourcing from developing markets with lower environmental and labour laws,” she said.

“They [also] do not support Australian Made, which is a shame and impacts our ability to support local products and reduce our carbon footprint.”

Strategy behind success

ANKO started when Kmart decided in 2018 that it would stop branding products across its various departments individually and would instead bring everything under the ANKO banner.

The strategy is known as vertical integration, where businesses invest in their upstream supply chains to better control everything from product manufacturing to the goods sold at their stores.

Kmart’s case is a bit different though, because as Asher pointed out they doesn’t actually own all their production – they often contract manufacturers who produce the goods that they design.

Kmart’s head office is in Melbourne, which is where the business works on its own-brand designs, often taking inspiration from online trends and duplicating more expensive products.

But their products are manufactured overseas, in China and other countries throughout Southeast Asia, depending on whether the product is homewares or their apparel range.

Retail Doctor Group chief Brian Walker said Kmart’s vertical integration gives it an advantage over many competitors because it’s able to tailor its products to customer needs and control price.

In other words, the recipe to ANKO’s success has been consistent product quality, better value than competitors and focusing on those products which drive high volume through the business.

“They’ve got the price volume metrics right on product, they’ve extended range where it was relevant and they’ve built a huge social media following,” Walker said.

“It’s become quite cool to have Kmart products … they’ve marketed quite wisely, particularly to young families and young mothers.”

ANKO expansion

The ANKO model has been so successful for Kmart that Rob Scott, chief executive at parent company Wesfarmers, now says the department store is as much manufacturer as retailer.

“What is driving sales is quite simple – it is fantastic products at amazing prices,” he told reporters on Thursday.

“Kmart as a business, through ANKO, is as much a product development and design company as it is a retail company.”

Walker said that emphasis on product development and design opens the door to new revenue streams, with ANKO now being stocked in Target and a series of other retailers overseas.

That includes stores in Canada, Indonesia, Thailand and even e-commerce across India.

“[ANKO] enables the Kmart business to focus on different revenue models,” Walker said.

“They’re a manufacturer, they’re a retailer – it’s all morphing – it’s becoming about the power of the brand, their distribution and where their opportunities for revenue growth are.”

But Asher said it’s unclear how sustainable this model will be, particularly as younger shoppers look towards more ethical consumption in the future.

“The rise of ethical consumption is occurring, but not fast enough. We have a cost-of-living crisis, some people do not have a choice,” Asher said.