A merger of Target and Kmart will see shoppers abandon both stores in favour of Big W and cost their owner Wesfarmers hundreds of millions of dollars, the conglomerate has been warned.

The two discount chains were brought together under Wesfarmers' new department store division in February, with ex-Kmart boss Guy Russo put in charge of running the businesses and turning Target around.

No Big W stores will be closed as part of the restructure. Credit:Brendan Esposito

Wesfarmers has said it would cut administration and purchasing costs through the restructure and also flagged converting Target stores to Kmarts and vice versa.

But Bank of America Merrill Lynch retail analyst David Errington has described the restructure as a "merger" of two fierce competitors which will be "highly problematic" and cost the company sales and earnings.