A chastened Mr Goyder, who has previously defended the Target strategy and resisted pressure to sell out of coal when prices were high, admitted the company had been too optimistic about the turnaround at Target, moved too fast to switch from regular discounting to everyday low prices and failed to keep control of inventories. "When you announce a couple of billion of impairments, even though they're non cash, I'm not doing cartwheels about it," Mr Goyder told journalists. "I wouldn't rate this as one of my better days in the group," he said. "I don't worry too much about what people think about me but I worry about what they think about Wesfarmers ... and days like today don't help." Wesfarmers shares, which have traded sideways this year, fell as much as 2.4 per cent before closing down 7¢ at $41.90. Analysts had been forecasting write-downs at Target since Wesfarmers restructured its department store operations in February and admitted in April that staff had artificially inflated earnings by $21 million by booking extra rebates from suppliers in return for promises of higher prices.

Wesfarmers appointed Kmart boss Guy Russo as chief executive to oversee the merged department store division. Target managing director Stuart Machin, who was to have taken a senior role within Wesfarmers, resigned last month. However, the scale of the impairments and the operating losses within Target exceeded market expectations. ​Wesfarmers will book non-cash impairment charges of between $1.1 billion and $1.3 billion pretax ($1.08 billion to $1.28 billion post-tax) on Target, mainly on the value of goodwill, and another $145 million in restructuring costs and provisions to clear mountains. Wesfarmers will also take a non-cash impairment of between $600 million and $850 million pre-tax ($420 million to $600 million after-tax) against the Curragh coal mine near Rockhampton. The write-offs and provisions will send Wesfarmers' bottom line profit plunging from $2.4 billion to about $200 million but will enable Wesfarmers to accelerate restructuring at Target and either deliver improved returns in coal when prices eventually turn or get out altogether.

Over the past five years, Target's earnings have fallen by more than $300 million or 75 per cent, while Kmart's profits under Russo have doubled to about $470 million. Mr Goyder said Target had made progress under Mr Machin, lifting the level of direct sourcing from almost zero to 50 per cent, closing 70 off-site storage facilities, and moving way from constant discounting towards a "first price, right price" model. Focus on margins "The problem we have in Target is not the quality of the inventory but we have too much – so good products aren't getting on the floor," he said. "Target sold too much on clearance and if you sell on clearance you kill your margins." Mr Russo agreed, saying: "What we have is too much stock coming in the back door and not enough going out the front door – that's it in a nutshell."

While Mr Russo has not yet fully formulated his turnaround strategy, he plans to take the scalpel to costs, cut the number of stock keeping units by half to about 50,000, reduce inventories to 10 weeks' supply rather than 17 weeks to reduce the need for discounting and trim prices further. "This business will be high volume fashion and basics at low prices," he said. Longer term, Mr Russo will convert underperforming Target stores into Kmart stores, exit categories that overlap with Kmart and boost "co-ordination" between the chains in areas such as property and procurement. Target could return to profit in 2017, he said, and "within the next two years we'll see the return of a very strong Target". Analysts sceptical

However, some analysts are sceptical about the "Karget" merger, saying historic rivalries between the two chains could make progress difficult. There was also a risk that Target's and Kmart's product ranges and pricing strategies could become too similar if they combined and co-ordinated sourcing. Argo Investments managing director Jason Beddow said there was scope for Wesfarmers to sell Target or convert all the stores to Kmart, even though Mr Goyder had previously ruled this out. "Those businesses struggle to co-exist and both do well," Mr Beddow said. "I wouldn't be surprised if in five years' time there is one brand. There is a lot of duplication which they should have looked at earlier." Mr Beddow said while Mr Goyder's reputation had taken a hit, "I don't think he's under pressure. They've done a better job with Coles than people thought despite the price they paid ... and they've done an excellent job with Bunnings." Mr Goyder said Wesfarmers' final dividend this year would depend on net profit before impairment charges – "Our dividend will ebb and flow with our earnings."