Established more than 40 years ago, Kmart is one of Australia’s largest discount department store retailers, with 186 stores throughout Australia and New Zealand as at 30 June 2010 and product sourcing offices in Hong Kong, Shanghai, Dongguan and Delhi. We have more than 24,800 team members in Australia and New Zealand, excluding Kmart Tyre & Auto Service (KTAS).

Key categories for Kmart include menswear, womenswear, beauty, footwear, toys and sporting, events and food, entertainment, newsagency and home.

KTAS is one of Australia’s largest automotive service, repair and tyre businesses with 251 centres as at 30 June 2010 and is one of Australia’s largest employers of mechanics and apprentice mechanics with a team of over 1,300 people. In addition, KTAS now offers car insurance through Lumley Insurance.

Throughout 2009/10, we opened two Kmart stores, and closed four KTAS centres.

The Kmart team is guided by one vision – ‘where families come first for the lowest prices on everyday items’.

Kmart has undergone significant change throughout 2009/10, with a focus on renewing the business. All components of the business were reviewed and changes implemented. Some of the changes include the way stores operate and engage customers, the way product is sourced, priced and displayed, and the way national office is structured.

A crucial element of the renewal was inviting customers back into stores with the ‘Expect Change’ campaign. The campaign was designed as both an apology and an invitation to customers. Customer traffic has increased each week since the launch of the campaign, and our revenue has increased from $3,998 million in 2008/09 to $4,017 million in 2009/10, with earnings before interest and tax increasing from $109 million in 2008/09 to $190 million in 2009/10.

From an environmental perspective, we continued to undertake energy audits from a selection of stores as part of the Federal Government’s Energy Efficiency Opportunities program. We have reviewed our brief for new stores and distribution centres and we are exploring a range of initiatives for inclusion in our new building specification. We are also introducing commingled recycling to more than 100 metropolitan stores to reduce the amount of waste sent to landfill.

In 2008/09, we launched our ‘Art of Giving’ competition, inviting primary school aged children to draw, paint a picture or make a collage that demonstrated what the ‘spirit of giving’ meant to them. Over 2,100 entries were received, with winners announced for each state and territory during 2009/10. This year the competition focused on ‘what family means to you’ and closed on 13 September 2010. Almost 8,000 entries were received and we are currently judging the winners. We also introduced our coin collection program, which gives Kmart customers the ability to donate spare change to various charity groups.

Once again we received strong support for our annual Wishing Tree Appeal. In 2009/10, the Appeal collected over 430,000 gifts for families in need at Christmas, as well as collecting over $290,000 in cash contributions.

Improving the safety of our team members, contractors and visitors received a renewed focus during 2009/10, and we have reduced our LTIFR from 11.18 in 2008/09 to 9.08 in 2009/10. In order to improve service in our stores, we have also introduced a customer service training package to all store team members.

As we continue to transition from renewal to growth, customer engagement remains key and our focus is on delivering our strategy to set the business up for long-term sustainability.

As at 30 June 2010, we had 26,212 team members working in stores, national office, DCs and KTAS sites. Over 66 per cent of our workforce are female, with 23 per cent of our Australian store managers being female.

Training our team has been a continued focus during 2009/10. In order to improve customer service in our stores, Kmart introduced a customer service training package in 2009/10 to all store team members. This training focused on greeting, respecting, listening and really helping our customers. In addition, we launched five new programs for line managers specialising in leadership, performance management, managing people, our workplace agreement and working smarter. These are facilitated by our senior store managers and we have received positive feedback on these programs.

Improving the safety of our team members, contractors and visitors received a renewed focus during 2009/10. We have spent 17,206 hours on safety training, as well as conducting programs including ‘Move 4 Life’, stay at work/return to work programs and introducing ‘Safetyopoly’ – a new game that targets safety leadership behaviours.

These initiatives have led to a reduction in our LTIFR from 11.18 in 2008/09 to 9.08 in 2009/10 – a 19 per cent reduction. The total number of injuries has also reduced from 3,010 to 2,443, a reduction of 19 per cent. A key highlight included KTAS reducing LTIFR from 18.69 to 8.41.

We have undertaken a detailed review of the way we build our new stores, and have developed a list of recommendations including more energy efficient lighting and better heating and cooling systems. We are currently reviewing these before deciding which ones to introduce.

In addition, we undertook a review of the specifications for our new DCs. This review has identified initiatives to reduce energy use by up to 30 per cent, save water and reduce resource use at new sites. We are now trialling some initiatives to assess their suitability before finalising our approach.

We are currently introducing commingled recycling to over 100 Australian metropolitan stores to reduce the amount of waste going to landfill. We have also partnered with the NSW Department of Climate Change in its Sustainability Advantage Program to identify areas where we can improve our resource use and divert more waste from landfill.

Greenhouse emissions

Our total greenhouse gas emissions were estimated to be 303,397 tonnes of CO₂e, up 18 per cent on last year, and this equates to 76 tonnes per million dollars of revenue, up 18 per cent on last year. This increase can largely be attributed to Kmart reporting Scope 3 electricity and gas emissions for the first time this year. The greenhouse gas emissions were largely due to electricity consumption at our stores, DCs and offices (approximately 88 per cent) and synthetic gases (approximately six per cent).

Energy use

Total energy consumption was estimated to be 1,037,715 gigajoules, up four per cent on last year. Our total energy consumption per million dollars of revenue was estimated to be 258 gigajoules, up four per cent on last year. Our energy use was primarily electricity (91 per cent) and natural gas (five per cent of total energy consumption).

Energy efficiency initiatives

Throughout 2009/10 we have undertaken five additional energy audits and we are now preparing to trial a number of initiatives in different stores to assess results. Provided these trials are successful, we plan to implement these initiatives in other stores during 2010/11.

We are currently trialling a new lighting design that will reduce the amount of energy our lights use by 20 to 30 per cent. This system utilises tracks to house the light fittings and will give us more flexibility as our lighting requirements change.

Kmart received over 60 contacts from regulators throughout 2009/10 with many of these being resolved over the phone or by email. A total of 14 were deemed to be ‘reportable contacts’ that alleged some form of regulatory breach or posed a significant risk to the business from a reputational or financial perspective. These breaches include issues relating to fair trading, and food and product safety. We were even contacted about a hitchhiking cane toad that was found in one of our Victorian stores.

Four contacts related to products that had developed a fault outside of the voluntary warranty period, however were alleged to still be covered by the implied statutory warranty. In total, 11 product recalls were conducted throughout 2009/10, one of which was for a Kmart branded product.

Trolley fines continue to be an issue for Kmart and during 2009/10 we introduced a new trolley management plan. This plan focuses on engaging our trolley contractors, monitoring contractor performance, liaising with local councils and reducing the loss of trolleys. The plan has assisted us to reduce the number of fines we pay for abandoned trolleys from $21,942 in 2008/09 to $9,040 in 2009/10.

We are not aware of any potential non-compliance issues throughout 2009/10 with licensing or approval conditions.

Kmart’s Community Program is committed to building strong partnerships with individuals and organisations that not only reflect our brand vision, but also help build better lives for Australian and New Zealand families.

Throughout 2009/10 our business contributed over $2.35 million of direct support to the community. Each year these figures are verified by the London Benchmarking Group (LBG) and using this tool, we established that our customers, team members and suppliers contributed a further $4.53 million of in-kind support. Our team members volunteered in excess of 4,500 hours to assist community based programs during 2009/10.

This year Kmart assisted hundreds of community groups ranging from kindergartens to Rotary clubs. This investment has allowed groups in communities around our stores to continue their work, either through fundraising initiatives or receiving goods from our stores.

In March 2010 Kmart launched its coin collection program. This program allows Kmart customers to donate spare change to various charity groups throughout the year to help raise money for vital initiatives and projects. ‘Variety – the children’s charity’ was the first charity to benefit from this initiative, receiving over $60,000 during the months of March and April. During May and June, Kmart collected coins on behalf of various women’s hospitals across Australia and New Zealand and raised over $48,000.

Kmart’s annual Wishing Tree Appeal collected more than 430,000 gifts and over $290,000 in cash donations that was distributed to our charity partners to assist families in need at Christmas time. An additional $50,000 was raised through the sale of Wishing Tree branded merchandise such as wrapping paper, cards and bears.

Kmart’s ‘Art of Giving’ competition entered its second year in May 2010. In 2009 we received over 2,100 entries and we are expecting this to grow in 2010. The competition closed on 13 September and over $50,000 in cash and prizes were awarded in two age categories to finalists and their schools in each state and territory.

We have continued to engage with our stakeholders during 2009/10 through a variety of means, including catalogues, forums for suppliers and team members, our internet site and communication with government bodies. Our customer relations department is the key point of contact for our customers once they leave our stores, and we received a total of 110,964 contacts throughout 2009/10. Approximately 22 per cent of contacts were complaints (up from 13 per cent last year), with the remainder being general enquiries (70 per cent) or compliments (eight per cent). Kmart introduced a new procedure during the year requiring all customer contacts to be responded to within 24 hours.

We have continued to support the economy through employing over 26,200 team members (Kmart and KTAS). Trading hours have been increased in many stores, creating new employment opportunities. In 2009/10, we contributed to the economy through our capital spending, which increased to $75 million compared to $64 million in 2008/09.