While Coles Myer is struggling with the loss of its discount card and
lacklustre first quarter sales, rival David Jones has been firing.
Could Myer be ruing the day they let Mark McInnes and Stephen Goddard
defect?


McInnes gets David Jones firing

Crikey email – 28 September

When David Jones
head-hunted Mark McInnes and Stephen Goddard back in the dim dark days on 1997,
it was an interesting move, but no one could understand why these two highly
regarded Coles Myer executives would take the jump to the serial underperformer
in Sydney.

Seven years later and Coles Myer knows that it let go two
executives who could have led the turnaround at the still underperforming Myer
department store business.

American CEO of Myer, Dawn Robertson has done
well so far, but McInnes and Goddard would have been in-house choices, had the
then Coles Myer management understood their talents.

But under CEO Dennis
Eck and with Stan Wallis as chairman, Coles Myer had trouble understanding its
basic supermarkets business let alone the troubles at Myer or Kmart or Target.
The continued sniping from board member and large shareholder, Solomon Lew was
also destabilizing for management which confronted a series of impenetrable
fiefdoms in each division. That made the decision to depart Coles Myer much
easier.

Key to the move was Peter Wilkinson, a former CEO of Myer and a
man who had met both back at Coles and had had high regard, especially for the
work they did in setting up Office Works for Coles in the early 90s. Their move
became the stuff of legend as both worked on David Jones’ problems, as Wilkinson
battled to introduce some financial stringency into the retailer’s
operations.

A board-driven diversion into the Foodchain business cost
David Jones close to $100 million in losses and write-downs and the business was
exited last year. And that proved the opportunity for McInnes. He was made CEO
after Peter Wilkinson indicated his intention to retire. Goddard became CFO and
the two gradually asserted their control over the retailer and pushed for
significant change in the approach and way the company retailed its goods to
customers.

This year it has paid off. After taking the Foodchain losses
on the chin last year and cleaning the slate, this year has seen an explosion in
earnings and a considerable improvement in the sharpness of the David Jones
offer as you can see here.

And today David Jones revealed its best
results in a decade
.

With sales rising by six per cent to $1.79
billion, David Jones earnings before interest and tax jumped by 46% to $95.3
million, while after tax (but before last year’s Foodchain inspired write-downs
and losses), it rose $58.7% to $65.3 million, about in line with the performance
in the half year when earnings rose 58.2% to $43.4 million.

This compares
very well with the much larger and still struggling Myer department group of
Coles Myer(with the loss-making Megamart business thrown in). Myer reported
earnings before interest and tax of $60.7 million for the year, with sales
growing 2.5% to $3.22 billion.

Clearly an inferior result, although the
company said this was after losses at Megamart (estimated by analysts at well
over $10 million). Even with a second half profit (normally the toughest time
for the year for retailers with no Christmas impetus for sales and profits),
Myer still underperformed compared to DJ’s which reported second half earnings
of around $22 million.

DJs beats Myer in first quarter sales

Crikey email – 16 November


Apart from Crikey and several smart investment bankers, the market has
swallowed the spin from Coles Myer that the first quarter slump in sales at Myer
Megamart was a one-off, sort of linked to the ending of the shareholder discount
card.

The 0.5% drop in actual sales and 1.4% slump in same store sales were in the
end not taken seriously by investors.

They should have been, for today there was a reminder from David Jones of
just how poorly Myer is doing and how much of a black hole it remains.

David Jones reported a top line 9.3% rise in first quarter sales and 9.5% on
a comparable (same store basis). Now that should knock the socks off Coles Myer
shareholders at Thursday’s annual meeting.

Yes, the loss of the discount card had an impact on Myer, and yes, people
migrated to David Jones. But to get discounts you have to use your high-cost
David Jones credit card (funded by GE, the same people who fund the Myer Card).
David Jones however said in the statement that a marketing campaign aimed at
Myer shoppers generated “relatively small sales”.

And it is too much to suggest that a 9%-plus growth in sales was accounted
for by disgruntled Myer shoppers!

A David Jones announcement
said first quarter sales amounted to $418.1 million ($382.6 million in 2003).

David Jones said adjusting for the fact that 2004 was a 53 week year sales
are up around 7% on both topline and a comparable store basis, still a pretty
good result and certainly better than Myer.

The top line figure of 9.3% is the best by all the major retailers (Coles
Myer’s is distorted by the comparison of the growth of Coles Express and the
Shell petrol offer). Remove that and Coles sales grew around 6%.

It’s another sign that the strategy adopted by the company, led by former
Coles Myer executives, CEO Mark McInnes and Robert Goddard (CFO) has had a more
positive impact than the push by Myer under Dawn Robertson, the second most
highly paid executive in Coles.

Both retailers have a similar approach, especially in the fashion,
soft-goods, perfume and cosmetics area, but from the shopper’s point of view the
David Jones offer seems sharper and more focused.

Peter Fray

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