There’s one overriding lesson from this week’s events at Coles Group and its old department store arm, Myer and that is: if you want to save a retail business that was owned by Coles, sell it to new owners and install people who know what they are doing.
The nuclear bomb approach of blowing up the remaining Coles Group structure and liberating the various retail brands, their staff (but not too many managers) and setting them free looms as the only option.
And the best way would be for the so-called Everyday Needs group of supermarkets, liquor, petrol (Coles Express) and Kmart to be in turn liberated from the old Coles management silos and given new life.
How you do that short of ‘blowing’ it apart (because there is synergy in being together) is going to be the key to unlocking value in that business.
Years ago Gerry Harvey of Harvey Norman said he knew his business would prosper and the then Coles Myer would stumble when the latter moved all its Sydney buying and other back office business operations to Melbourne.
It meant the retailer had no one left in Sydney capable of understanding what the competition was on about in the most competitive and biggest market in the country, and with the managerial ability to react and change the offer.
That’s why Coles has flailed around and one of the reasons why, even if the latest revamp had stayed on track, why it was doomed in the medium term.
Around 960 jobs were to be cut as a cost saving in the revamp: they were in the back office area and yet no one at Coles stopped to ask what the impact would be on the brands and on thevalue of the offer at the front end, the stores.
How could the buying, merchandising and other support functions be spread across all chains when the needs of Coles Express, Bi-Lo and supermarkets are different, and in turn very different to Kmart and Target?
Apart from a cost saving (which was very necessary) the reductions in back office numbers was poorly explained and appeared to be aimed at reducing the head count and nothing else.
It obviously had no impact on the offer in Coles outlets in the short time it was happening except to prove that the whole basis for the revamp was flawed and sending the group backwards.
The one thing noticeable at Myer is the improvement in the offer and the sharpness of the branding and selling: it must be working, more customers are buying, sales are edging up, but more importantly margin is rising and so too are earnings.
The millstone that was the Coles Myer head office and culture has been removed and the benefits are readily apparent.
When Myer is re-floated there will be a stampede to get shares simply because the improvement will have been dramatic and for all to see (the open approach of the new Myer management this week helped, although a downturn might test that faith!).
But the example has been set for Coles and the most immediate beneficiaries of this should be the crippled brands, Bi-Lo and Kmart.
Bi-Lo should be sold (with Kmart attached perhaps) as a ‘corporate basket base’ to whoever offers a decent price.
Both have been badly injured by the ham-fisted revamp dreamed up by CEO John Fletcher and his team and Okayed by the board.
Both need solid retailing experience to save them from the knackery and it can be done.
All it needs is a retailing group who understands that it is at the bottom of the retailing chain, fighting off Aldi, battling IGA in many places (Metcash) and Franklins in others, and keeping everyone in the supermarket business honest.
Kmart should be allowed to settle and compete against Big W, the cheapos run by the private equity group who bought out Millers and the Warehouses cheap and cheerful operations, The Reject Shop and the various “$2 dollar” shops.
What Myer’s results showed very clearly is that Coles and its brands can be turned around with the right leadership.
That’s why Fletcher and a couple of other senior executives, Chairman Rick Allert and a couple of board members, should have fallen on their swords in February when they confirmed the failure of the Everyday Needs revamp. Then Coles might have been salvageable and could have remained independent.
Myer has around 20,000 employees; it had the makings of a corporate rehab program under the previous management (which was too expensive) but it definitely needed liberating from the deadhand of management, the group structure and the board.
Myer is rapidly improving and broadening its offer in terms of product (categories and brand) and customer; it’s not going after David Jones so much as strengthening its existing position.
David Jones was helped in its dark days by the support of the Sydney middle class consumers in the Eastern and Northern suburbs: Myer doesn’t seem to have had as much loyalty in Melbourne because its message was muted after the takeover of Grace Bros from Sydney.
Myer’s new owners are better able to maximise the potential of the brand, which was constrained under Coles Myer ownership as management needed to maximise earnings in Kmart, Target and Myer.
And, as Woolies learned long ago, changing the focus from head office (in the case of Myer) to the store enables a more co-ordinated and better informed attack on costs and growing profit margins.
It sounds so simple, but Coles head office has no idea how to do it. It is, as one analyst wrote this week, ‘Retailing 101’. There are ‘fs’ galore at Coles in management.
So if this approach is adopted where can the chains grow? Try simple things like smarter pricing on liquor: the new First Choice barns of Coles are still not competitive with Woolies Dan Murphy.
Get managers who understand the fresh food offer and the way Woolies has lifted its approach in the past five years: Woolies prices are still high compared to specialist food stores but they are trying.
