Coles Myer Ltd. Business Information, Profile, and History

Company Perspectives:

Coles Myer Ltd. will create benefits for its stakeholders--its customers, staff, suppliers and shareholders--by being the best retailer in every market in which the company operates.

We will achieve this goal by:

Meeting customer needs through dynamic, innovative, retail businesses which are leaders in value and service. Recruiting, training and promoting outstanding people who are selected and rewarded solely on merit. Building long term, mutually beneficial supplier relationships. Providing consistently superior returns to shareholders. Being a responsible and caring corporate citizen.

We will be known for honesty, leadership and open and responsive communication. We will set standards of best practice. We create and welcome change. We aim for simple and productive internal structures. We make optimum use of our retail and management knowledge, our technology and the talents of our people. Whatever we do, we do with integrity. Over time, we aim to be the best retailer in the world, not by our standards but by those of others.

History of Coles Myer Ltd.

Coles Myer Ltd. is Australia's leading retailer in terms of number of stores--more than 1,800--and selling area. The company owns and operates stores in most sectors of the Australian and New Zealand retail markets. Coles Myer operates a wide range of supermarkets (Coles, Bi-Lo), discount department stores (Kmart, Target, Fosseys), department stores (Myer, Grace Bros.), women's clothing stores (Katies), toy stores (World 4 Kids), liquor stores (Liquorland, Vintage Cellars), fast-food outlets (Red Rooster), and office supplies superstores (Officeworks). The company, Australia's largest private employer, holds the exclusive rights to the Kmart and Target names in Australia and New Zealand.

Founded as "3d., 6d., and 1/-" Variety Store

The origins of Coles Myer can be traced to the first G.J. Coles & Coy. Ltd. (Coles) discount store, opened in the working-class suburb of Collingwood, Victoria, on April 9, 1914. The "3d., 6d., and 1/-" variety store was founded by George James Coles, who had studied U.S. and U.K. chainstore retailing methods.

In 1919 a much larger store was opened, again in Collingwood, with the slogan "Nothing over 2/6d." In 1921 the proprietary company G.J. Coles & Coy. Pty. Ltd. was formed, and in 1924 the company opened its first city store in Bourke Street, Melbourne. With eight stores to its name, G.J. Coles & Coy. Ltd. was floated on the Melbourne Stock Exchange in 1927. One year later the first out-of-state store was opened in Pitt Street, Sydney.

The 1930s were years of rapid expansion for the company, with Coles's variety stores being represented in all states of Australia by 1933. A strong commitment to offering affordable goods to all sectors of the community meant that Coles continued to expand despite the Great Depression. Managing director A. W. Coles wrote at this time, "A store has no right to success just because it is open for business and has a bright display. The goods must reflect the wishes of the community in which the store is located." In 1938 inflation forced the "Nothing over 2/6" policy to be abandoned. A promise of "Satisfaction Guaranteed or Money Cheerfully Refunded" was instituted and continues today.

The outbreak of war in 1939 led to severe merchandise shortages, and 95 percent of Coles's male staff enlisted. Despite problems, the company survived with the assistance of newly promoted female managers under the leadership of A. W. Coles, who acted as managing director until 1944. His successor and brother, E. B. Coles, then led the company into another period of expansion that would earn him the title "The Takeover King." Major retailers acquired in this phase included Selfridges Ltd. in New South Wales in 1950, F&G Stores Ltd. in Victoria in 1951, and the Queensland chain of Penneys Ltd. in 1956.

Entered Food Retailing in Late 1950s

Food retailing was the next significant area to be explored by the company. This began in 1958 with the acquisition of the John Connell Dickins Pty. Ltd. group of 54 grocery stores. The link with supermarket retailing was reinforced in 1959 by the purchase of Beilby's in South Australia and again in 1960 by the acquisition of the Matthews Thompson chain of 265 grocery stores in New South Wales.

In 1962 customers were treated to a "New World of Shopping" with the opening of the first New World supermarket in Frankston, Victoria. This was a new concept in food retailing for Australia--selling groceries, fresh meat, fruit and vegetables, dairy goods, produce, and frozen foods all within one store. Coles New World Supermarkets offered customers more choice, greater savings, and a consistently higher standard of quality than ever before. Coles, in fact, was one of the first Australian retailers to take advantage of the customer trend toward supermarkets--a move that would earn the company a net profit increase of 30.7 percent and a jump in annual sales of £83 million in the first year.

Discount Stores Added in Late 1960s

Following this success, the company then ventured into discount stores. This began in 1968 with the opening of Colmart in Whyalla, South Australia--Coles's first major discount store. That same year, the company entered a joint venture with the U.S. company S.S. Kresge--now Kmart Corporation&mdashø open Kmart discount stores in Australia, with Coles holding a 49 percent interest. The first Kmart store was opened in April 1969 at East Burwood, Victoria, introducing the concept of U.S. discount department stores to Australia. The sales performance of these stores surpassed those of many established retailers and Kmart soon became a significant force in Australian retailing. In the same year as Kmart's launch, the Coles New World Supermarket chain opened its 100th store and became Australia-wide with the unveiling of a store in Freemantle, Western Australia.

In 1977 Sir George Coles, the company's founder, died at the age of 92, having served the company for over 62 years. Continuing a long tradition of positive employee relations, Coles introduced equal benefits for male and female staff in the company's medical scheme and staff superannuation fund. The retirement age for females was extended to 60 years, and the number of staff members who had served the company for more than 25 years exceeded 1,000. The balance of the Kmart joint venture was acquired by the company in December 1978, making it a wholly owned subsidiary of Coles and making the company the second-largest employer in Australia, with more than 50,000 employees.

Further Diversification in the Early 1980s

The 1980s saw Coles diversify still further. In July 1981, 54 liquor stores operating as Claude Fay Cellars were acquired for cash. In August of the same year, 14 Liquorland stores and the Mac the Slasher liquor chain were purchased. The following year the name Liquorland was extended to cover all company liquor stores around Australia. These comprised Australia's largest nonbrewery chain. Coles entered the footwear business when Edward Fay Pty. Ltd. and Ezywalkin were purchased in 1981. Due to unsatisfactory results, however, the company divested itself of these in 1988.

In 1982 Coles opened Australia's first hypermarket, Super Kmart, the name used for combined Kmart and grocery stores until 1989, using the pooled resources and skills of the established Kmart business and Coles supermarkets. Many of the Super Kmarts that opened included automotive sections under the name K Auto, which were first established in 1961. They sold an extensive range of automotive accessories and parts, and offered full servicing and maintenance to fleet and private vehicle operators.

Women's clothing retailing was the next area of investment for Coles with the acquisition of the Katies Fashion (Australia) Pty. Ltd. (Katies) national chain of 117 specialty stores in November 1984 for A$47 million. At the time of purchase, Katies had an established reputation for quality women's fashions at competitive prices. Contrary to the usually high level of imported merchandise in the Australian clothing and textile area, Katies consistently offered a large proportion of domestically produced goods, with over 90 percent of garments for the 1987 summer season being made in Australia. In the same year, the 100th Kmart store opened in Campbelltown, New South Wales, and net profit for the company exceeded A$100 million for the first time.

Merged with Myer Emporium in 1985 to Form Coles Myer Ltd.

In 1985 the Coles Myer Ltd. organization was born, after a merger proposal was accepted by Myer Emporium Ltd. (Myer), a Melbourne-based retailer. Myer, the third largest retail group in Australia, was acquired through an agreed bid for a total cash offer of A$918 million.

Myer Emporium Ltd., which had been operating since 1901, strengthened its position in 1983 as the major department store retailer in Australia by purchasing Grace Bros., the largest department store retailer in New South Wales, for A$213 million. This was bought along with Boans, the largest Western Australian department store operator, for A$39.2 million. Prior to the merger, Myer was Australia's number one department store chain and the country's third-largest retailer.

The 1985 Myer merger brought in 56 department stores, 68 Target discount stores, 122 Fosseys discount variety stores, the Country Road chain of 45 stores which was subsequently sold for a profit of A$33.27 million, and the Red Rooster chain of fast-food chicken outlets. The name of the company was changed to Coles Myer Ltd. on January 27, 1986, and a new corporate symbol was adopted. In addition, a new company structure consisting of five divisions--Discount Stores; Supermarkets, Food and Liquor; Grace Bros.; Myer Stores; and Specialty Stores--was introduced at this time.

Coles Myer continued to grow and consolidate existing interests. In May 1986, 52 stores were added to the Red Rooster chain, making it the second largest take-out chicken restaurant chain and the largest Australian-owned fast-food group. In the same year the administrative structures of Coles and Fosseys amalgamated into a single business to become a market leader in the discount variety store segment. The ranges in both stores were rationalized to concentrate on their strong positions in budget clothing, toiletries, toys, fancy goods, and confectionery.

In 1987 the company's shares were listed on the London Stock Exchange, and a new corporate headquarters was officially opened at Tooronga, Victoria, by Prime Minister R. J. L. Hawke. A revised management structure requiring group managers to report to the managing director of retail operations led to strong growth during the year. Also in 1987 the company entered the discount food retailing field with the purchase of the Bi-Lo Supermarket chain. Originally from South Australia, Bi-Lo stores were known for doing business in relatively small sites with discount prices and cut-case displays, whereby goods are stacked in supermarket aisles in cardboard boxes that can be cut open for customers to help themselves directly. This keeps store overheads to a minimum. The company's expansion into discount food retailing continued the following year with the A$31.55 million acquisition of the Shoey's chain of budget food markets in New South Wales, adding 40 stores to the group. The company's discount food division, which was managed independently from the New World chain, now included both the Bi-Lo chain and the Shoey's group as well as a number of converted former New World stores.

In July 1987 Coles Myer acquired Charlton Feedlot Pty Ltd., a dairy and beef producing operation that supplied premium produce to Coles Myer's supermarket business.

Coles Myer made its first move overseas with the acquisition of Progressive Enterprises Limited in New Zealand in May 1988. This included 27 Foodtown premium supermarkets, 22 3 Guys discount supermarkets, and Georgie Pie family restaurants. The first Kmart discount store opened in New Zealand in October of the same year.

In October 1988 Coles Myer was listed on the New York Stock Exchange. During 1987-88, the company established Coles Myer/Ansett Travel Pty. Ltd. (CMAT), a joint venture with Ansett Transport Industries Ltd., to manage retail travel centers located in company stores. In 1990 CMAT acquired the travel business of the ANZ Bank Ltd. Electronic funds transfer at the point of sale was introduced to all Coles Myer stores as part of the development of electronic scanning cash registers and other point-of-sale register systems to improve efficiency in 1989. In mid-1989, as part of a decision to concentrate on core businesses, the company sold its 25 percent minority stake in Bank of America Australia Ltd. to the bank's U.S. parent, BankAmerica Corporation. Also in 1989, Myer Stores launched Myer Direct, a mail order business. That same year, use of the Super Kmart name was discontinued.

Troubled Times in the 1990s

The 1990s were a difficult period for Coles Myer, as sales and profits stagnated as a result of a recession which hit nonfood sectors particularly hard. The company subsequently endured battles with institutional investors over corporate governance, specifically relating to Solomon Lew and Brian Quinn.

In November 1991 Lew, who held a more than 10 percent stake in Coles Myer, was elected chairman of the board, following Quinn's decision to relinquish the chairmanship and concentrate on his role as chief executive officer. Quinn then retired as CEO the following year, with Peter Bartels replacing him. In 1994 Quinn was charged with defrauding Coles of A$4.46 million (US$3.5 million), alleging that he had billed the company for work done to revamp his private home. Quinn was found guilty in 1997 and sentenced to four years in jail.

Lew came into the spotlight following accusations that companies associated with him had benefited from his board positions with Coles Myer. When institutional investor opposition to the board's composition came to a head in 1995, Lew stepped down to become vice-chairman and Nobby Clark, who had overseen the restructuring of Foster's Brewing Company, was brought in as new chairman. Additional changes followed, including the January 1997 appointment of Dennis Eck as CEO, replacing Bartels, and the July 1997 appointment of Stan Wallis as chairman, replacing Clark.

As these management controversies and changes were playing themselves out, Coles Myer made a number of significant changes to its corporate structure and mix of operations. As of August 1, 1990, the administrative and buying functions of the Myer Stores and Grace Bros. businesses were merged to form the Department Stores Group. While each group continued to operate under the separate Myer and Grace Bros. names, the move resulted in significant gains from overhead reductions and economies in buying and sales promotion.

In April 1991 Coles New World Supermarkets changed their name to Coles Supermarkets, together with the launch of a new visual identity and customer service programs. Later that year Coles reduced the prices of 6,000 product lines as part of a new pricing and advertising policy.

In 1992, the company spun off Progressive Enterprises onto the New Zealand stock exchange, significantly reducing its foreign operations. That same year, Coles Myer acquired 98 Big Rooster fast-food outlets and bolstered its liquor store holdings with the purchase of the Vintage Cellars chain from Magnum Australia Pty. Ltd. The following year, Grocery Holdings Pty. Ltd. was established as a grocery wholesaling service for the Coles and Bi-Lo supermarket chains. Coles Myer added two more concepts to its assortment of retail outlets with the 1993 launches of World 4 Kids toy and leisure superstores and Officeworks, a discount warehouse-style office supplies superstore. In August 1993 Coles Myer announced that it would launch a A$4.15 billion (US$2.8 billion), five-year investment program, which would include 421 new stores, 1,136 store remodelings, and the expansion or construction of more than 12 major shopping centers.

In November 1994 the company bought back from Kmart Corporation the 147.8 million shares of Coles Myer stock that Kmart held. That same month, Coles Myer began a multiyear divestment program in relation to the company's property portfolio. Through early 1997, A$1.25 billion worth of property had been disposed of, allowing the company to concentrate more closely on its core business of retailing. Meanwhile, the retail businesses were reorganized into three groups: Basic Needs, which included the supermarkets, liquor stores, Red Rooster, Kmart, World 4 Kids, and Officeworks; Apparel Group, which consisted of Target, Fosseys, and Katies; and Department Stores. Under the new structure, the company hoped to better integrate groupwide services, thereby eliminating duplication and cutting costs.

The Coles Myer of the late 1990s was a much more streamlined and focused company than that of just a few years previous. Though still considered by some observers as too large for the relatively small Australian market, the company had rejected the idea of breaking up into separately listed operating units after an early 1996 investigation. With corporate governance controversies seemingly put to rest, Coles Myer seemed well-positioned for a significant turnaround in its fortunes.

Principal Subsidiaries: Amalgamated Food and Poultry Pty. Ltd.; Bi-Lo Pty. Ltd.; Coles Myer Finance Ltd.; Coles Myer International Pty. Ltd.; Coles Myer Properties Holdings Ltd.; Fosseys (Australia) Pty. Ltd.; Grocery Holdings Pty. Ltd.; Katies Fashions (Aust.) Pty. Ltd; Kmart Australia Ltd.; Liquorland (Australia) Pty. Ltd.; Myer Stores Ltd.; Officeworks Superstores Pty. Ltd.; Target Australia Pty. Ltd.; Tyremaster Pty. Ltd.; W4K.World 4 Kids Ltd.

Principal Operating Units: Basic Needs Group; Apparel Group; Department Stores; Coles Myer Properties.