Coles Group
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Coles Group Limited (formerly Coles Myer Limited) is an Australian public company which operates numerous retail chains. It is Australia's second largest retailer, behind Woolworths Limited. The name change to Coles Group was approved by shareholders at the AGM in Sydney. The official name change took place on Monday, 27 November 2006.
| Coles Group Limited | |
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| Type | Public (ASX: CGJ from 29 Nov 06) (ASX: CML prior) |
|---|---|
| Founded | As a business - 1914 As a public company - 1929 As Coles Myer - 1986 As Coles Group - 2006 |
| Headquarters |  Melbourne, Australia |
| Key people | Richard Allert, Chairman John Fletcher, CEO |
| Industry | Retail |
| Products | Coles Supermarkets Coles Express (Shell convenience stores) Coles Central BiLo Supermarkets (Currently being rebranded as Coles) Pick 'n Pay Hypermarkets Liquorland (May be rebranded as Coles) Vintage Cellars (May be rebranded as Coles) 1st Choice Liquor (May be rebranded as Coles) Officeworks Kmart (Rebranding to Coles deferred) Kmart Garden Supercentre Kmart Tyre & Auto Service Tyremaster Target Target Country Target Home Harris Technology |
| Revenue | $36.6 billion AUD (2005) |
| Employees | 185,000+ (2007) |
| Website | www.colesgroup.com.au |
Contents |
[edit] Early History
[edit] Myer
Sidney Myer arrived in Melbourne in 1899 as a penniless immigrant, working briefly at a drapery store before moving to Bendigo where he and his brother opened the first Myer store in 1900. Another Myer store was opened in 1908. In 1911 Myer bought a drapery store in Bourke St, Melbourne, which later became the flagship Myer store, the Myer Emporium. After establishing itself in Melbourne, Myer expanded to Adelaide and later across Australia.
Myer is now owned by Newbridge Company. It was bought from Coles Myer in 2006 causing the name change to Coles Group.
[edit] Coles
Separately, in 1914, the first Coles "variety store" was opened in Melbourne. Coles was founded in 1914 by George Coles when he opened what was called the "Coles Variety Store" in Smith Street in the Melbourne suburb of Collingwood. Expansion to more stores occurred and the chain was regarded as the leaders in providing value to Australian shoppers.
In 1960, the first supermarket was opened in Melbourne suburb, North Balwyn and in 1973, a Coles store had been established in all capital cities of the country.
Kmart Australia Limited was born out of a joint venture between G.J Coles & Coy (Coles) and Kmart Corporation in the US. The first store opened in the Melbourne suburb of Burwood in 1969.
In 1978 Coles acquired full ownership of the Australian K-Mart operation and in 1994 bought back all shares Kmart Corporation held in Coles Myer.
A long-term licensing agreement allows Coles Group to use the Kmart name. Kmart New Zealand shares merchandise and branding with Kmart Australia, and is owned by Coles Group Holdings New Zealand.
In Australia, BI-LO was established by John Weekes in Adelaide during the late 1970s. It is a major supermarket chain owned and operated by retail giant Coles Group in parallel to Coles Supermarkets. It has more than 200 stores in Australia.
In 1996, BI-LO acquired the six-store Newmart discount supermarket chain in Western Australia which then became the equivalent to BI-LO in Western Australia. By August 2002, it grew to 16 stores before being transferred to the management and being re branded as Coles, though some stores were sold off to FAL and became Action Supermarkets.
[edit] Merger
Both chains grew throughout Australia through growth and acquisitions, and both independently listed on the Australian Stock Exchange.
By the 1980s, Coles primarily operated supermarkets, whilst Myer operated a chain of mid-market department stores, as well as the Target Discount variety store chain in Australia. In August 1985, the Myer Emporium Ltd and GJ Coles & Coy Ltd merged, becoming the largest ever Australian Corporation. The official name change to "Coles Myer Limited" followed in January 1986.
[edit] After the Merger
Officeworks is an Australian office stationery store, which was established in the early 1990s by Coles Myer. Officeworks is based on the US chain Office Depot, using their concept as a one stop office store. The first Officeworks opened in the inner city suburb of Richmond in Melbourne in June 1994. Its mid-1990s TV commercials were popular, including the Taking Care of Business theme and the Back to School Savings commercial. In 1994-1995 Officeworks opened more stores throughout Melbourne in Fitzroy, Chadstone and Ringwood. Officeworks now has more than 90 stores in Melbourne, Sydney, Brisbane, Adelaide and Perth.
In 1996, the group's Target and Fosseys (earlier "Coles Fosseys") operations merged, the chains now sharing many aspects. Also that year their first speciality store, Baby Target was born. Then in 1998, their second speciality store, Target Home opened. The next year, Fosseys became known as Target Country, and it's metropolitan stores were closed.
In 2001 Target announced its first ever loss, to the sum of $43m. New senior management was put in place, and Target was repositioned away from being discount department store fiercely competing with stablemate Kmart, Woolworths Limited's Big W, Harris Scarfe and The Warehouse. It's new format was more like Myer, with a focus on "middle class" quality products - especially clothing and homewares.
In 1998, Myer open the first Megamart store, in Coorparoo, Queensland.
Harris Technology was started by Ron Harris on 6th October 1986. After a trip to the USA it became apparent that the IT Retail market in Australia would be receptive to a Computer Superstore. Harris Technology opened their first Superstore in North Sydney under the Bayer Building, with a downstairs call centre.
Coles Myer acquired Harris Technology on 1st April 1999.
Harris Technology has since expanded with Superstores in 5 states and a national website covering in excess of 25,000 line items (as of Aug 2003).
2001 saw Coles Myer announce plans to expand the Megamart chain of furniture and electrical stores. However, by 2005, Coles Myer announced plans to divest Megamart due to low profits. All stores stopped trading on 13 November. Out of the nine stores, six were bought by Harvey Norman while the remaining three are to remain closed.
[edit] Coles Myer sell-off
On Monday 13th of March, 2006, Coles Myer announced it would sell Myer to a consortium (including the Myer family, who hold a 5% stake), which is largely controlled by US private equity group Newbridge Capital, part of the Texas Pacific group. Texas Pacific also have interests in UK department store Debenhams and high-end US retailer Neiman Marcus. Management expertise from these retailers will be used to increase Myer's profitability. This sale was completed on the 2nd of June 2006 and full control has been handed over since.
With the sale of Myer, the parent company chose to rename as Coles Group Ltd, receiving shareholder approval to do so in November 2006.
Coles Group planned to rebranding its assorted holdings under various versions of the Coles name, with plans to have all of its holdings other than Officeworks and Target rebranded by late 2007. However, this planned was abandoned in March 2007 due to the proposed sale of Coles Group. [1]
Coles Group is considering to sell its businesses in 3 parts: Officeworks, Target and the remaining businesses Kmart, Coles, Bi-Lo, and liquor shops. [2] This comes after the board rejected an A$18 billion takeover bid in 2006 [3] because CEO John Fletcher promised greater growth to shareholders than the price in KKR's first two non-binding proposals. Two-year advance profit guidance was subsequently revised downward by A$106m on Feburary 23, 2007. [4]
[edit] Businesses
[edit] Everyday Needs Businesses
The Everyday Needs Businesses of Coles Group encompass the retail outlets that are frequently shopped at by customers; including supermarkets, liquor and general merchandise. The following brands are included under the Everyday Needs umbrella:
- Coles Supermarkets: the second largest supermarket chain in Australia.
- Bi-Lo: a budget supermarket chain. Until 2001, Bi-Lo also had stores in Western Australia trading under the name Newmart. In August 2006 it was announced that all Bi-Lo stores would either be re branded as a Coles Supermarket or be divested by the end of 2006. This activity extended into 2007.
- Liquorland: bottle shops , some of which are attached to Coles or Bi-Lo Supermarkets, but are still run separately - i.e. have their own store manager and staff. The supermarket has nothing to do with the running or control of Liquorland. Liquorland also runs hotels, through its Liquorland Hotel Group subsidiary.
- Vintage Cellars Other trading entities within the Coles Myer Liquor Group include Vintage Cellars, a more wine oriented store
- 1st Choice Liquor an attempt to counter the dominance of the Dan Murphy's chain of discount wine merchants. Being a relatively new brand, 1st Choice Liquor will be a likely early candidate for rebranding to new Coles branding strategy.
- Pick 'n Pay Hypermarket: are huge superstores which sell everything from fresh fruit & vegetables, meat, dairy, bakery and deli items, groceries, clothing, electrical appliances, hardware, white goods, sporting goods, toys, gardening etc all under one roof. There are currently two stores both located in Brisbane at Sunnybank Hills and Aspley. These stores may become Coles Superstores by the end of 2007.
- Kmart: discount store. When opened in 1969 Kmart Australia was 51 percent owned by the US S.S. Kresge Company (later Kmart Corporation), but by 1994, Kmart Corporation had divested any remaining interest. Kmart also operates the Kmart Tyre and Auto brand, Australia's largest automotive servicing company. Until September 2006, Kmart also operated the Garden Super centre brand, but these stores were sold off and closed at the end of September. In August 2006 it was announced that the Kmart name would be replaced by the Coles brand by late 2007. However, this plan was deferred in March 2007 as Coles Group prepared to sell part or all of the company.
- Coles Express: re branded Shell service stations offering convenience stores with discounted fuel products. Before Coles Myer Ltd took over Shell service stations, Coles Express was the name used for smaller, inner-urban Coles supermarkets which are now known as Coles Central.
- Kmart Tyre and Auto: car servicing outlets. All Shell Autoserv outlets attached to the re branded Shell petrol stations were bought by the Kmart Tyre and Auto business in early 2006.
[edit] Officeworks
- Officeworks: Big Box office supplies outlets.
- Harris Technology: Information Technologies reseller.
[edit] Target
- Target: affordable discount department stores, including clothing, Manchester (linens), kitchenware, cosmetics, toys, electrical and electronics goods. "Target Country" is the result of re branding of a chain formerly known as "Fosseys", and operates in country towns with smaller stores selling a subset of the range. Aside from the identical logos, Target Australia is not and was never related to Target U.S.A
[edit] Other
- Pharmacy Direct: Pharmacy products predominantly ordered online, via mail, or phone in Australia. With current Australian legislation preventing chains from selling pharmacy products from within supermarkets themselves, Coles acquired Pharmacy Direct in late March, to ensure they have a presence in the market, should legislation change in their favour.
- Coles Group is also a partner, with the National Australia Bank, in Loyalty Pacific, a company which administers the FlyBuys loyalty program.
[edit] Future
- Coles SuperCentres were expected to be a group of superstores or hypermarkets opening from September 2007. Around 40 of these stores were expected to be formed from former 'Super K' stores, which were divided in the 1990s into separate Coles and Kmart stores. Pick 'n Pay Hypermarkets were also expected to become Coles SuperCentres. However these plan were put on hold in March 2007 as Coles Group is considering to sell all of the company in 3 main parts.[5]
[edit] Corporate issues
Prior to the appointment of current CEO John Fletcher in 2001, the company's profitability and share price performance was spotty since the 1985 merger. Since his appointment, Fletcher has introduced significant turnaround that is reflected in the increasing share price from 2003 onwards, alongside consistently improving profit results each financial year.
The company has, in the past, tried a number of category killers of its own with mixed success. The Officeworks format was very successful, while World 4 Kids, a response to the entry of American giant Toys R Us into the Australian market, failed badly. The Megamart furniture and electrical discount stores were longer lived but never met expectations. All Mega marts were closed in late 2005, with most stores being acquired by Harvey Norman, the company Megamart was intended to challenge.
In 2001 the Company appointed John Fletcher, formerly CEO of Brambles as new CEO. This was after a long period of boardroom infighting and several management changes. Fletcher has engineered significant turnaround in the company's fortunes. His most notable changes involved the abolition of the shareholder discount card and the acquisition of the retail operations of Shell Australia. The discount card was seen to be cutting significantly into retail margins while providing little benefit to the company. It only encouraged shareholders to hold the minimum required number of shares to qualify for the card, complicating the company's share register. It was also unpopular with institutional investors as they saw their returns being eroded while obtaining no benefit from the card themselves.
The acquisition of the Shell outlets, which were re branded 'Coles Express' allowed Coles Group to counter the success of Woolworths' Plus discount petrol operation, which offered a discount on fuel for shopping at company stores. It was in many ways a better offer in that Coles offered discounts on a broad range of Shell's 'superior' products, including Autogas (LPG) and Optimax, while Woolworths products were more generic. This forced Woolworths to tie up with Caltex to provide a recognised brand for their fuel offer.
In August 2005, Coles Myer called for expressions of interest in purchasing the perennially under performing Myer department store business. There was significant interest from both Australian and overseas investors, including the Myer family. On the 13th of March 2006 Coles Myer announced the sale of the Myer department store business and the Myer Melbourne CBD store to Newbridge Capital and the Myer family for A$1,400 million, a sale that was completed in June 2006. Myer reported EBIT of A$67.9 million for the 26 weeks ended 29 January 2006.
After the sale of Myer, the direction of the group has turned to one of business consolidation. A presentation made by Fletcher in July 2006 outlined the group being moved into essentially three businesses: an 'everyday needs' business which includes food, liquor, fuel and general merchandise brands (comprising Coles, Kmart, Liquorland, Vintage Cellars, Coles Express); Officeworks; and Target. This direction caused a mostly negative short-term reaction from investors, most of whom reportedly believing that such a significant change to the flagship supermarkets business would be too risky and cause an eventual decline in market share.
In August 2006, the board announced that it had been approached with a proposal to buy the company by a group of private equity companies led by Kohlberg Kravis Roberts & Co. (KKR). At the time, it was reported that the interested parties would only go ahead with the proposal if the board agreed to endorse it to shareholders. The initial proposal, at $14.50 per share, was rejected by the board with the reasoning that it both significantly undervalued the company, and was highly conditional - essentially giving free-reign over the company via a due diligence process, without any actual guarantee that the deal would go ahead. A second proposal was made in October 2006 at $15.25 per share, valuing the group at A$18.2b, also rejected for largely the same reasons. [6]
In September 2006, with the backdrop of the KKR proposal looming behind, Fletcher announced a cut of 2,500 employees from 'above-store' positions; meaning employees working within Coles' various head offices. This number is effectively one third of all head office employees. The job cuts are to be managed with the assistance of McKinsey & Co who are reported to have experience in such large downsizing projects.
In November 2006, an announcement was made that the Managing Director for Supermarkets Merchandising, Peter Scott, had been dismissed from the company. The reason for dismissal was reported to be a breach of the company's code of conduct, without any further specifity. During the company's AGM 3 days after this announcement was made, John Fletcher explained that it would be innapropriate to make any further comment beyond what had been announced.
On 23rd February 2007, the company announced a downgrade of expected earnings.[7] Therefore it is consider ownership options, including the possibility of a full sale of the business or a restructuring such as a demerger. Most analysts believe it will go for a sale as it tries to catch up to Woolworths 4.97% profit margin compared to its 4% profit margin. [8]. On 20th March 2007, Coles Group announced it was deferring its plans to rebrand Kmart under the Coles banner and create supercentres.
Coles Group Limited is listed on the Australian Stock Exchange with the code CGJ, which references back to its first ever registered company name of G.J. Coles & Coy. Proprietary Limited. The company has in the past been listed on the NYSE (de-listed 6 January 2006), the New Zealand Stock Exchange (de-listed 1989) and The London Stock Exchange (De listed ??).
