Catwalk appearance for retailer Myer?

MELBOURNE - Australia's grand old lady of retail -- the Myer department store -- is being prettied up for a possible appearance on the catwalk with an eye to being sold to the highest bidder.

The future of the 105-year-old shopping icon is now under review by its owner, Australia's largest retailer Coles Myer Ltd.

After years of trying to knock Myer into shape, Coles Myer is now considering three options for the department stores -- a trade sale, a demerger or retention.

A merger and acquisition expert believes separating the 61 fashion-conscious Myer stores from the retail grocery-focused Coles supermarkets would be the right strategy.

A list of potential suitors has already been drawn up which includes disaffected former director Solomon Lew, rival department store David Jones, discount retailer Harris Scarfe as well as two foreign private equity groups.

One experienced retailer, who did not want to be named, said Mr Lew -- who holds just over five per cent of Coles Myer and who supplies Myer with a different range of goods -- sees himself as the natural heir.

"He wants to leave it for his son," the retailer said.

Mr Lew's son Peter has followed his father into the rag trade and is chairman of women's fashion house Witchery, which has an exclusive agreement with David Jones.

Myer's underperformance has acted as a brake on the group's sales for many years.

Analysts argue that Coles Myer's discount stores Kmart and Target are cannibalising Myer's sales with their cheaper versions of much of the same merchandise sold at Myer.

Myer also seems to be losing the fight against specialist stores like Just Jeans, Colorado and Harvey Norman.

Coles Myer this week unveiled a 13 per cent rise in annual sales to A$36.6 billion ($40.17 billion) for 2004/05, but Myer posted a mere half a per cent improvement for the year in same store sales and a 1.9 per cent decline for the final quarter.

Coles Myer's Megamart was given its marching orders this week with its nine stores heading for a A$35 million earnings loss for 2004/05.

Coles Myer has made an A$80 million provision in its 2004/05 profit results, to be released next month, to cover the costs of divestment which includes redundancies, lease liabilities and the writedown of fixtures and fittings.

International ratings agency Moody's expects the Megamart sale to have an immediate positive impact on the group's earnings before interest and tax (EBIT).

When Coles Myer chief executive John Fletcher came on board in September 2001, he gave notice that Myer would be under the microscope over the next five years with the possibility that it could be offloaded.

Analysts at the time said Mr Fletcher would have to improve the business first before he could put it on the auction block.

But just how much is Myer worth?

Analyst estimates this week varied from A$309 million to as high as A$795 million while one said the Bourke Street HQ alone is worth A$400 million.

Management Advisers managing director Nick Farnan, who specialises in mergers and acquisitions, said it makes sense to split Coles and Myer with their different management cultures and different logistical requirements.

"Retail grocery is total cost focus, lowest cost volume supplier, and market positioning with everyday specials while department stores are focussed on value creation and service," Mr Farnan said.

He said the potential sale of Myer could be the challenge Mr Lew has been waiting for since he was dumped by the Coles Myer board in a bitter fallout in late 2002.

"This may be the opportunity for him to come back into Myer and demonstrate his retail expertise," Mr Farnan said.

The animosity runs deep between Mr Lew, some members of the board and Mr Fletcher.

During the public boardroom brawl leading up to the company's annual general meeting in November 2002, Mr Fletcher threatened to quit if Mr Lew was re-elected as a director.

But as Mr Farnan pointed out, personality clashes play no part in the sale of a major business when the board is governed by the independent advice of the facilitator.

"The animosity is quite frightening but the reality is that when the processes are put in place, no single individual has too much personality in the transaction," Mr Farnan said.

Mr Fletcher was drumming up interest in Myer at this week's annual sales announcement, dismissing suggestions that department stores are the dinosaurs of the retail world.

"The perception that department stores are dinosaurs has probably been around for the last 25 years but if you look internationally at activity around department stores there are still large and vibrant businesses," Mr Fletcher said.

He said there had been plenty of changes in ownership in department stores, particularly by private equity buyers.

Mr Fletcher said that in the four years since he was recruited to turn Coles Myer around, there had been a re-emergence of Myer and department stores in general.

"You have seen that with DJs as well -- the customers and the industry are better off with a much better managed Myer than perhaps what the industry was four or five years ago," he said.

Myer managing director Dawn Robertson, a high powered executive drafted from New York-based Federated Direct in 2002, said continued speculation about Myer's future had been detrimental.

"It's an exciting time -- I see it as a real positive to settle any uncertainties that's been caused by anybody out there over all the years about who's going to own Myer," she said.

- AAP