Paul McIntyre: On special - one Aussie dinosaur

Department stores are not dinosaurs. These words tumbled from the boss of an Australian retail giant this week who fessed up to plans to flog his one for up to $500 million.

Coles Myer's chief executive, John Fletcher, made official on Tuesday what most had expected for months - the retail monolith was looking to offload its 61-store chain Myer, after several failed attempts to reposition the business.

Just don't try to tell Fletcher he's getting out of Myer because department stores are destined for a low-growth future, or even death.

"We don't subscribe to the 25-year view that department stores are dinosaurs," he said. Fletcher, however, has a slight challenge ahead of him based on the latest figures from Myer - for the six months to June, it posted a loss of A$15 million ($16.2 million) although for the full year it will generate earnings before interest and tax of A$45 million.

The past six months were tough, mainly because of a late winter, according to Myer's imported managing director, Dawn Robertson. For the June quarter, sales were down 1.9 per cent as demand for boots, coats and big-ticket electrical items waned.

Moreover, rocketing fuel prices are starting to bite into consumer spending patterns for the whole Coles Myer group. "I think fuel will stay up and that will affect retail spending to the extent of A$20-A$30 a week," Fletcher warned.

For the 12 months to June, Coles Myer lifted overall sales 13.3 per cent to A$36.6 billion from its retail operations, including Target, Kmart, Coles Supermarkets, Officeworks and its liquor chains. It was reasonably good news for shareholders, which before Fletcher's arrival suffered years of under-performance.

But within a day of Fletcher flagging plans to explore an exit from Myer, one potential trade suitor, arch-rival David Jones, had its wings clipped by the Australian Competition and Consumer Commission.

David Jones, which at the moment is proving department stores don't have to die, has signalled interest in some of Myer's better-performing stores, although the competition regulator raised concerns that a merger might weaken the negotiating position of suppliers.

Fletcher does have a few options, though. He signalled this week trade buyers would be canvassed - and a number of private equity firms and possibly international retailers are sniffing - with the possibility of a demerger of Myer from Coles Myer with Myer trading on the exchange in its own right.

The hopes are for a less complex trade sale process and private equity firms have done a couple of these department store deals in recent years. The latest was three months ago when private equity firms Texas Pacific and Warburg Pincus paid $US5.1 billion ($7.3 billion) for upmarket retailer Neiman Marcus.

On the subject of chief executives dealing with tough environments and fuel price impacts, full marks must go to Qantas chief executive Geoff Dixon.

How many company bosses can reveal a A$2.2 billion blow-out in fuel costs over two years and then see the share price rise 2c. Dixon pulled that stunt off for Qantas on Thursday.

The fuel bill for Qantas jumped A$958 million last year and another A$1.2 billion rise is forecast for the current financial year. Fuel hedging contracts stripped A$403 million from Qantas' fuel costs last year and 60 per cent of requirements for the current year are hedged.

But it still means Qantas has to deal with A$600 million in extra costs.

Hence Dixon warned the world on Thursday of job cuts and higher airfares to slash costs by $1.5 billion over the next three years.

"Part of our success has been that the Australian economy has been so resilient," he said. "The only real downside is fuel."

Paul McIntyre is a Sydney journalist