Five Year Plan To Double Profits

The Age

Wednesday March 27, 2002

Leonie Wood

Coles Myer shares tumbled almost 4 per cent in an investor backlash yesterday after the retailer confirmed it would phase out its costly shareholder discount program from July.

The changes were revealed as Coles Myer launched a five-year plan to double profits and open hundreds of new stores.

Jobs will go from head office as the retailer streamlines its processes but Coles Myer declined to say how many.

Until now, Coles Myer investors with at least 500 shares have received discounts of between 3 and 10 per cent at the retailer's supermarkets and department stores.

From July 31, the last day of the retailer's financial year, the rate will fall by up to 3 per cent. Discounts will be cut totally from the budget supermarket chain Bi-Lo and online computer seller Harris. Further cuts will be made in 2003, and the discount program will end in 2004.

Coles Myer staff, who get the same discounts as shareholders, will also have their rates trimmed by 2.5 per cent in most stores. And the scheme that offered executives extra discounts of 10 per cent above shareholder rates at Myer and Megamart has been scrapped.

The separate listing of the discount card shares will end on April 12, and those shares will once again become ordinary shares in the retailer.

Coles Myer shares fell 34 cents to $8.45 yesterday and the discount card shares lost 35 cents to $8.39.

Coles Myer claimed that while the program lured hundreds of thousands of regular customers, the loyalty discounts stripped close to $200 million a year from profits.

Coles Myer's chief executive John Fletcher called on smaller shareholders to stick with the retailer, arguing that while the discounts would disappear the company expected to double profits by 2006.

``We are saying, `Hold it, come for the ride, you will be very happy'," Mr Fletcher said. He also insisted that ``every penny" saved by ending the discounts would be given straight back to customers through lower prices and more extensive loyalty programs linked to the FlyBuys frequent shopper program and Coles Myer's credit card.

Coles Myer's own estimates show that $2.8 billion of the company's $24 billion of annual sales is run up by shareholders carrying discount cards.

On average, for every dollar taken through its tills, Coles Myer pocketed about 3.5 cents. But it gave away a further six cents in shareholder discounts alone.

Since introducing the shareholder discount program in 1993, the company's share register has swelled nine-fold.

About 540,000 investors now carry Coles Myer discount cards, and the overwhelming majority own fewer than 1000 shares.

``It was not a program that rewarded shareholders; it was a program that created them," Mr Fletcher said.

COMMENT Malcolm Maiden BUSINESS 1

SHAREHOLDER DISCOUNTS SHRINKING BENEFITS
                CURRENT DISCOUNT        DISCOUNT FROM JULY 31
                %                       %
Coles           5                       3
Bi-lo           3                       Nil
Liquorland      5                       3
Kmart           7                       5
Target          7                       5
Myer            10                      7.5
Megamart        5 to 7.5                        5 to 3
Harris          3                       Nil
Officeworks 5 3
* DISCOUNT PROGRAM TO BE PHASED OUT BY JULY 31, 2004
* NEW ENTRANTS TO PROGRAM NOT ALLOWED AFTER APRIL 5, AND SHARE OWNERSHIP NOT
REQUIRED
BEYOND APRIL 5 TO USE EXISTING CARD.
* COLES MYER DISCOUNT SHARES WILL REVERT TO ORDINARY SHARES ON APRIL 12.

© 2002 The Age

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