Coles Myer Is Australia's Largest Retailer

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Coles Myer

Coles Myer is Australia’s largest retailer with more than 1,800 stores throughout Australia and New Zealand. The company’s aim is to create benefits for every stakeholder by being the best retailer in every market in which the company operates. Coles Myer is the Australia’s largest non-government employer with over 160,000 staff and spends approximately $19 billion a year buying merchandise and services from over 61,000 suppliers. There are various factors undermining the decline of Coles Myer performance and shareholder value, both externally and internally. In this report we will analyse Coles Myer, in terms of major financial, marketing and organisational drivers presently influencing the company’s shareholder value by using the value driver framework. Coles Myer is a large organisation; we will only be concentrating on the important aspects that we have ascertained. The concluding section of the report will address the major challenges in altering the drivers to increase Coles Myer shareholder value in the future. 2. Financial Value Drivers

A marketing strategy only makes sense if it is likely to increase the value of a business and Doyle (2000) suggested that to determine whether strategy make sense, long-term cash flow have to be estimated in a true valuation, rather than boosting the cash flow in short-term based by scarifying the long-term objectives. While shareholder values and financial value drivers are the objectives of business, marketing strategy lies at the heart of value creation. Marketing value drivers will determine the process and marketing strategy to achieve and maximise the shareholder and financial values. 2.1 Level of operating cash flow

2.1.1 Sales Growth
In 2001, J. Fletcher aimed to reach the target of $800 million annual net profit by July 2006. Since then, Coles Myer has struggled to meet the analyst’s forecast periodical profit and sales growth. Solomon Lew commented that the company will need a compound growth rate of 25% per annum while the star business which is the food business was struggling to grow more than 2-3% by 2005. This means that the only way Coles Myer could reach its growth target is to rely heavily on cost cutting measures (Operation Right Now). 2.1.2 Operating Margins (Higher Prices and Decreases in Cost) The key to a sustainable competitive advantage is by commanding a price premium or by doing things cheaper or doing both. As Porter (2001) illustrates that cost and price advantages can be achieved in two ways, operational effectiveness or strategic positioning. What is clear in the retail industry is that the consumers are very elastic to price. Thus it is fairly impossible to command a price premium in the market unless added value is presented on a platter. The retail branches (Myers-Grace Bros and Target) had relied on heavy discounting to clear their inventory during the post-Christmas periods, a price-war between industries retailers will most likely occur. This in turn generates a negative value to sellers as the bargaining power is shifted shifted to the buyer. As Porter (2001) suggests with more competitors selling largely undifferentiated products, the basis for competition shifts ever more towards price. Clearly, the net effect on the industry’s structure is negative. It is probably due to the realisation of the above-mentioned eventualities that Coles Myers tailored their focus on “Operation Right Now” as a cost-cutting exercise first and foremost to boost their operating margin. 2.1.3 Investments

One of the investments that Coles Myer has embarked on is a fully integrated supply chain system which is a key to improving ‘asset turn’. It was predicted that if Coles Myer can lift its asset turn by one-third, it could improve net profit by between 265 and 38%. However, the investment community is convinced that this larger then expected investment plan will take a long time to bring a return on investment. 3. Market Value Drivers

3.1 Market...
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