Sydney view: Troubled times behind the shop counter

By GILES PARKINSON*

It's not a comfortable time to be a department store retailer. The Coles Myer board is embroiled in a civil war about the performance and future of its Myer Grace Bros chain, and now David Jones chief executive Peter Wilkinson is stepping down early after the failure of the company's Foodchain concept.

In Wilkinson's case, his departure is sadly ironic. He was brought into the company to help resuscitate what many people believed to be a retailing dinosaur.

He succeeded, lifting earnings from the department stores by more than 50 per cent over his five-year tenure, and distancing them from the problems plaguing their great rival at Myer Grace.

But his Achilles heel was an initiative that was designed to secure the sort of long-term growth that those department stores could not provide.

Foodchain by David Jones, a venture into gourmet food targeted at the time-poor working woman, was launched with much fanfare in 2000 and amid predictions of a 40-store chain and sales of A$500 million ($583 million) or more.

It has been a stunning failure. Four stores have been opened, two will close soon and the last two will probably close in the first few months of next year.

The venture accounted for nearly A$40 million of losses in fiscal 2002, gobbling up nearly all the hard-won earnings from the department stores and leaving David Jones with a meagre return of A$6.6 million from a business that took in A$1.63 billion in sales.

So Wilkinson is to go, but shareholders are unlikely to be satisfied.

Before his surprise departure was announced, the Australian Shareholders' Association had already relaunched a campaign to remove David Jones chairman Dick Warburton, arguing that he served on too many boards and should accept his share of responsibility for the Foodchain debacle.

The debate about accountability and whether management or the board should be held responsible for such failure is certain to widen in the months leading up to both the Coles Myer and David Jones annual meetings this year.

Wilkinson refused this week to say whether his departure was directly linked to Foodchain, although most market analysts said it clearly was, but he was at pains to point out that the venture was approved by the board.

We may never know who made what decision within the David Jones boardroom, but hopefully that will not be the case at Coles Myer, where the exchange of missiles between chairman Stan Wallis and the Solomon Lew/Ron Brierley camp has subsided, but only because the opposing parties are preparing for trench warfare.

It promises to be a fascinating battle, because unlike 1995, when major institutions took the initiative and forced the company into several board and executive changes, the Coles Myer register is now dominated by small shareholdings.

That has both fascinating and disturbing possibilities. For once, each shareholder vote may count, just as it does in a political democracy, and Lew faces the added challenge of dealing with a unionised and share-owning workforce who are still bitter about his last-minute ditching of the Ansett rescue.

But no one is yet too sure what the argument is about. Wallis and Lew clearly do not like each other, and it is presumed they have differing opinions about long-term strategy.

Perhaps they disagree about the day-to-day management by John Fletcher. But the company has yet to specify where their differences lie.

That is not having a helpful effect on the Coles Myer share price, which is now at five-year lows.

* Giles Parkinson is deputy editor, new media, of the Australian Financial Review.