Following the rejection of two KKR bids for Coles last spring, I have spoken with many senior Coles managers who expressed the view that the company would inevitably be sold or broken up. Often these discussions were in the context of them wanting to jump ship (or should that be cut and run).

In defending against the bid, chair Rick Allert and CEO John Fletcher said they would achieve a profit of $1.066b next year, and that shareholders should stick around to reap the benefits of this unrealised potential.

The view commonly expressed to me by these dispirited senior Coles people was that a billion dollar profit is either unachievable or could only be reached by taking short term decisions resulting in longer term damage to the company's performance and prospects.

When Woolworths released their excellent sales results last month, it was reasonable to speculate that their growth must have been in large part at Coles' expense. Tuesday's full results announcement by Woolies came as no surprise, the dollars have been spent at Woolworths, not Coles. The first half results at Woolworths went close to what Coles said they would make in a full year.

On Friday, Allert released a statement updating their earnings guidance, saying they look like coming in 10% below the $1.06b. It seems that sales in supermarkets and Kmart are lower than expected.

He also announced that the Coles board was reviewing ownership options, having received recent fresh approaches. It was a polite way of saying that they were for sale. The board will decide on whether a 100% or partial sale would create greater value for shareholders.

In an astonishing backflip, the Coles leadership is telling the world they are not up to it.

They are turning their back on all the internal restructuring and seem to have totally lost confidence in the ability of the current leadership to kick a winning score. Moreover, we will never know whether the now reduced profit target will be reached because by 2008 Coles will not exist as we currently know it, and it certainly will not be led by the current group. There will be a new junta in place.

The only upside appears to be that Coles bought the necessary time to ensure that they had a modicum of control over the process. Last year the KKR bid contained so many of the major players, and utilised a large chunk of the available consultancy resources that it effectively prevented any other party from making a rival bid.

However, Coles will need to have used that time well. If investors had received $15.25 last year and invested it across the ASX, it would be worth $17 now. Anything less than $17 is an extremely poor result.

Last year when Coles rejected the second $15.25 KKR bid, I speculated that a poor performance by Coles might make the offer seem generous. How is it looking now? The Age, The Australian and Herald Sun are all asking the question.

To ensure Fletcher has sufficient time to run the review process (read: maximise the price) he is giving up day-to-day management of the business. Coles has appointed Mick McMahon as Chief Operating Officer of all their retail businesses. McMahon is the former head of Coles Express who was appointed as guardian pro tem of supermarkets after former chief grocer Peter Scott was fired over his relationships with a key meat supplier. (In a story buried by bigger news, Coles will not be taking any action against Scott).

In two blinks, McMahon has gone from running a smokes, petrol, drinks and ice business to head of a vast and complex retail offer. If a bid is successful, we may never have time to see whether he was up to the job.

John Fletcher's memoirs or the CV for his coming board appointments and speaking engagements will be able to proudly point to how he improved shareholder value at Coles. That will be an impressive, but incomplete, story.

In 2001, when Fletcher was appointed to head the company, Coles was the number one Australian retailer, with daylight second and Woolworths third. During Fletcher's reign, both Woolworths and daylight have passed Coles.

Why has this once great retailer slipped so badly?

There are many good stories about Fletcher's skills as a high involvement leader, When he got the Coles gig, Fletcher famously announced that he hadn't been in a supermarket for twenty years. He had no retail experience, having spent most of his career at Brambles. Fletcher developed a habit of spending significant blocks of time, often a full day, in stores. His visits were not just drinking tea with a terrified manager; he spent sleeves-up time building his understanding of the grass roots issues in each business. While this is commendable, it was always going to be inadequate and he clearly had an urgent need to surround himself with the right expertise.

What is now clear is that his principal shortcoming has been his inability to drive change through a company that needed renovation.

A great general needs great colonels. Fletcher's failure to build the right team and have access to the right advice is central to the company's problems. Many of those at senior levels at Coles (Myer) were unwilling or unable to drive the necessary cultural change. Aside from the hiccups with supermarket heads Steven Cain and Peter Scott, there are issues with the leaders of many of the Coles business units.

Last year, Fletcher, or the board, engaged McKinsey. McKinsey, with their groupspeak, consultant jargon and reputed arrogance toward client executives has a history of cutting costs to create shareholder value rather than improving the long-term health of their clients.

We have heard several reports of McKinsey consultants marching into departments and mandating percentage based cost reductions and arbitrary outcomes with scant examination of how well the department had been operating.

There was a laughable story of a bright young Coles manager, who earned in excess of $125k, being allowed to take a redundancy package because his role had changed by more than 30%, and then immediately re-hired as a consultant with a 30% increase in his income on a long-term contract with the probability of going permanent. This guy was a star and exactly what the company should not lose – and they knew this. But the mandatory McKinsey driven system produced this pythonesque outcome.

If this is a renovator analogy, McKinsey prepared the house for sale, rather than making it better to live in. Once McKinsey moved in, the die was cast.

The share price has risen steeply, but make no mistake, Coles is a broken retailer. It can be turned around. McEwans (Bunnings), Sportsgirl, and most recently Myer are all evidence of what happens to broken retailers under the right management.

Fletcher will leave this mess with a payout approaching $50m. This is a nice reward for getting the fundamentals wrong while driving the share price up.

If Coles is to be salvaged, it needs a strong leader who is a retailer, who understands the Australian retail market, and who is honest. It has been a long time since the head of Coles has been able to tick all of those boxes.

Meanwhile, while all this is running its course, the distraction gives Woolworths an opportunity to put even more daylight between the two giants.

My wife still hangs on to her Coles shares, terrified of selling them before the raiders maximised the price.

A carve up appears highly likely for Coles. What might happen if Coles is broken up?

Coles, the grog businesses and Kmart either retained or sold to the barbarians, Wal-Mart or Tesco? Officeworks to Harvey Norman? It would suit Gerry's franchised business model.

I have read that Woolworths would love Target, but there is a widespread belief that Solomon Lew has the bullseye in his sights.

Lew is a merchant through and through. He may love to be a shopkeeper again, and Target is a logical vehicle. It would mesh beautifully with his other interests. Lew, through Housewares International and the Voyager Solo apparel import and distribution business has companies that operate in much of the Target supply chain. Lew could quickly bring together a team with broad expertise across Target's merchandise offer.

Lew company Premier holds around 6% of Coles shares, and whilst not having the voting clout to block any acquisition, Lew will be a key stakeholder and one to whom many small investors will cast an eye during all this.

In a twist, Housewares is itself the subject of some recent interest from barbarians. Would it be in Lew's interest to get cashed up ready for a really big acquisition?

This would be a footnote to one of Australia's longest, and at times nastiest, corporate battles.

Orex is unlikely to recommend expensive press advertising.

We believe your ideal candidate is probably not scouring the papers. And we don't want to use your dollars just to promote our name.

The best candidates are generally not even looking for a new career. They are happy, doing a great job, well recognised and rewarded – and that's exactly why you want them on your team.

Orex gives you access to by far the largest pool of potential stars. We have the largest databank of retail managers – more than 60,000 - and we know how to get them interested in a move.

Orex knows how to find and attract those passive candidates.

Call Rob Lake or Christine Sturgess on 03 9349 8989.

The issues facing the new owners of Coles, or any of the pieces, are those fundamentals recently faced by Myer, and in the past decade by Bunnings.

Coles is internally defeated; most managers believing the company cannot succeed under the current leadership. The simple fact of a change of ownership has a high potential to ease the feeling of helplessness and inability to influence outcomes.

Coles is also a highly political environment that fosters safe decisions rather than management risk taking. An early priority must be to have people believe that taking risks and pushing against the tide is not just allowed – it is essential.

The new leaders must listen, listen and listen. Those closest to the customers, the people in stores, are an under-utilised giant set of ears and eyes. For example, they would have told Tooronga that the conversion of Bi-Lo to Coles was likely to drive customers elsewhere.

Communication channels must be opened and decision-making hastened.

The new owners must paint a clear picture so that everyone in the company knows where they are going as a group. Have everyone understand the outcomes to be achieved and the role they might play in the achievement (as opposed to the tasks they might perform). Everyone must have a vision and a set of relevant values on which they feel they can safely base their decisions. Then Coles must train and develop the team so they are capable of delivering those outcomes.

Create an environment (through fairness, a sense of fun, feedback, recognition, and reward) so the team wants to be part of the journey. If work is fun, the team want to be there, they will do a good job and the customers will feel the vibe.

Allow people to take risks – and more importantly - make mistakes. They should be able to learn from their stuff ups, not feel they have to cover them up for fear of a thrashing. Do not assume that the only good ideas come from the top down. Never second guess your team's best efforts.

Understand that in retail, you NEVER get it right. It is always a journey, a work in progress. Perfection does not exist.

There are enough local and overseas examples of successful turnarounds of struggling retailers. It's not hard to achieve, but they all seem to require the circuit breaker provided by new ownership and leaders.

This article may look familiar to some of you. It is almost exactly what I wrote about Myer nearly two years ago. The rules don't change; just the names.

In my day job, I am a recruiter of retail managers. One of my tools of trade is a sophisticated software product we use to manage that database of 65,000 retail managers that you are possibly sick of hearing about.

Just after the launch of Vista, Microsoft's much hyped replacement for their Windows XP operating system, we received a message from the database supplier warning us not to move to either Vista or Internet Explorer 7.0. It seems there are serious compatibility issues resulting in the database software being largely unusable on a Vista based computer.

In the absence of anything in the local media, we initially thought this was an issue limited to our provider. However, as consumer electronics trade newsletter Smarthouse News reports, we are far from alone, and Microsoft may be experiencing a rare flop.

Sell through data since the 30 January launch indicates that Vista had a sales surge, but is now not selling as well as its predecessor, and is not generating sales of new PCs. Sales are down almost a third on the equivalent period for Win XP, and this is at a time when PC sales are higher, up a staggering two thirds on 2006. Customers want to stick with the old operating system.

Two issues may be killing the product. During the development of Vista, Microsoft appears to have not worked closely with the manufacturers of key business and entertainment programs. The compatibility problems turn out to be very widespread. Many popular programs just do not work on Vista, and the word is spreading very quickly. Microsoft, having allowed a long period since the release of XP, may have launched too early.

The second factor is a widespread and growing belief that it is better to wait until the release of version 1.1 of any new Microsoft product, by which time they will have ironed out many of the bugs.

The Microsoft CEO warned the market that sales forecasts for Vista were optimistic and their share price tumbled, forcing Bill Gates to talk up the product and the stock price.

Microsoft is known by some as the evil empire, and many are keen to see it stumble. However, reports that this may be the beginning of the end might just be a little premature.

Moving to multi site management

As recruiters, we know it is hard to find skilled multi site retail managers, particularly in Sydney.

As recruiters, we also know it is very difficult for managers to move from a single store to a multi-site function.

The solution may be in an Australian Centre for Retail Studies program.

The Multi-site Retail Management program is designed to develop retail managers who are taking on greater responsibility for team or multi-site management. The program is ideal for experienced store, department and team managers, group, area or multi-site managers and managers in support office roles.

The two-day program will operate in Sydney in May and Melbourne in July. Detail are available from the centre on 03 9903 2455 or here.

Are you currently a people focused team player in the cinema, retail or hospitality industry with stars in your eyes? The role of Centre Manager with a large Entertainment Complex may be your big break.

This is a rare opportunity to jump on board with one of the all-time favourite entertainment complexes. A world of opportunities waits for you, but it is also your initiative and drive that will make you the star.

This role requires you to have had management experience in cinema, retail, entertainment or a hospitality venue where working with a team and a large customer base has been your daily routine and you thrive in it. You have an ability to deliver on KPIs, have a flair for marketing, exceed at customer service while motivating a team and you create your desired work place culture through having fun and being a strong, hands on leader.

To get an audition for this role, you MUST have had experience in a management capacity, led a team as well as be able to convey your passion for the entertainment industry and dedication to customer service excellence. So, go ahead, make your career…

Sound like the role of a lifetime? Then send your resume to Laura Celli or call for more information on 03 9349 8989.

The Mouse that's yet to roar

Sought after multi-site role with a focus on furniture, bedding and interior products. Great product, hard to beat prices and untapped business potential.

Give this well established business operating from three well located sites the “shot in the arm” it's crying out for. All new products at prices the competition find very hard to better, even if they have similar lines. But it remains a sleeping giant, just waiting for the right retail expertise to get it truly firing.

Apply your business acumen and your retail wherewithal to influence and drive changes that will create a more modern retail organisation. You'll have the backing of a major furniture manufacturer / distributor with enviable industry standing, and a COO who is just itching to see a better performance.

Get this sleeping giant up and firing. See here for more details or call Paul Fetterplace at Orex on 03 9349 8989 for a deep and meaningful discussion.

Also worth a look:

Retail Buying Admin / Price file maintenance officer. An eye for detail? Excel skills? Looking for flexible hours? Hawthorn based hardware and building supplies retailer is looking for a committed administrator to support their buying team. Great culture, which makes coming to work something to look forward to. Contact Laura Celli on 03 9349 8989.

Running half a dozen stores. Well established, niche importer and retailer of high quality homewares needs you to train, coach and lead a team with a strong customer service focus. Melbourne based. Call Tracey Horton on 03 9349 8989

Senior Sales Exec / BDM based in Melbourne with a national overview. Work with architects, builders and specifiers to build this business' profile. Six figure salary package. See here for details, or call Paul Fetterplace on 03 9349 8989.

Here are some other retail management opportunities.

• JB Hi-Fi is on a roll with a 39% profit jump. They showed strong total and comp store growth. As the company approaches maturity, the challenge they will face is keeping this momentum going.
• Quiet achiever Noni B up 11%, however it is their slowest earnings per share growth for five years, linked to harder conditions in NSW.
• David Jones had their first billion dollar half, rising 7.8% and even faster in the second quarter.
• The Reject Shop continues its strong performance, moving the range to an everyday needs focus and continuing their store roll out. Among the retailers, this company was the best performer on the ASX last year and continues to impress.
• Bunnings was one of the few highlights in Wesfarmers performance. Bunnings is rapidly approaching $5b in sales while retaining their 10%+ EBIT, a number unheard of elsewhere in large retail.
• Symbion Health, operators of Terry White and Chemmart reported a 15.9% increase in EBIT with strong growth in the pharmacy businesses.
• Country Road doubled its earnings.
• Repco continues to struggle, blaming it on fuel prices, weather, interest rates and pretty much everything except poor merchandise ranges, culture and decision making.
• Meanwhile Repco competitor Super Cheap Auto, who must operate in a different climate and economy seems to be raking in the profits.
• Jeweller Michael Hill reports an 11% lift.
• The world's largest owner of shopping centres, Westfield, experienced a dip in share price after a rise in profit. It's a satisfaction ratio issue. The market expected them to report a humungous increase, but they could only manage monumental.
• WOW! The big one - Woolies. Sales up 15.9%; and it cost them less to do it with EBIT up 27%. The graphs are impressive as their rate of improvement is increasing with no sign of a plateau. This information alone explains why Coles is struggling to hit targets. The result may strengthen the arguments against Woolworths acquiring any of a divested Coles.

ACRS Retail Buying Program

This two day program provides a foundational understanding of the diverse range of skills required to be a successful buyer including; identifying a target market, planning a profitable range, meeting financial objectives, selecting the right product, building supplier relationships, analysing performance.

At the end of the program participants will have an understanding of the key competency areas of the buying role including:

• How to formulate a retail buying strategy.
• Procuring with a customer focus.
• Building an effective product range.
• Establishing and maintaining effective supplier relationships.

The program is suitable for:

• Buyers, product developers and planners who are relatively new to the role.
• Trainee buyers.
• Suppliers wanting to better understand the buying process.

Dates for 2007 are 13–14 March in Sydney and 16-17 May & 11-12 September in Melbourne.

For further information download the brochure or contact Program Director Andrew Cavanagh at the ACRS on 03 9903 2455.

Unsubstantiated tips, rumours and hearsay

A source who has recently left Sigma paints a picture of an unhappy company. He reports of the departure of the heads of operations for both Amcal and Guardian and their store development and property office being in tatters.

The Amcal Max strategy rollout may be on the nose with some new leaders.

Retailers take a tip from MySpace

From Business Week.

E-commerce sites are letting customers post comments, reviews, and even photos—and finding out a lot about their products in the process.

Retailers are taking a page from MySpace. They know that customers, especially the younger and more Net-savvy, want to be heard, and they also want to hear what others like them think. So increasingly, retailers are opening up their Web sites to customers, letting them post product reviews, ratings, and in some cases photos and videos. The result is that customer reviews are emerging as a prime place to visit for online shoppers. Read more here.

Oldies but goodies

• Before Myer was sold, we said this.
• After the sale; this.

Not much changes

Retail briefs

• Tesco unveils its US brand and logo.
• Daimaru eyes a merger.
• The UK's favourite High Street retailer is growing.
• One time Myer suitor Edgars has itself fallen to a private equity bid.
• Apple stores to open in Melbourne and Sydney.
• Something we will not welcome here – thieves throwing hot coffee at sales staff and making a grab for the cash. Maybe the bottomless cup refill needs to be kept behind the jump.
• In New Zealand, the battle between Woolworths and Foodstuffs for The Warehouse is still with the regulators
• Ikea to charge for plastic bags.
• Wal-Mart is paying US$1b to take over a Chinese chain, challenging Carrefour as the country's largest retailer.
• Meanwhile, across the Himalayas, Carrefour is talking to some big players in India, with an eye on expending there.
• Primary bails out of Symbion; but Healthscope expresses interest.
• And now that carbon is naughty, Coke is no longer carbonated – it's sparkling.