Megamart Deal Done
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As tipped by SHN last week Harvey Norman has taken over the bulk of the failing Megamart stores owned by Coles Myer. The rest will be closed.

Accoeding AAPT, Harvey Norman said it would take over six of the nine Megamart stores and rebrand them as Harvey Norman, while Coles said it would close the remaining three stores. Harvey Norman chairman Gerry Harvey would not reveal the terms of the deal but said the additional stores would add between $300 million and $400 million to his company’s annual turnover. “We have to double the business, otherwise they won’t succeed,” he said. “We obviously think we can but ask me in six months and I’ll tell you if we’re smart or dumb.”

Mr Harvey said that all six Megamart stores were on long-term leases.  The sale of the Megamart stores comes as other retailers seek to offload key assets worth more than $1 billion. Among them, Coles Myer has put its Myer department store chain on the market for an estimated $500 million, while Solomon Lew is looking for a buyer for his successful Witchery chain.

Coles Myer has not been able to turn a profit on the Megamart stores since their inception in 1998. Last financial year Megamart’s sales declined by almost 6 per cent as it racked up a $35 million underlying loss.

The issue was primarily one of scale, with just nine stores spread across four states selling electrical, furniture and homewares in direct competition with the 160 Harvey Norman stores. Coles Myer said that a previously announced provision of $56 million was expected to cover the divestment and closure costs relating to the Megamart stores. The Megamart stores, which will be acquired on November 23, are Chadstone, Fountain Gate, Sunshine and Thomastown in Melbourne, Alexandria in Sydney and Coorparoo in Brisbane.  Mr Harvey said that he had inspected the Megamart business “and we figure we can do a good job with it”. “The four Melbourne stores will help us a lot because that’s the area Harvey Norman is weakest,” he said.

Harvey Norman is opening two new stores in Sydney this month and the Megamart additions will mean eight stores opening in November. “That’s a significant increase in turnover from our point of view,” Mr Harvey said.  Coles Myer will sub-let the three remaining store premises in Auburn and Casula in Sydney and Perth City.  Citigroup said the potential upside for Harvey Norman could be an additional $26 million in EBIT and a 9 per cent increase in earnings per share. It said Harvey Norman was the market leader in electronic and computer retailing and would generate large synergies from Megamart.

Coles Myer has already placed 200 of the 900 Megamart staff in other jobs within the group while Harvey Norman has indicated it may also retain some personnel.  Shares in Harvey Norman eased 1c to $2.79 while Coles Myer shares fell 10c to $9.98.