Stan Wallis, the chairman of Australian retailer Coles Myer, has asked the group's 580,000 shareholders to remain patient as he and his board mull how best to bolster falling profits. Wallis blamed the introduction of the goods and service tax (GST) last year and slow economic growth for a steady decline in group profits.

Last month Coles Myer issued its third profit warning since the beginning of the year, and Wallis said the implementation of the GST had had a pronounced effect on consumer purchasing trends. However, the letter to shareholders said the group expected "more normal buying patterns" to take hold in the retail sector as customers settled down in the wake of the one-year anniversary of the GST.

Wallis did not attempt to lay all the blame for its profits decline on factors beyond its control. He indicated that revisions to the operation and layout of its Target and Myer Grace Bros stores might not have helped. Indeed, some analysts have expressed the opinion that there is too much cross-over between Target, Kmart and Myer Grace Bros for them all to run in the same stable without cannibalising each other's sales, reported today's Australian Financial Review.

Measures to improve the group's performance include the appointment of a successor to outgoing CEO Dennis Eck, a management restructure. It is possible that the new team will decide to break up the non-food side of the operations. Wallis alluded to this option in his letter to shareholders, saying: "We also recognise that some investors support disaggregation of the group as the best way forward. This and other options are clearly before the board as we focus on recovering profitability in 2002 and beyond."

To read the Chairman's letter, click here.

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