Harvey Norman snatches up Megamart

Coles Myer has dumped its poor performing Megamart furniture and electrical chain, striking a deal to divest six of the nine stores to mass merchant, Harvey Norman. The group will close the remaining three locations on Sunday.

The locations include Alexandria in NSW, Coorparoo in Queensland and four Victorian sites - Fountain Gate, Sunshine, Thomastown and Chadstone. All will be converted to Harvey Norman retail outlets.

The two companies are also negotiating sub-lease agreements for Megamart stores in Auburn and Casula, NSW, and Perth City, which are set to be closed.

Coles Myer spokesperson, Scott Whiffin, said it had a total of about 900 staff across the Megamart stores. Those who did not obtain positions with Harvey Norman would be given priority for roles at Myer and other Coles Group brands, he said. So far, the group had redeployed 200 people across its various chains.

The total cost of divesting the Megamart chain was $56 million, according to a statement released to the Australian Stock Exchange.

Coles Myer unveiled its first Megamart store in September 1998. After experiencing a run of disappointing sales results, the group launched a rebranding campaign in December last year to try and market the stores as a one-stop shop for technology and entertainment.

However, in its latest annual financial report, it admitted the rebranding effort had failed. The Megamart chain recorded a 5.9 per cent decline in overall sales during the year, reporting a loss of $35 million for the 12 months to June 30.

"Being first to market and focusing on home entertainment, digital, home office and entertainment software were key to ensuring Megamart was able to differentiate itself in the market," the Coles Myer financial report stated. "Megamart stores were upgraded to reflect the needs of customers, and additional on-floor specialist selling team members were recruited and trained to ensure customers received the service expected in the highly technical electrical area.

"While electrical sales improved, the nine stores in four states did not provide the scale to deliver the required profit improvement." The transaction with Harvey Norman is expected to be fully completed by November 23.

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