Chief Executive Officer’s Report / Growth

New stores will drive growth

Myer has an exciting future as we transition to growth. We have embarked on a store opening program that will see us grow from 66 to 80 stores across Australia over the next four years. The first new store was opened in August 2010 at Top Ryde in New South Wales, and we are on track to open another at Robina in Queensland in October 2010. Construction of our new stores at Mackay and Townsville in Queensland has begun, and we have secured conditional leases for new stores at Lakeside Joondalup in Western Australia and Fountain Gate in Victoria. By 2014, we anticipate there will be a Myer store in 29 of the top 30 shopping centres in Australia.

Our new store rollout program has been influenced by rigorous analysis of local demographics, income levels, population catchment, shopping centre turnover, and the competitor offer. As a result, we can be confident that each new store will be profitable within its first full year of operation, and are targeted to deliver returns of more than twice our weighted average cost of capital by the end of its second full year.

One of the most exciting developments underway at present is the complete rebuild of our flagship store, Myer Melbourne, which will progressively reopen from August 2010. Myer Melbourne will be one of the biggest stand-alone department stores by turnover in the southern hemisphere, and will stand proud alongside some of the best department stores in the world. Sales at Myer Melbourne have been impacted over the last three years by the disruption caused by the rebuild; however, profits have been maintained as a result of profit underpinning arrangements in place, and once the new store is complete we anticipate sales will exceed $300 million a year.

The investments we have made in building a fast and efficient operating platform will help drive future growth in a number of different ways. Our more efficient supply chain and improved store design mean that 80% of space in new stores can be used as selling space, compared to an average of just below 70% in our existing stores. Our world-class logistics operating platform can support at least 100 stores, so we will be able to grow beyond our planned 80 stores without having to make significant further investments in infrastructure. The layout of our new stores has been designed to deliver a high degree of flexibility such that the merchandising offer can be quickly adapted to respond to customer trends and maximise available space, and therefore profitability. Energy efficiencies are being integrated into the design and build of all new and refurbished stores, reinforcing our commitment to being more efficient and responsible in the way we do business.

Our store refurbishment program is designed to both enhance the presentation of our stores and improve store productivity. We have refurbished eight stores over the last four years and work is currently underway at our Canberra, Charlestown and Garden City stores. We have seen some exceptional results from refurbished stores to date, including at Sydney City, Geelong, Castle Hill and Doncaster, which was refurbished in 2008 and has since seen sales grow to $85 million per annum, despite a new department store opening in the centre. Going forward, we will continue to refurbish three to five stores each year, enabling us to maximise returns by increasing the amount and efficiency of trading space using our MYER one data and detailed space analysis, as well as by introducing new brands and improving merchandising.

Across all of our stores, we are working hard to improve service, enhance the overall presentation and continue to introduce new brands, concessions and concepts to inspire and delight our customers and support our future growth.

As part of a broad digital offer, we have been expanding our online offer which is available at www.myer.com.au. The website now includes more than 2,300 items, as well as an improved gift card offering. Recently, we successfully launched an iPhone application, to which over 20,000 customers have now signed up. We will continue to improve our online and digital offers for customers.