Warehouse Group is canning its Warehouse Extra stores.
The move will cost the retailer up to $12 million in exit and restructuring costs, including asset write-downs of $5 million and the reconfiguration of current Extra stores.
The cost will appear in the 2009 financial year.
The company expects an annualised pre-tax improvement in operating earnings of about $9m. It says the decision follows a "comprehensive review and assessment of future earnings potential".
Chairman Keith Smith says the "company's aspiration to achieve the critical 10% halo benefit in general merchandise and apparel" will not be realised.
"As a consequence of this, the Extra strategy will not meet our return on investment criteria."
He says the company plans to "simplify" the business and focus on its core business.
Fresh produce, meat and frozen foods will be withdrawn from the three existing Extra stores within the next six months.
The pharmacy and health and beauty category areas are to remain.
"A decision has yet to be made in respect of liquor currently ranged in six of the company's 85 stores."
Managing director Ian Morrice says the Extra stores have been an "important trial" for the retail chain.
"The format and level of investment has been managed to ensure the supercentre model was properly and thoroughly tested with the benefits flowing to the wider business. These benefits have been significant particularly in relation to range extensions, store operations, supply chain and systems.
Warehouse shares were up 22c to 331 in early trading.