Myer continues on struggle street

MyerBourkestreetMyer has floundered for two decades with little to suggest it can regain its former glory, despite at least 17 years of fruitless turnaround strategies.

In the past 17 years, Myer has yo-yo-ed between public and private ownership, downmarket and upmarket positioning, expansion and contraction of the store network and alternating focus between in-store concessions and proprietary labels and house brand product ranges.

Myer’s dismal performance has eroded the iconic brand’s customer base and shed market share and enterprise value with those shareholders who forked out $4.10 a share in November 2009 that held onto their nerve and their stock now having lost around 80 per cent of their money.

The release of yet another poor result, excuses, promises and a blind commitment to the latest turnaround strategy begs the question of whether or not even wily investor and Myer tragic, Solomon Lew, sees a worthwhile future for the department store chain.

The tumble in the Myer share price to the lowest level since it was re-listed on the Australian Stock Exchange eight years ago will certainly test Lew’s resolve and that of many other mum and dad and institutional investors.

Richard Umbers, the latest in a procession of CEOs at Myer, has pleaded for patience, indicating that Myer management is reviewing the five-year turnaround strategy he instituted just two years ago.

The review reflects the failure of Myer to meet the key targets Umbers set in 2015 that included earnings growth, a three per cent increase in revenues and a 20 per cent lift in sales per square metre.

For the full 2017 financial year, Myer sales declined 1.4 per cent to $3.2 billion with a telling comparable store-on-store result of 0.2 per cent, despite the implementation of Umbers’ turnaround plan.

Despite closing underperforming stores, major store refurbishments and a shake up in merchandise ranges, the sales per square metre productivity metric was up just 3.7 per cent over two years.

In fact, sales per square metre actually fell in FY17 by 0.5 per cent – yet another measure in the business that is going backwards.

While claiming credit for a reduction in the cost of doing business, much of that achieved as a result of closed stores, Myer recorded a $67.9 million trading profit for FY17, down from the previous year’s $69.4m.

However, that profit result was not taken to the bank, as Myer had to book significant item write-offs that left just $11.9 million in the bottom line result.

Hits to profitability included write-offs in the annual accounts on the sass & bide venture and the 20 per cent stake Myer had held in the collapsed Topshop Australian-owned franchise venture.

No lessons learned there, although Umbers’ management team may have greater insights than mere journalists, because Myer spent $13 million in the last financial year trying yet again with a fashion label acquisition, this time the Marcs and David Lawrence labels hawked around by administrators.

“The financial result isn’t where we want it to be, and the metrics that matter reflect that. That’s disappointing,” he said during the briefing.

Umbers claims there are positives and argues that Myer has made “significant progress to deliver his ‘New Myer’ vision” but then, for 17 years, we have heard a similar tune, sometimes played with better underlying numbers.

Discount fatigue?

Retail conditions have been challenging with more competition and subdued consumer spending and discount fatigue, as Umbers claims.

However, the Myer solution is to plunge more downmarket than ever before by relying on – pardon the contradiction to discount fatigue – “dedicated clearance floors in eight stores”.

Consider the confusing message that clearance floors in existing stores sends to consumers, not just where they are located, but across the store network.

It is incomprehensible that Umbers should be excited about have 20,000 sqm of premium retail floorspace devoted to offloading buying mistakes, to clearing the merchandise that customers didn’t want to buy or, at least, rejected the value proposition of the original pricing structures.

Myer morphing to discount brand Dimmeys doesn’t seem like a particularly smart strategy and the damage to brand and retail positioning will be substantial, notwithstanding Umbers’ enthusiasm for results of a trial of the dedicated clearance floor at Frankston.

Anyway, Myer clearance spaces are already at the Frankston, Penrith, Logan, Roselands, Tea Tree Plaza and Knox stores as well as, incredibly, the tourist-rich Perth city store and the new Pacific Fair store on the Gold Coast.

If the clearance floors don’t fire up the turnaround, there is always the Myer shrink strategy that has cut retail floorspace by 24,368 sqm through store closures in the past year at Wollongong, Brookside and Orange and surrendered space at Dubbo and Cairns.

But wait. There’s more!  Myer will not renew leases at Colonnades, Belconnen and Hornsby which, when those closures occur, will have trimmed a total of 74,670 sqm of retail floorspace since September 2015.

Interestingly, there is nowhere near the level of angst from landlords that would have been the case in years gone by when Myer exits a store.

Myer is simply not the drawcard it used to be, does not generate the level of traffic it once did and limits rental growth from landlords by splitting sales of retail brands located in the centre that are also trading from concessions within the department store.

Concession sales in Myer stores in FY17 were up 17 per cent to $702 million while Myer exclusive brand sales were down 10.4 per cent.

Since the launch of Umbers’ strategy in 2015, Myer exclusive brand sales have dropped by more than $100 million while concession sales are have increased by $200 million.

Closing unprofitable and under-performing stores is a sensible strategy but, to date, there has been no growth from what is left behind, from the stores that Myer believes are worth retaining.

There has been no growth in existing stores, even after substantial investment in store upgrades, revamped merchandise ranging and re-allocation of retail floorspace to products that could generate higher productivity through increased sales and better margins.

On top of that, Umbers conceded last week that the start to the current financial year has also been underwhelming with sales for the first six weeks below expectations.

The only real bright spot in the Myer results for the latest financial year was the online sales increase of more than 40 per cent, following a 48 per cent increase in the product range offered and $177 million in sales from omni-channel platforms.

Myer said its omni-channel sales represented about 8.2 per cent of sales in July this year but it remains to be seen if the retailer can maintain that level of growth over a longer period.

Bernie Brookes

Former Myer CEO, Bernie Brookes, once told a business briefing in Perth he wished the department store chain had not listed on the ASX because of the demands on management time of public company responsibilities and the expectations of shareholders with divergent needs.

Brookes led Myer in its private equity ownership period and remained CEO when the department store went public. At the briefing, he said it was much simpler to run a business when you had one owner “who owns 82 per cent of the business”.

Brookes also made the comment he had seen some great businesses that have not had their value reflected in the share price.

The observations of the former CEO and highly regarded retailer are likely to be teasing the mind of Solomon Lew, who has a strategic 10.4 per cent shareholding in Myer.

Lew would not be expected to be impressed with Myer’s progress under Umbers current strategy, let alone the long and sad journey of one of Australia’s best brands.

No doubt, Lew is mulling over whether or not there is sufficient value and prospect in Myer for a takeover offer, to sit and wait for someone else to bid for the department store chain to generate a profit on his stake or to take a rare loss on an investment and cash in his chips.

Myer has scheduled a strategy day in November to detail its revised strategy midterm for the Umbers turnaround plan launched in 2015, a briefing that may encounter an increasingly impatient and even hostile audience of analysts and shareholders.

 

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