Leadership merry-go-rounds continue
Reitzer acquired food businesses to add fresh food expertise to the company’s core grocery and liquor operations – leveraging Metcash’s logistics capability into hardware and automotive businesses through further acquisitions.
Bernie Brookes was appointed CEO of the Myer department store chain under private equity ownership and floated the company on the Australian Stock Exchange, on a growth strategy that included an aggressive new store development program.
Grant O’Brien, Woolworths CEO, ventured into hardware with the Masters Home Improvement chain, while Nick Abboud, the Dick Smith CEO, turned the electronics retail chain into a trainwreck.
With hindsight, O’Brien and Abboud would obviously have taken less risky options for growth as would John Gillam as part of the Wesfarmers management team and board that outlaid $705 million to acquire the Homebase hardware chain in the United Kingdom.
With hindsight and the benefit of looking back on the flat economic conditions in Australia in recent years, Brookes has conceded that the ‘build it and they will come’ strategy to expand the store network was flawed.
Reitzer hasn’t commented publicly on the Metcash growth strategy but can take comfort that the Mitre 10 hardware acquisition has provided a growth channel for the wholesaler to offset competition pressure in its food and liquor businesses.
The move into automotive was a more questionable expansion as it extended Metcash beyond its logistics strengths into service businesses that were difficult to integrate and manage.
Reitzer, Brookes and Gillam remain highly respected retailers for their accomplishments and, interestingly, O’Brien might never have become Woolworths CEO and the Masters Home Improvement debacle might never have happened had Brookes not left Woolworths to take up the CEO role at Myer.
Dick Smith sank so quickly there was little opportunity to turn from Abboud to a new leader, while Myer and Metcash have each had two CEOs following the departures of Reitzer and Brookes.
For Metcash, Ian Morrice was CEO of the wholesaler from 2013 until earlier this year and his task was to unpick some of Reitzer’s initiatives, including the divestment of the automotive division.
Morrice was forced to announce massive writedowns and significant losses as the wholesaler undertook a major restructure and developed a business plan to galvanise its independent grocery, liquor and hardware retailers against increasing competition in each of those retail categories.
Morrice has handed over Metcash in reasonable financial shape but incoming CEO Jeff Adams faces a formidable task to maintain sales and earnings growth for the wholesaler.
Adams, who has been recruited to Metcash on a four year contract, has had more than 20 years experience with various Tesco supermarkets businesses, including CEO roles in Turkey and Thailand along with a stint as director of operations of Tesco Express in the UK.
Metcash has posted a 4.3 percent increase in sales to $14.5 billion for the full 2018 financial year with underlying earnings of 215.6 million, however, the wholesaler recorded a statutory loss of $19.5 million after booking previously announced impairments on its accounts of $345.5m.
Adams is bullish about the opportunities for Metcash going forward despite increasing competition in its core grocery and liquor channel, which generates the lion’s share of its sales and earnings.
The company has already lost a significant slice of business in South Australia with the Drake Supermarkets group moving to establish its own warehouse facilities.
Adams believes Metcash can cover the loss of that business through cost efficiencies but he concedes that earnings for the 2019 financial Year will be adversely impacted by an estimated $10 million due to growth initiatives that are expected to generate enhanced profitability in future years.
How many opportunities there are to further prune operating costs in the business, after the Morrice program, are questionable and the competition in the grocery sector is increasing with Aldi, Costco and Kaufland’s imminent expansion and the prospect of more vigour from the major chains, Woolworths and Coles.
Adams has lost the MD of the grocery, liquor and convenience business, Steven Cain, to Coles, where he previously had a stint as MD when it was part of the Coles Myer Group.
Coles food, liquor and convenience businesses are being divested by Wesfarmers to create a more focused-entity to be floated on the Australian Stock Exchange.
The challenge for Adams is to find a way to reinvigorate the Metcash food and liquor channel, which has flatlined and is suffering a fall in profits that has been somewhat masked in the short term by stronger hardware trading results.
Department store turnarounds continue
When Brookes announced his resignation from Myer in March 2015, the chain turned to Richard Umbers, a surprise internal appointment given his limited experience in department store retailing.
Umbers launched a $600 million ‘New Myer’ turnaround plan that was largely plagiarised from a turnaround strategy Brookes had put together.
Myer sales, earnings and share price continued to fall and the store network shrunk under Umbers and a management team that lacked start power and, arguably, the retail experience and skills to execute the ‘New Myer’ plan.
Umbers left Myer abruptly on St Valentine’s day back in February of this year with chairman, Garry Hounsell, temporarily filling the role until an executive search saw the appointment of a British retail executive, John King.
King had been working in the United States as a consultant for the past three years but was formerly the CEO of the British department store chain, House of Fraser.
King was credited with a turnaround in the fortunes of House of Fraser but most retail analysts in the UK believe his strategies have not provided a sustainable future for the retailer, which is currently embarking on another round of store closures in a bid to survive.
King has moved quickly to meet with staff, major shareholders and customers while changing some marketing initiatives and planning yet another shakeup of brands.
King’s problem at Myer is that, unlike the House of Fraser turnaround, the low hanging fruit that would suggest a genuine recovery in the chain’s fortunes has already been well and truly picked by the Brookes and Umbers years.
The closure of underperforming stores, merchandise and marketing changes have not improved sales or profit performance – and the problems are not with staff operating in-store concessions, despite King’s admonishment.
The only consolation for Myer at the moment is that David Jones is arguably not travelling much better, despite substantial investment by its South African owner, the publicly-listed Woolworths Holdings.
Woolworths parted company with CEO John Dixon last May, opting for a flatter management structure that now has David Jones MD David Thomas and Country Road specialty fashion brands MD Scott Fyfe reporting directly to parent company CEO Ian Moir in South Africa.
David Jones has recently conducted a comprehensive business review and has shed staff, including merchandise MD David Collins in a bid to cut costs as the business struggles for sales growth and a return on its substantial investment in a food strategy.
Leadership changes in retail have been more frequent and widespread in recent years as retailers try to address structural changes in the industry, flagging consumer spending and increasing competitive pressures that are forcing prices down despite rising operational costs.
Unlike the strategies of many retailers in past years to pursue growth by expanding store networks or through acquisitions, the new leaders are often faced with the need to pare back their businesses.
The challenge for new leaders like Adams and King is to redefine their businesses.
It is not just to confront online retailing but to establish a point of difference, competitive advantages within the business and effective ways of connecting with customers who are spoiled for choice.