Lew adds more fuel to the Myer fire
Myer has been rolling out the festive decorations in recent weeks and last weekend, it unveiled its iconic Christmas windows in the Bourke Street Melbourne store in a bid to generate a little Yuletide cheer.
That holiday spirit seems unlikely to prevail at the department store group’s annual general meeting this month as Solomon Lew prepares to play Grinch, opposing the election of the Myer board’s preferred candidates for directorships and asking some uncomfortable questions on the retailer’s performance and future direction.
Lew’s criticism of the venerable Myer department store group where he was a former chairman of the board have turned acrimonious, calling into question the competence of the board and management to reinvigorate the flagging chain.
Lew has effectively branded newly appointed Myer chairman Gary Hounsell a liar, after he claimed to have been sounded out to take the position of chairman of Premier Investments, a rather curious claim given the most unlikely proposition that Lew would want to vacate that role.
There is little doubt that Lew’s criticism of Myer’s direction resonates with most investors having seen the value of their investments tumble mercilessly amid falling sales, losses and declining market share.
For the optimistic folk who laid out $4.10 per share back on 9 November, the pain must be palpable as their scrip is now worth less than 2- per cent of their outlay.
Lew’s criticism is certain to rally small investors and may yield a fistful of proxy votes against the Myer board’s resolutions for the AGM. However, it remains to be seen if institutional investors will hold their nerve and back Hounsell and his executive team led by CEO Richard Umbers.
If Myer fends off Lew at the AGM, Umbers arguably has as little as six months and no more than 12 months to show genuine traction in the turnaround strategy which, in some respects, looks more like a receivership with store closures and clearance outlets in prime location stores.
Umbers has pointed out Myer’s online business continued to record strong sales growth, with a 67.8 per cent increase on the previous corresponding period in 2016 and says the retailer remains focused on the significant trading periods of spring racing and Christmas.
The second quarter results are make-or-break for Myer which is at its lowest ebb in its 117-year history.
Lew fits the bill as chief critic, but there is a question mark over whether or not he fits the bill as the white knight for the struggling retailer, which was forced to concede at its strategy reveal on 1 November that sales for the 13 weeks to 28 October, incorporating the first quarter of FY18 were down 2.8 per cent to $699 million.
Significantly, comparable store sales were down 2.1 per cent, with Umbers pleading that the result reflected the continuation of challenging retail conditions characterised by heightened competition and subdued consumer sentiment not any faltering in his turnaround strategy.
Lew has written to shareholders seeking proxy votes and encouraging support for alternative directors he has proposed and changes to the turnaround strategy.
In his letter to shareholders, Lew says Premier Investments, which is currently Myer’s largest shareholder with a 10.77 per cent stake, “plans to express its complete disappointment and frustration with the Myer Board of directors”.
“Myer is a business I have always admired as an Australian retail icon. At its height, it was a well-run business that understood what its customers wanted to buy, and delivered it with great service,” Lew said.
“Sadly, those times are long gone. In my view, and based on my personal experience in many Myer stores, Myer has lost its way.
“It has too much product that people simply don’t want to buy. Its stores – particularly those in suburban and regional areas – are disorderly, and it has not invested in frontline customer service.
“Too many of its talented retailers have left the business, and I believe it is now being run by consultants who have very little experience of running a retail business.”
Lew told shareholders he was shocked by the “clearance floors” which Myer has now permanently installed in eight locations. As he described, “they are one of the worst experiences I have had in more than 50 years in retail.”
“What Myer customers are supposed to make of them, I do not know, but they are a blight on the great Myer name and in my, view they should be closed down immediately.”
Lew also criticised investments by Myer in Topshop and Sass and Bide, which have incurred trading and capital losses, while claiming there has been no progress against any of the objectives of the “new Myer” strategy after two years that remains the path for the Myer Board and management.
Premier Investments first sought a meeting with the Myer board in May of this year to discuss its concerns after Myer trading announcements had sent his share purchases two months previous into heavy losses.
The Myer board rebuffed Lew, indicating they couldn’t meet with him until November, a response he described as “simply arrogant”.
In October, the Myer board also rejected three candidates proposed by Premier Investments as directors for election at the AGM this month.
Lew’s recommended candidates were an independent nominee Stephen Sewell, the former CEO of Federation Centres, and two non-executive Premier Investments directors, Terry McCartney, who was also a former Myer Grace Bros CEO, and Tim Antonie, a former banker and a director of Village Roadshow and Statford Advisory Group.
Lew believes his recommended candidates would bring expertise to what he regards is a Myer board that lacks mass-merchandise retail experience.
He contends Myer’s existing and nominated candidates at the AGM can add little value to discussions about strategy, pricing, ranging, distribution, property, store locations, customer service, supplier relationships and all of the other critical elements of successful retailers.
The antagonism towards Lew from Myer stems from several factors and not just his stinging criticism of the retailer’s struggling turnaround strategy.
The ghosts of the past are ever present despite ownership and leadership changes at Myer since Lew was ousted as chairman of the then Coles Myer in 2002 after being enmeshed in a conflict of interest controversy.
Lew’s return to Myer share registry in March of this year and unexplained intentions have annoyed the retailer, as has his storming of the ramparts in a crucial trading period. However, Myer should blame themselves for any distraction at this time, given they declined to engage with Lew back in May.
Hounsell, Myer’s chairman elect who is seeking endorsement at the AGM, has told shareholders Lew’s “public campaign of hostility” is “devoid of a superior strategic plan”, that his nomination of three candidates for the board is disproportionate to his shareholding and an attempt to take “effective control of the board and the company without paying for it”.
In a letter to shareholders, Hounsell said the Myer board has been refreshed and strengthened with five directors retiring since 2014 and seven new directors appointed.
He said acceptance of Lew’s candidates for the board would be risky, as Premier Investments was a competitor and major supplier to Myer, creating potential conflicts of interest and disunity around the director’s table.
Hounsell claims Lew’s criticisms of Myer “appear self-interested, partially revealed or secret” and “appear intended to drive the share price down” against the interests of shareholders.
“Premier positions itself as a retail saviour with “magic wand” solutions for Myer but the facts about Premier’s Australian retail businesses don’t lie.
“The truth is that the majority of Premier’s retail businesses have delivered lower sales growth than Myer in each of the last three financial years,” Hounsell told shareholders while urging them to support the current board’s recommendations to the AGM.
Therein lies the dilemma for shareholders, especially institutional shareholders – is Lew a forceful critic and naysayer or a white knight saviour and would changing directors be a little like swapping deckchairs on the Titanic, albeit Lew claims an overhaul of the turnaround strategy would avoid pending disaster?
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