Myer board to face Lew’s wrath

Myer directors and CEO John King are setting up their defences as another tense annual general meeting looms large. The department store’s largest shareholder, Solomon Lew, has laid siege to the board and is urging shareholders to vote out the directors.

Lew put the Myer board on notice at last year’s annual meeting, achieving a shareholder vote that could have enabled a call for an extraordinary meeting to specifically address the board membership.

However, strategically, he decided not to antagonise institutional shareholders which had failed to back his push for a board with more retail experience.

The Myer board terminated Richard Umbers as CEO in February and subsequently appointed John King, a former CEO of the House of Fraser department store in the United Kingdom. But Lew remains unconvinced about the direction the board and King are taking, especially after the retailer recorded a $486 million loss for the 2018 financial year.

Institutional shareholders share Lew’s concern – more accurately described as anger – but remain unlikely to support a spill of directors at the forthcoming annual meeting.

But it would be a mistake for them to simply fend off Lew. He has a valid point about the lack of retail experience on the Myer board, despite new director appointments in the past 12 months, and the management ranks are thin, again despite new appointments by King.

Ahead of the annual meeting, Myer and its major shareholders and existing leadership need to find a compromise rather than have another debilitating hostile battle.

The need for retail experience is crucial as department stores around the world falter. Debenhams in the UK and Sears, the iconic American department store chain, are both in danger of collapse.

Debenhams, which has a store in Melbourne and merchandise ranges in Harris Scarfe stores, announced it would close 50 stores after reporting an $889 million loss for the last financial year. Sears this month filed for Chapter 11 bankruptcy protection after years of declining sales and heavy operating losses.

The problems for the two iconic retail brands follow a rescue earlier this year of the faltering House of Fraser, which King was credited with turning around over an eight-year tenure as CEO up until 2015.

Myer has secured $400 million in debt facilities of its financiers, ensuring that they have a priority over other creditors – including staff, suppliers and landlords – should Myer collapse. Lew argues that Myer is virtually in the hands of its bankers as a result of the 2.5-year debt package, and the retailer is certainly under pressure to reduce costs.

To appease shareholders and to fend off a Lew challenge at the forthcoming annual meeting, Myer directors have cut their pay packets. It is a nice gesture, perhaps, but it misses the point in that Myer needs the best retail experience it can obtain to ensure its

long-term survival not simply cheaper directors.

There may be more and different advertisements to come in the lead-up to Christmas, but the My Myer campaign currently on TV screens is meaningless. For a retailer in serious difficulties, the feel-good ads are a waste of money, with no call to action and no
redefining of the Myer retail offer.

To stabilise its financial position, Myer is considering selling its Melbourne headquarters or downsizing floorspace, in part because of staff cuts. The retailer is also reviewing its store network and the store model itself, with the prospect of further closures and reduced floorspace, potentially subleasing some areas to other businesses.

King has decided to abandon the clearance centres that Umbers opened in some Myer stores, but incredibly has sealed them off for several weeks in what has been described as a trial to see what effect that might have on store traffic and sales.

The trial may well be part of the floorspace review, but it is bizarre to turn off the lights on an entire floor and send yet another confusing message to customers.

The Myer annual meeting is on November 30, and Lew could have some momentum with shareholders, as the well performing JB HiFi showed an inclination to clip board and director remuneration.

A spill motion against the Myer board is within reach, but institutional investors are yet to be wooed to Lew’s corner despite surely realising that at least some of his criticisms are valid.

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