nd implemented a new strategy to fire up sluggish sales and earnings, a strategy that former CEO, Bernie Brookes, had had a significant role in shaping. Brookes decided the fine-tuning of the strategy and its implementation should be in the hands of a new CEO and subsequently accepted a position with the multi-brand, 1500-store South African retailer, Edcon Group. Bernie Brookes, CEO of Edcon Brookes has successfully engineered a debt and capital restructure for the Edcon Group, which had been lumbered with debt by the private equity firm, Bain Capital, which has now relinquished control. While Brookes is now able to focus on rebuilding the Edcon Group’s sales and profitability, Umbers, his successor at Myer, has set out on another one of those five-year plans to reinvigorate and galvanise Myer in a market now contested by global retailers. Myer allocated almost $48 million to implementation costs associated with its strategy in the final months of FY15, but provided just $8.8 million in the latest period, despite Umbers warning that the retailer had a long way to go in its rebuild. While implementation costs were lower, Myer absorbed further pain on margins and earnings in the 53-week FY16, but managed to stabilise its cost of doing business, in part, the result of lower finance costs on net debt and savings in store salaries from a voluntary redundancy program and an increase in staffing through concessions. Net earnings dipped to $69.3 million in the latest financial year, 8.2 per cent down on the $77.5 million in the previous year. Umbers said the first 12 months of the five-year Myer journey had made “pleasing progress” on the transformation, with comparable sales up three per cent after adjusting for a 52-week period in the previous financial year, store closures and refurbishment works. Comparable stores sales in flagship and premium stores in Victoria and New South Wales increased by 5.6 per cent in FY16 as Myer abandoned most of its new store expansion program to concentrate on improving the performance of its existing stores, an approach bolstered by major store upgrades in the Brookes reign. Underscoring the change of direction in store development, Myer will close further stores at Brookside in Queensland, as well as Orange and Wollongong in New South Wales this financial year and Logan, south of Brisbane, next financial year. Myer has also decided not to proceed with new stores in Darwin in the Northern Territory, Coomera in Queensland and Tuggerah in New South Wales. The retailer will also reduce its floorspace in its Cairns store in far north Queensland and two Sydney suburban stores, Blacktown and Castle Hill. Umbers said Myer is committed to improving productivity and a reduction in operating costs. “We remain focused on re-shaping our store footprint, and investing in stores that align with our core customers.” Umbers has set key target metrics for Myer under the strategy adopted last year, including a 20 per cent improvement in sales per square metre by 2020, average sales growth greater than three per cent over the next five years and earnings before interest and tax increases above that sales benchmark. In the first year, Umbers has narrowly missed his average sales target, with the 2.9 per cent increase, while EBIT was in negative territory to the tune of 7.6 per cent. The productivity of floorspace was increased by 5.6 per cent in FY16. Myer in a new light Umbers claims Myer is a, “measurably stronger business today than it was a year ago” as a result of the change in its business strategy. “Our early progress shows Myer in a new light, where the focus on customers, brands, service, efficiency and productivity is evident in our results,” Umber said in a statement to the Australian Stock Exchange. The results, as noted at the start of this column, are encouraging. But Myer needs to tread warily as it moves forward because it remains vulnerable to competitors, including David Jones, which has got off to a strong start under its new owners, the South African Woolworths Holdings group. Compared with Myer’s 2.9 per cent sales gain in FY16, David Jones posted an increase for the same year of 8.4 per cent, with comparable sales up 7.9 per cent. While Myer shuffles its cards around concessions that improve service levels and attract lower staffing costs but cut into margins, David Jones is set to invest between $75 million and $100 million over the next three years on a premium food offering. David Jones food halls have been a key differentiator for the department store in the past, but the new investment represents a substantial and bold new play to drive customer traffic in stores and grow sales through a premium food offer. Suggestions that David Jones will markedly damage Coles and Woolworths seem far-fetched, especially when the experience of Macro and Jones the Grocer are taken into account. However, there is a premium food market segment that could be profitable for the department store. Food precincts are certainly a major feature of most Asian department stores. David Jones expects losses of $5 million to $10 million over the next three years as it implements the food strategy, but anticipates a big and profitable business by 2020. Re-mixing rather than overhauling Myer is not planning the same type of dramatic change in its business model as David Jones, but is continuing to mix and re-mix its merchandise range, including the scale of its Myer exclusive brands ranges. Since August 2015, Myer has introduced more than 850 new or upgraded brand destinations and claims to have markedly improved customer service, particularly in flagship and premium stores. Umbers said the retailer will be accelerating capital investment in its priority stores in 2017 and, as with the new Werribee store opened this year, will be tailoring the Myer offer to local markets. Umbers said the new store opening at Warringah in November will be the, “first physical embodiment of the customer led new Myer strategy”. The key elements of the store design and merchandise presentation will be incorporated in refurbishments and upgrades at a number of other stores, including Melbourne, Sydney, Maroochydore, Eastland, Doncaster, Chatswood and Pacific Fair. On the merchandise front, Myer plans to build on its wanted brands focus with the continued roll out of a number of brands including Topshop Topman, Industrie, Mimco, and the introduction of Saba, Oroton and John Lewis homewares. Umbers was catapulted into the CEO’s chair at Myer from a role in directing the retailer’s omnichannel business, and the retailer is continuing to invest in its online sales platform. In FY16, Myer achieved more than 60 million visits to its online store and increased sales by 74 per cent. New categories have been added to the online store along with concessions such as Sunglass Hut, Review, Alan Pinkus and Rood & Gunn and an option to redeem Myer gift cards. Click and collect sales are currently around nine per cent and Myer expects further sales gains from the launch of a world-first virtual reality department store with eBay. Myer’s first full-year under Umbers has been greeted with a report card that says, “improved effort, but needs to do more”. In truth, expectations are not that high for the retailer with its shares prices around $1.25 after recent and brief rally to $1.44 in August. The market concern about Myer relates to the retailer’s ability to fend off and grow its business against competitors that include not only David Jones but also the global apparel brands such as H&M, Uniqlo and Zara, as well as the entry of the Debenhams brand into Australia. Pepkor South East Asia has sought to restore profitability to its Best & Less and Harris Scarfe department stores through an alignment with the British department store, Debenhams. Debenhams is set to open up to 10 standalone stores in Australia, the first of which will be at St Collins Lane in Melbourne in September 2017. But the brand is also currently being rolled out in six of Harris Scarfe’s top stores, with seven further locations to follow in February next year. The move by Pepkor is designed to attract a younger customer demographic to the somewhat bland and dowdy Harris Scarfe stores, just as David Jones’ premium food offer is aiming to entice a younger demographic into its stores. Myer faces the same challenge to attract younger customers into its stores and the retailer’s success in meeting that challenge will ultimately determine whether or not the latest five-year plan actually delivers sustainable sales, earnings growth and brand value for the plodding department store group. Umbers certainly believes Myer is well placed to meet the challenge by proactively managing sales, mix, margin and costs at the same time as executing a significant pipeline of new Myer initiatives. But, as he observed, it is a long journey and in much more difficult terrain than in the past.