Will Brookes stay or will he go?

 

BernieBrookesMyer directors and CEO, Bernie Brookes, went into the annual shareholder meeting for the last year with a trump card in their back pocket underpinning confidence about future growth.

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They stuck to a script detailing a five point strategy to generate growth and improved profitability for Myer, electing not to divulge an approach to the then dysfunctional David Jones board and senior management for a merger of the two department store chains.

The strategic play came to grief a few short months later when the merger proposal did become public knowledge and South African retailer, Woolworths, launched a takeover bid that ultimately won the backing of David Jones shareholders.

At next week’s 2014 shareholder meeting, Brookes and the Myer board will no doubt need to be a bit more candid about future plans and prospects.

One of the key issues that shareholders will be wanting to hear about is Brookes’ own intentions in respect of his tenure as CEO, given that it was the David Jones merger plan that prompted him to stay on at the helm when his contract at Myer expired.

Myer has had a shake up in management ranks and there are continuing concerns among institutional shareholders and analysts about the depth of management experience and the capability of the current team to improve results.

Shareholders are keen to learn if the Myer board has a succession plan for Brookes, probably involving the recruitment of a CEO from an international department store group, as well as any plan to bolster management ranks more broadly.

Their interest in management is becoming more focused, with Solomon Lew apparently not interested in making a bid for Myer after his windfall gains from the sale to Woolworths of his David Jones and Country Road shareholdings.

Recruitment of an overseas retail executive would not be a new phenomenon at Myer, with American Dawn Robertson having held the top job almost a decade ago.

Answers about future Myer management plans are becoming increasingly important to institutional shareholders who are concerned about the lacklustre performance of the retailer, inconveniently underscored this week with the release of anaemic first quarter sales growth.

Sales for the 13 weeks ended October 25th were $691.6 million, just 0.1 per cent higher than the same quarter in 2013, and well below the 3.5 per cent increase that some analysts had expected for the quarter.

Inside Retail PREMIUM is at a loss to understand how some analysts, including JP Morgan, were so bullish on Myer’s sales, but they were possibly influenced by new store openings and continuing growth in online sales.

Myer’s new store openings, refurbishment of key stores, and online sales have failed to generate sales growth, and the department store’s first quarter profitability is certain to have taken a dip as well, with costs in staffing, rent and occupancy charges, inventory, and other expenses clearly outpacing the 0.1 per cent sales increase or the 0.7 per cent in comparable store sales.

Indeed, if Myer was to take out online sales, which it claims have recorded “solid growth”, its network would no doubt have returned a fall in revenues for the first quarter.

Announcing the sales result, Myer noted the business has now delivered comparable store sales growth in nine of the last 10 quarters, but the growth has been wafer thin, reflecting a slide in marketshare and a lack of traction from initiatives in store development, online sales, marketing, or merchandise range enhancement.

Brookes remains confident that the retailer’s five point plan and overall strategy remains on track to deliver better results, but the evidence is hardly compelling, with stores in lower socio-economic areas reported to have shed sales and the womenswear category hit by international competitors and more frugal shoppers.

Expecting a solid Christmas and new year stocktake that delivers around 75 per cent of annual profits, Brookes said initiatives such as the new Myer Christmas Giftorium offering 2.2 million products in more than 37,000sqm of promotional space will satisfy customer appetite for new, innovative, and traditional gifts.

The rollout of click and collect facilities in all stores and instore technology offering  a significantly expanded product range across the physical store network are expected to underpin second quarter trading performance.

New initiatives needed

While many of the initiatives Myer has taken are positive and have arguably arrested further sales decline, if not lifted revenues, Myer is still trying to find a way to boost growth, and shareholders are looking for new measures.

Myer’s new store development program has been curtailed, with most of the new stores trading below expectations – some of these stores deliberately taking Myer into lower socio-economic areas that Brookes notes are dragging on sales growth.

Inside Retail PREMIUM understands Myer is now toying with a growth strategy that would involve acquiring specialty chains as it did with Sass & Bide.

Earlier this year, Myer registered a new business entity, FSS Retail, which is understood to be shorthand for Free Standing Stores Retail.

it is understood to be looking at acquisitions or greenfields businesses in fashion and possibly homewares, that could be developed as chains.

The strategy is not new. Myer tried to pursue a similar strategy in the early 1980s without success, notably having to divest Country Road and deciding not to proceed with the development of The Body Shop as a standalone business.

Graeme Wise, who was working on new retail concepts for Myer, ended up launching The Body Shop in Australia himself when Myer passed on the opportunity.

 

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