Myer’s third quarter sales fell 2.1%, the department store posted today, prompting it to cut its full-year net profit forecasts.
Sales for the 13 weeks to April 28 were 0.9% compared to last year and down 2.1% on a like-for-like basis. This means 2012 profits after tax will be 15% lower than they were in 2011, at $162.7 million.
Online retail, and the commodification of retailing it entails, is eating into the profit margins of Myer and hundreds of retailers like it. While some, like Ruslan Kogan, welcome this commodification, having found a way to remain profitable despite or even because of it, legacy retailers face an existential threat.
Ben Le Brun, a market analyst at optionsXpress, said in a statement many shareholders should be wary about the formerly blue-chip stock.
“Many analysts point to the historic value in Myer’s share price – it trades a tick under nine times forward earnings – and its dividend yield as a reason for buying the stock,” he said in a statement. “But with sales continuing to slide are these numbers viable in the future?”
Steven Ogdan-Barnes, a retail industry fellow at the Deakin Graduate School of Business, told LeadingCompany yesterday there were no easy answers to the shift in how consumers looked at retailing, which is a big part of Myer’s difficulties.
Ogdan-Barnes said many categories that had previously avoided been considered commodities, like footwear and clothing, are increasingly being judged using a simple price calculus.
Myer CEO Bernie Brooks told SmartCompany this morning that the company is still improving its online offering, in a bid to regain some of the business it is losing to online rivals.
“Online has arrived at a faster pace than I think anyone in Australia realised,” he acknowledged.
And it’s only going to get worse.
“I don’t think bricks and mortar retailing has yet felt the full force of the commodification of retail, or necessarily has a particularly robust or comprehensive response to it,” Ogdan-Barnes said.
The challenge is a new one for marketers, as they are now being asked to convince customers to pay more for a product.
“That’s a very different marketing question to the one they’re used to,” Ogdan-Barnes said. “It’s one which when asked usually results in a long silence.”
“It’s not a question anyone really wants to answer, because it involves either a major reorganisation of retail, or a major reinvestment elsewhere.”
One solution has seen retailers move from selling products to selling experiences.
“If you’re going for service-based or experience-based retail, that comes at a cost of the old game, and isn’t right for every retailer. And even those retailers would ultimately be at the mercy of the online game.”
Though the lower sales were largely in line with market expectations, Myer has a difficult road ahead of it.