You’ve got to feel some level of sympathy for Myer chief Bernie Brookes. Every quarter he has to face the media to discuss how the department store giant’s sales are tracking and try to answer the only question that matters in Australian retail: When are conditions going to turn?
For a while there, Brookes presented a positive view – this can’t last forever and next quarter should be better. But Brookes and other retailers who also face the market every few months have stopped trying to tip when conditions will turn. The never-ending winter of retail’s discontent could well roll on for years.
Brookes might be restricted on what he can say about the outlook for Myer, but after delivering a profit downgrade two days ago he hasn’t been afraid to canvass a number of other topics, with particular attention given to the coming carbon tax, the impact political uncertainty is having on consumers and international investors, consumer confidence and how the middlemen of Australia’s retail sector are holding prices up. Perhaps Bernie wants a job as a business commentator after his days at Myer!
Of course, the one topic he must address each time he speaks publicly is the internet.
While it’s no secret that Australia’s big bricks and mortar stores have been caught badly behind when it comes to online retail, Myer is now placing online at the centre of its discussions with the market.
At yesterday’s investor briefing, Brookes revealed some fascinating data on the company’s online push.
While the gross profit margins from Myer’s bricks and clicks stores is 42% compared to 35% from online sales, costs are substantially lower, meaning the EBIT margin for online is 16%, compared to 8.25% for physical stores.
The company says ecommerce can deliver sales 5.5% of growth in the future, with mobile and social sales contributing 0.5% each.
Brookes is saying all the right things about pushing Myer towards an online future, but we should not forget just how far behind the company is.
Myer’s online sales currently account for just 1% of annual revenue. Brookes says online sales could eventually grow to 7-8% of Myer’s total revenue, or around $300 million a year, within the next three to five years.
It’s worth pointing out that overseas retailers – British department store operator John Lewis is a good example – have double that proportion of sales coming from online.
But leaving this aside, Brookes still has an enormous challenge delivering the sort of growth he wants. The question for all the big Australian bricks and mortar retailers who are scrambling to fire up their online sales is simple: What will make shoppers move away from the online retailers they currently shop with towards a Myer or a David Jones?
Brookes says he will look to harmonise prices with global competitors, and this will certainly help. But Brookes is not competing with greenfield operators here. He is battling well-established online players who are experts at selling over the internet. They will react strongly to Myer’s push.
Myer, and indeed Harvey Norman and David Jones, are talking the talk on online. But delivering enough sales growth to offset falling sales in their physical stores? That’s a big challenge.