Things are in free-fall at Myer, Australia’s largest department store chain, with chief executive Richard Umbers resigning abruptly on Wednesday and retail analyst Brian Walker saying “in its current configuration Myer cannot be saved”.
Just days after the company’s third profit downgrade in seven months, the share price, around 54 cents, is barely 14% of the $4.10 share price of its 2009 listing and dissident shareholder Solomon Lew is on the warpath.
“The business has lost all of its retail talent in the past two years, and there is no retail experience of any note on its failed board … Myer is in peril,” Lew said.
It’s a sad litany of woes for the company that was once the byword for shopping cachet; that pioneered modern retailing with advertising that spoke directly to women, traded with a range unrivalled elsewhere and led the move to suburban shopping centres by building Melbourne’s Chadstone in the early 1960s.
Its founder, Sidney Myer (my grandfather’s uncle) won a place in the nation’s hearts, personally funding road construction and Christmas dinners for thousands of disadvantaged people in the 1930’s depression. Now the business that funded his largesse is itself almost on the bread line.
Stockbrokers UBS rate it as a “sell”. They say it’s “unlikely” to meet its 2020 financial targets and it can’t grow its share of the fashion market because of “the entry of international retailers such as Zara, H&M, Sephora and Uniqlo”. UBS also raises the emergence of “increased competition from online (Amazon)”.
So how did it get to this?
Partly it’s to do with strategy and positioning.
“Thirty years ago they were a premium brand in Melbourne with David Jones the premium brand in Sydney,” said retail consultant Steve Kulmar.
“They keep going downmarket and there’s no room in the mid-market segment.”
The old department store model is also being clobbered by the rise of specialty stores like JB Hi-Fi, Harvey Norman, myriad boutiques and niche competitors. The power of the internet means that people are less likely to go out shopping, with the following table showing foot traffic in retail stores is declining despite population growth.
Myer was also beefed for the float out of private equity ownership in 2009 when long-term store leases were signed with lower rents upfront to make the figures look good.
But the rents are now rising and “they’re faced with leases that have been back-ended on sites that can’t make money”, Brian Walker, principal of Retail Doctor, said.
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What’s the likely outcome?
Store numbers, currently 63, need to be slashed to get rid of marginal stores in also-ran centres.
“They’re haemorrhaging in the suburbs; even the refurbished Warringah store in a high-income area is not doing well,” Walker said.
“They need to increase the number of exclusive and house brands and cut the number of stock categories.
“They need smaller store footprints and more focus on the omni-channel [such as in-store internet facility that allows customers to order online].
“I wonder about the role of the current board and whether they’ve been putting enough capital and resources into omni.”
Solomon Lew is angry, calling for a board shakeout. And he may have a plan.
“Mr Lew’s name will be increasingly heard and he may be involved in an acquisition with the share price so weak,” Walker said.
Another possibility being floated is a buyout by Woolworths South Africa, the owners of David Jones.
UBS said that a further 3% sales drop could see lending covenants breached which would mean the banks could put the company into administration and sell it off.
Rod Myer has written In Full Stride – The Life and Times of Baillieu Myer, about the son of Sidney Myer. It will be in bookstores soon.