Inside the brutal battle for Myer
It’s the battle at the heart of one of Australia’s best-known brands. So who is in charge of Myer and who wants to be? Jennifer Sexton investigates
IT’S a script Myer’s biggest detractor Solomon Lew could have penned himself: Myer’s website is clunky, its discount floors horrible, its management ranks still too fat.
Since plunging $100 million to scoop up a 10.8 per cent stake in the department store giant 18 months ago, bolshie billionaire Lew has savaged the Myer board, repeatedly calling for its chairman Garry Hounsell to be shown the door.
But it wasn’t Lew who this week delivered this tough talk on Myer’s failings, it was the newly installed boss of Myer, the retailer who once ran the UK’s upmarket House of Fraser, John King.
Like a new treasurer delivering a first budget after a change of government and blaming the opposition for the mess we are in, King pulled no punches in pointing to where the 118-year-old department store giant had gone wrong.
Announcing Myer’s first loss since listing on the stock exchange in 2009 — almost a whopping half a billion dollars in the red — King unveiled a back-to-basics strategy to rescue the 62-store network from irrelevance and make the department store great again.
A huge writedown of the value of the Myer brand, combined with a $400 million loan deal to give the company stability, showed just how far it has sunk.
Admitting Myer had lost sight of its core customer, King says that is about to change. “For us, it’s the mid-market — we want to sell premium products at great, affordable value,” King says.
“We are not going high-end, we are not going down to the lower end, we are just there in the middle . . . we’re a company for all Australians.”
His predecessor Richard Umbers’ strategy of devoting entire floors to discounts was first up for the chopping block.
“I hate them,” King says, reflecting the sentiments of Lew who calls them an embarrassment, reminiscent of “the Salvation Army”. King promises a sleeker and more user-friendly website will be launched this month. Store floors will close to save costs, more fat will be cut from management ranks, and more Myer private label stock will populate the clothing racks to deliver Myer more bang for its buck on sales.
Many of Myer’s stores will reduce from three floors to two, with King aiming to slash the crushing rental cost.
It hasn’t owned the property where its stores are located since private equity fund TPG flogged these assets off before floating Myer on the stock exchange for $4.10 a share, a price the stock has never again reached.
But after 18 months of bollocking Myer, Lew was never going to be outdone by this newbie. “Sales are down, profits are down, service levels are down, CODB (cost-of-doing-business) has increased, dividends have ceased,” says Lew, chair of retail conglomerate Premier Investments, after Myer’s Wednesday loss announcement.
“The board of Myer is an absolute disgrace. Garry Hounsell today admitted that Myer shareholders deserve better. For once, Mr Hounsell, we agree. Since Mr Hounsell took up his role, Myer’s share price has halved.
“Meanwhile, Myer shareholders have spent the past year paying for Garry Hounsell’s retail traineeship,” referring to his long-touted gripe that Hounsell’s background was in accounting, not retail.
“Mr Hounsell must step down immediately or risk having his board spilled by a strong shareholder revolt at the upcoming AGM (annual general meeting) in November.”
Hounsell yesterday refused to comment on Lew’s attack.
Lew is a veteran of the rag trade. Premier’s bestperforming brands, Smiggle and Peter Alexander, under the management of former David Jones boss Mark McInnes, helped deliver a half-year result in March that blitzed the sales numbers coming out of Myer, as well as Australia’s oldest department store giant David Jones. Should Premier’s full-year results being unveiled next week be strong, Lew could well use the gap in the performance of his retail conglomerate compared with Myer’s to ramp up his attack.
While Lew has used his status as Myer’s biggest shareholder to regularly reach for the megaphone to launch these extraordinary and personal attacks, he has been unable to gather enough support from other shareholders to make good his threat of calling an extraordinary general meeting to spill the board.
Myer’s second biggest shareholder, Investors Mutual, has in the past supported the current board, but this week declined to comment on whether that position was being maintained.
Along with the rest of Myer’s battered shareholders, the value of Lew’s investment has plunged, this week worth about $49 million — less than half his initial outlay.
So why buy in and then talk the company down, potentially assisting in pushing the value of the company south? Market watchers speculate that Lew’s stake in Myer is all about leverage.
The lower the share price, the cheaper the takeover price.
However, one theory suggests he is not planning a takeover but wants to spill the board, install his own nominees and effectively control it without paying a premium takeover price. He also has form playing the long game as a shareholder and being rewarded with a big payout.
His Country Road stake is the best recent example. He failed in a bid to take over the company in 1998 but held on to his 11.8 per cent stake for 16 years, becoming a thorn in the side of majority-owner Woolworths South Africa.
When Woolworths SA paid $2.2 billion to take over Myer’s rival David Jones, Lew cashed in on his Country Road stake, pocketing $200 million in the multi-layered deal.
Speculation again resurfaced this week that Woolworths SA would seek to buy out Myer, in which case Lew is again potentially positioned to cash in on his Myer stake with an old adversary.
While retail watchers argue Australia needs fewer department stores in the face of the onslaught in online competition from the likes of Amazon, Woolworths SA chief executive Ian Moir has repeatedly ruled out a merger.
Myer under King in his first 100 days is already looking like a much leaner, more retail-focused organisation.
He’s taken the long knife to excess fat in the operation. Jennifer Hawkins’ lucrative annual $1.3 million ambassador contract has come to an end and she’s been replaced with 25-year-old Elyse Knowles, who is understood to have signed up for a fraction of that fee.
Gone too is the Melbourne Cup Myer Marquee, turning off the tap on a well-established corporate and A-list tradition of champagne swilling at the Melbourne Spring Racing Carnival.
Just after being installed as boss King didn’t attend Myer-sponsored Katy Perry concerts, indicating his disapproval of this expensive spend outside the company’s core business.
Hounsell has support in the market for the job he is doing after replacing a number of directors on the board and for getting rid of Umbers, whose position was made untenable after three profit downgrades within six months. Hounsell wins praise for managing to secure a candidate of King’s retail credentials.
“Don’t underestimate the difficulty of finding a new CEO when you have a shareholder firing cannonballs at you. He deserves kudos for appointing King,” one Myer watcher says.
Not that you would hear that from Lew, whose laser-like focus on a board spill is only ramping up.
“It’s now just a matter of how and when we replace them,” Lew said in March, ahead of King’s June appointment.
Murky Myer: Solomon Lew, above left, and Garry Hounsell face off at board level, while Jennifer Hawkins, top left, gives way to Elyse Knowles as brand ambassador.