Myer buyer: who wants the last Aus­tralian department store?

The CEO is bat­tling to turn around the trou­bled re­tailer

The Weekend Australian - - BUSINESS REVIEW - Ticky Fuller­ton is the host of Ticky on Sky News Busi­ness which broad­casts at 6PM on weeknights.

What should in­vestors make of Myer, the last all-Aus­tralian department store and the fourth most shorted stock on the mar­ket? For chief ex­ec­u­tive Richard Um­bers, the man charged with the turn­around that the mar­ket has been wait­ing for since the 2009 float, it’s an uphill bat­tle with no es­ca­la­tors in site. Hav­ing been re­mark­ably up­beat about his New Myer $600 mil­lion tran­si­tional strat­egy last year, by July of this year, Um­bers found him­self need­ing to man­age in­vestor ex­pec­ta­tions with a profit down­grade.

The re­sults this week showed net profit sink­ing 80 per cent to $11.9 mil­lion, hit by write­downs on brand la­bels like Top­Shop and those big re­struc­tur­ing costs. The first few weeks of trad­ing this year have dis­ap­pointed too.

The on­go­ing ques­tion of the fate of the last all-Aus­tralian department store re­mains. Cus­tomers stung by ris­ing en­ergy prices, com­pe­ti­tion from spe­cialty stores, and in­ter­na­tion­als in­clud­ing Ama­zon all worry in­vestors. They won­der if Myer’s strat­egy to de­liver a new in-store ex­pe­ri­ence and pull away from the price dis­count wars will ac­tu­ally work.

From the floor of his flag­ship Mel­bourne store Richard Um­bers as­sured me he was not go­ing to be sucked into what Myer calls the pro­mo­tional write­down.

“That’s the high/low ten­dency that a lot of re­tail­ers find them­selves pro­gres­sively drawn into. It’s an un­sus­tain­able model and it creates an al­ways-on-sale men­tal­ity and un­for­tu­nately it’s a down­ward spi­ral.

“We’re en­ter­ing a pe­riod where the com­pet­i­tive dy­namic of the mar­ket is in­creased price com­pe­ti­tion. It’s is a very danger­ous place for a pre­mium full ser­vices department store to try and com­pete on price across the spec­trum as its sole sell­ing met­ric.

“What we do in­stead is look to build other ex­pe­ri­en­tial el­e­ments into the of­fer. We want to get the range much sharper, we want to get a much bet­ter pre­sen­ta­tion to the cus­tomer, rely on other forms of pro­mo­tion.”

He points to Katy Perry and the Aus­tralia Lives Here cam­paign. But will these pro­mo­tions and in-store ex­pe­ri­ences like ice rinks and cof­fee shops re­ally open the purse strings again?

On Thurs­day shares lifted 1c on the re­sults, but by yes­ter­day the mar­ket thought again and shares sank 4.1 per cent to 70c. Just this year, Myer shares have fallen about 45 per cent to around 70c. The trad­ing price at the float was $3.88. But the more in­ter­est­ing story now sits be­hind a jump in the share price back in March this year. That was when busi­ness­man Sol­lie Lew and his Premier In­vest­ments bought into Myer with a 10.4 per cent stake.

Now Mr Lew bought in at $1.15, so his shares too are un­der­wa­ter, but wouldn’t you love to be a fly on the wall at the Premier In­vest­ments board meet­ing ahead of its re­sults? Premier has the hugely suc­cess­ful Smiggle brand, as well as Peter Alexan­der and a few oth­ers. It’s run by Mark McInnes, the highly re­garded for­mer CEO of David Jones who fell from grace af­ter a scan­dal with a fe­male staff mem­ber, but whose retail skills are hard to match in this mar­ket.

The big un­known is what Sol­lie does next. Solomon Lew and his re­la­tion­ship with department store Myer is one of the more fas­ci­nat­ing busi­ness sto­ries in re­cent times. Fa­mous in the rag trade in Mel­bourne and fa­mous for his strate­gic mind, he be­came Chair­man of Coles Myer in back in 1991.

His in­ter­ests with other rag busi­nesses, some of which sup­plied Myer and his then pri­vate com­pany Premier In­vest­ments, made for colour­ful times.

A com­pli­cated fi­nan­cial trans­ac­tion in­volv­ing Coles Myer, a com­pany called Yan­non and Premier In­vest­ments caused anx­i­ety with ASIC but the reg­u­la­tor backed off and con­firmed Lew was in­no­cent. I can re­mem­ber be­ing on the fringes of that one as a ju­nior at in­vest­ment bank CS First Bos­ton (now credit Suisse) and al­ways want­ing to know more.

Pack­ag­ing chief Stan Wal­lis even­tu­ally bumped Solomon Lew off the Coles Myer board in 2002. But Lew re­turned to the head­lines a cou­ple of years ago as chair of Premier In­vest­ments, by now a pub­lic com­pany, when he pounced on al­most 10 per cent of David Jones. He then pro­ceeded to use this block­ing stake, very art­fully, to force South African buy­ers Wool­worths to buy him out of Coun­try Road at top dol­lar as part of its takeover of DJs.

It’s 2017 and here we are again, this time with Premier with a 10 per cent stake in Myer, Wool­worths also a po­ten­tially in­ter­ested party and a sense of deja vu. And take note, sit­ting on the board of Premier In­vest­ments as he has done since 1994, is Sol­lie Lew’s long time as­so­ciate, Gary Weiss: a man also famed as a mas­ter strate­gist who is cur­rently shak­ing up Ar­dent Leisure and said to have played share­hold­ers ex­tremely clev­erly in at­tain­ing his two board po­si­tions there. Would Solomon Lew, still in the rag busi­ness, want to see Wool­worths as owner of both big department stores, DJs and Myer? I won­der.

Richard Um­bers would not be drawn on spec­u­la­tion of a bid from ei­ther Wool­worths or Premier. Had he re­ceived any pres­sure of the share­holder ac­tivist kind? “Sol­lie is some­body who is a share­holder of ours and it is in the nor­mal course of do­ing busi­ness that we en­gage with all our share­hold­ers, so there would be noth­ing sur­pris­ing in us hav­ing con­tact with any share­holder.”

Lew may be look­ing for the price of Myer to fall and scep­tics be­lieve this will hap­pen. Where is the com­pet­i­tive ad­van­tage for Myer, they ask. Not in cost, brands, lo­ca­tion or spe­cial­ity. Will the New Myer strat­egy work? Um­bers is adamant it will. “De­spite the very tough eco­nomic con­di­tions … we’re ac­tu­ally de­liv­er­ing sales here which are broadly flat, 0.2 per cent down which in the cur­rent cli­mate is per­haps a cred­itable sales re­sult.

The model that we’re mov­ing to­wards is all about be­ing an in­ter­est­ing and en­gag­ing place to shop. Peo­ple want to come here be­cause we of­fer the brands that peo­ple want to buy, we of­fer the kind of ser­vice cul­ture that for many of our cus­tomers is the way they pre­fer and we now have a very strong com­pelling on­line busi­ness.”

A 12 minute walk from Myer’s flag­ship store, Premier In­vest­ments is wait­ing. The re­sults day and AGM will be closely watched.

Solomon Lew

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