Myer buyer: who wants the last Australian department store?
The CEO is battling to turn around the troubled retailer
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.