Myer told to shrink or else sink

MOST of the 63 Myer stores around Australia are likely to be at break-even and the veteran retailer must shrink to survive, a new analyst’s report says.

The report from UBS says Myer needs smaller stores and fewer of them, but it is unclear if the struggling business can bear the costs of trimming its estimated $2.7 billion lease burden.

Myer flagged that only one of its stores was loss making when it unveiled a near halfbillion dollar loss midweek.

But UBS analysts Aryan Norozi and Ben Gilbert estimate a “large portion” of Myer’s stores are just breaking even as it loses market share to online players and international fast fashion retailers Zara, H&M and Uniqlo.

“We believe Myer needs to shrink to greatness to address structural challenges and become a more targeted, nimble and profitable business,” the analysts said. “That said it is costly and we do not believe the balance sheet, as it stands today, can support this.”

Myer slumped to a $476.2 million loss for the six months to January 27, driven by $515.3 million in writedowns of goodwill and brand names, after ongoing sales and profit declines.

The company said it was meeting its debt obligations, but analysts have warned that the size of Myer’s impairments puts it in a precarious situation.

Analysts are also doubtful that Myer can return to sales growth any time soon after it reported a 3.6 per cent fall in sales’ revenue for the half.