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

The Sunday Times - - News -

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.

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