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INSIGHT: Myer, A Fire Sale ‘Basket Case’

If Myer were any other business, its doors would be closed by now.

Despite recently posting its first profit in eight years of $38.4 million for the six months to January 26, 2019, up from the previous six-month loss of $476 million, revenue has continued to decline for 24 years.

Its total sales for the six months to January 26. 2019, were $1,671,382 down from $1,719,650, this latest six-month period covering the busiest time for retailers over Christmas.

It has also suspended its dividends and reduced the value of its goodwill and brand names by $515 million in the previous six months, as well as writing off $13.7 million in redundancy and store exit costs.

Band-aid cost cutting in closing down a few underperforming stores and making redundancies will only take you so far when shopper and designers are deserting you in droves.

In its float in 2009, the Myer share price rose to $4.10. Today, it sits at 62 cents and is unlikely to get much higher.

Myer remains open because it would be a public relations disaster to close its doors as the general public, unions and media would have a field day.

“Both Myer and David Jones need to ask themselves what is their relevance to customers?” Jeremy Prestoe, JLL NSW retail leasing executive, says.

“They need to look to the present and future and think how are they going to use their space? What are they going to fill it with?

“We are seeing a transformation in big shopping centres with eateries, cinemas, health centres and non-traditional leasees such as indoor/outdoor leisure activity moving in, but that doesn’t help Myer or David Jones sell more products.”

But Myer is not alone in department stores struggles. As the graph indicates, from 2008 to 2018, there has been 0% growth in retail stores across Australia.

A CBRE retail report for Q4 period last year reveals that 22 retailers (18 local, four international) closed their doors in 2018. Furthermore, major retailers such as Premier Investments and Country Road Group undertook store rationalisation programs, with softening tenant demand placing pressure on rents and causing vacancy rates to increase across the country.

Luxury brands continue to perform strongly, with international brands Dita, Bottega Veneta and Roger Vivier establishing flagship stores in 2018, but that is part of the problem. Big brands want their own stores now; they don’t want to be housed in a David Jones or Myer.

“Luxury brands stores generally offer a great experience,” Zelman Ainsworth, director, CBRE, advisory and transaction services, says.

“International luxury brands are coming to Australia so there is a need for them to have flagship stores in easy CBD locations.”

But Prestoe believes that is half the problem.

“David Jones used to differentiate itself from Myer by housing luxury brands while Myer was more middle of the road, but that point of difference has now evaporated,” Prestoe says.

“They are now competing and with so many brand names opening their own shops, David Jones and Myer don’t get first call on the goods, which means that they often don’t have a lot of stock on any product.”

Solomon Lew, who holds a 10.8 per cent stake through his Premier Investments, has seen his investment decrease by approximately $63 million in 12 months, wants the whole board sacked.

He is aghast at the continued downfall of one of Australia’s premier retail outlets.

“The reality is Myer needs to make some hard decisions,” Prestoe says. “They will need to decide which shops are performing and which aren’t and decide if they can continue with the latter.”

Another issue is the locked in long-term rents that this retail giants face. It is almost impossible to negotiate out of any long-term rental deals and CBD locations, which pay the highest amount of rent, and face the harshest penalties, are the flagship stores for Myer and David Jones.

“Myer is wallowing in in-decision and it is not helping itself,” Prestoe says. “Who knows what the face of retail will look like in 10 years.”

One ray of hope for Myer would be a takeover by David Jones but that wouldn’t necessary mean a happy ending because David Jones would be forced to do what the Myer board and executive management refused to do and that is make drastic changes to goods, contracts, locations and online strategy.

Myer’s new strategy of bringing in ‘Myer only’ brands is the equivalent of putting a band-aid on a seeping sore. It will not make any difference to bottom line revenue.

An IBISWorld Industry report, ‘Clothing Retailing in Australia’ released in February 2019, predicts annual growth of 1.5% from 2019-2024 to $18.1 billion.

This is hardly going to help the cause of Myer who struggles against smaller independent brands selling clothes online and from suburban shopping strips with low rents.

A full-year bad performance, with figures to be released in August, may just force drastic change by Myer and not changes that the board want to make, it may be the banks who finally step in to hit that last nail.

If that happens, the only sign on a Myer door will be ‘for sale’.

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