Myer’s Executive Chair, Oliva Wirth, has talked about “positioning the Myer Group as a retail powerhouse” and “resetting the business”. But if any of her ambitious plans to turn around the business which posted a nearly 40% decrease in its half-year net profit to $30.4 million are to be realised, her team will need to immediately fix problems at its new National Distribution Centre at Ravenhall, Victoria.
As ChannelNews reported this week, the highly automated warehouse which went live in August last year, has by Myer’s own admission, been hit with “implementation issues and delayed ramp-up” that have created stock-flow issues and cost around $12 million in lost earnings.
The main purpose of the facility was to operate a so-called cross dock with items moved between trucks without requiring much storage time at the facility, replenishing stock for Myer stores in Tasmania and Victoria and also fulfilling online orders.
Myer said that following ongoing remediation activities at the facility, cross dock operations have only now reached 60% of their capacity. Media reports have indicated that this may be due to computer system running the warehouse not communicating properly with the robots that transfer stock.
The problems at the centre meant that online fulfilment stopped pre-peak trading and were handled via stores, while existing warehouses had to be kept open for longer and resulted in a duplication costs.
The $12 million dent to Myer’s EBIT due to issues at the facility included $7 million lost in Myer Exclusive Brand’s gross profit (trade) from missed sales due to stock being trapped in the NDC, a $3 million impact relating to duplicative costs (Altona site) incurred during transition, and another $2 million in additional online fulfilment costs due to store fulfilment.
Myer’s new chief supply chain officer, Darren Wedding, has been drafted in to immediately address the issue and is “working with vendors on solutions”, says Myer.
The company acknowledges that there will still be some pain before it remedies the situation at its new distribution centre and gets it on track. It anticipates additional costs to be incurred in the second-half of its current financial year as a result of the remediation support.
However, once the remediation efforts are successful, Myer predicts that the new centre could have $5-10 million per annum in expected benefits.
With an expanded portfolio of 783 department and specialty stores due to the Apparel Brands combination deal, Myer will have to act fast to ensure that plans for the business turnaround aren’t thrown into disarray.
