Leading retail consultant Brian Walker is quick to defend the #5 moment of 2009.
In the midst of the recession we very nearly had, we saw the recent Myer initial public offering (IPO). Well sold and subscribed, it was not without its critics: it was too overvalued; questions were raised over the future of its sales in a post-stimulus retail environment; profits were attributed to cost cutting; it was dubbed a ‘dinosaur’; a player that could easily be competed with.
Is the Myer float a case of market leadership or does it suffer from the great Aussie tall poppy syndrome? Is the company deserving of the criticism?
The central questions regarding the float seems to be more about whether the cost cutting and increased productivity engineered by Bernie Brookes are sustainable.
It must have pleased the Myer executive immensely to see a five per cent plus sales increase for September 2009. After all, to quote Brookes himself, “ every retailer must grow sales”.
Let’s not forget that Myer’s profit and profitability recovery had continued in the year to the end of July, with earnings before interest and tax (EBIT) rising by 10.6 per cent despite a 1.8 per cent decline in revenue. In other words, a strong profitable engine that responded well to a tune up and even more so to a lift in sales.
The facts really do speak for themselves when viewing the Myer IPO.
The TPG consortium bought Myer for $1.4 billion in 2006 with $500 million of its own money and $1 billion of debt, and it has clearly lifted the department store group’s profitability.
Myer was extracting less than two cents in earnings before interest and tax out of every sales dollar when Brookes became managing director. In the year to July, it earned 7.2 cents in the dollar.
Compare the margins and we can see the group’s 7.2 per cent EBIT margin in 2008/2009 is below a 10 per cent-plus margin David Jones is generating here in Australia, a 9.6 per cent margin at Debenhams in Britain, a 9.2 per cent margin at Wisconsin-headquartered Kohls, a 9.2 per cent margin at upmarket Seattle-based Nordstrom, and an 8.1 per cent at Britain’s Marks & Spencer. A target return of nine per cent would be attractive to Myer board and shareholders.
It is above margins being generated by a clutch of US department store chains that have been hit by the economic downturn, including Macy’s in New York (5.2 per cent), JC Penney (4.8 per cent), Chicago-based Sears (1.6 per cent) and Dillards and Saks (both on losses).
Myer, under Brookes, has focused on the following key areas in restoring Myer to a profitable business:
*Reducing costs of doing business
*Re-engineering the supply channel and logistics
*Targeting the mid-market customer, slightly above the discount department stores and slightly below David Jones, while creating flexibility within that range dependent upon local market conditions
*Focusing on the Myer teams with significant improvement in
staff engagement, and
*Lifting the penetration of the Myer One customer card, with an increase in revenue of 20 per cent (43 per cent to 63 per cent) with valuable customer data opportunities Brookes says profit growth will come from expansion of Myer’s footprint – 15 new shops are planned – and from continuing profitability gains. And with big initiatives such as Myer’s new stock, storage and distribution chains now in place, the next round of gains will come in small steps rather than big ones, as supply chain improvements drive faster stock turnover, for example, and as new in-house CCTV networks cut pilfering.
Worthy also of a very special mention is the significant focus on the Myer One card returning both customer numbers and sales to the Myer business.
Leading and running a department store is not for the faint-hearted. The cashed-up Myer can know show us what it is really capable of through shaping a revitalised retail offer through the principles of outstanding retailing and commercial practice to create an unrivalled ‘one stop shop’ that is experiential, adaptive and brilliant. This will always win the hearts and minds of the customer.