Why Myer Still Doesn’t Understand the Internet

By MoneyMorning.com.au

Roughly calculated, Myer has 66 stores nationwide, using up 792,000 square metres (sqm) of retail space. That’s thirty eight times the fence to fence area of the MCG.

David Jones (DJ), on the other hand only has a 532,000 sqm retail footprint. Roughly 26 times the fence to fence area of the MCG. DJ has 38 stores.

And Bernie Brooks, CEO of Myer, is hell bent on controlling all of this retailing space.

Well that’s if David Jones come back and take up Brookes offer…

The problem is, Brookes is hardly the leader anyone would want controlling this.

He has openly admitted that he chose not to go down the online path when the opportunity presented itself.

As he told LeadingCompany last year:

I focused on fixing the fundamentals of the business, the supply chain, getting the product to the customer, the IT, the visual merchandise in store and didn’t focus enough on what would be the 2011 – 2013 and the 2011 – 2014 future.

I don’t think people realise when you lose $66 million how close you are to actually the alternative of breaking Myer up…

When Bernie Brookes took over Myer in 2006, he didn’t even bother to look at setting up an online shop. He was far more interested in, in his words, ‘fixing the serious financial problems‘ at the time:

You may recall a lot of Australian retailers expended large amounts of money, particularly in the late 1990′s and early 2000s on those websites and they didn’t come…that premature build frightened them off.

They are predominantly owned by shareholders who are looking for immediacy in return, and it means if you spend $50, $60 $70 million worth of capital getting ready for three or four years’ time, they don’t see that as an attractive an investment and something that gives you money today.

In other words, when Brooks had the chance to make Myer a retailing leader, he instead took the road that would make him popular with shareholders of the day by giving them immediate returns. Well, sort of.

The point is, rather than build a better business when he had the chance, he travelled the easy road. And that was pandering to what he thought stock holders wanted rather than tackle an issue that would lead to longevity for the company.

The reality is that investors want long term returns. No investor just wants the business they’ve invested in to just think about the next 3–6 months. This is really just an excuse to hide the fact that Myer messed up its online strategy.

Even now Myer heads are still proving they don’t truly understand the modern retail landscape.

According to the Australian, ‘Myer chairman Paul Clintock and CEO Bernie Brooks believe a merged entity can use its bulk to take on the overseas retailers, and perhaps even expand some kind of yet unspecified Myer-David Jones mishmash offshore.

The problem with the analysis from the Australian is it suggests that overseas retailers need to be tackled.

But as Tim Dohrmann recently told Australian Small-Cap Investigator subscribers, ‘It’s estimated that the Australia domestic retail industry brought in $225 billion in annual sales in July 2013. Within that, Australia’s online retail market was sized at just $14.1 billion…just 6.3% of all retail sales.

And the NAB online retail sales index expands on that further by pointing out that domestic retailers ‘continue to control the largest share of online sales – at around 73%’.

That means $10.2 billion was spent in local online shopping.

For a really clear picture, here’s our Australians spend their money online in 2013.

Source: NAB Online Retail Sales Index Indepth report — October 2013
Click to enlarge

It appears that Myer is using international web shopping as a scape goat for not lifting their game.

My point is, Brookes and other department store heads have had the opportunity to revolutionise department store retailing in Australia. However instead of being market leaders, they’re playing catch up.

Right now, Myer has the chance to radically challenge and reshape the retail landscape…instead they would rather blame others for their problems. And they could ultimately end up out of business anyway.

The thing is, I doubt the heads of Myer have what it takes to truly grow with the new retailing world Australians are embracing.

Two days ago, the Australian Financial Review commented on how Myer is re-evaluating its ‘strategic’ plan:

Myer is reviewing its five point strategic plan ahead of a strategy meeting next week and the release of first half results on March 20.

The plan is aimed at luring shoppers to Myer’s online and bricks-and-mortar stores through better service and merchandise.

The strategy was established last year. That’s right, as recently as last year folks in the corner office with a view at Myer still thought it could ‘lure’ people back into stores with new floor covering and softer lighting.

But realising this might not work anymore, Brookes has said he has a willingness to invest more in online retailing and decrease spending on store refurbishments.

As an investor, that’s not reassuring. That statement reminds me of the time I dragged myself to school to sit an exam I hadn’t studied for.

Investors want to be part of innovative companies that do things because they believe in it and have a strategy for the future, rather than doing something half-heartedly. Firms willing to take financial risks. Businesses catering for the modern consumer.

And Myer is none of those.

If you push aside these news-dominating retailing big boys, there are some amazing small retailing firms worth investing in. Meanwhile, it’s clear that Myer’s management still doesn’t have a clue.

Shae Smith+
Editor, Money Weekend

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By MoneyMorning.com.au