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On September 1, Myer announced its ‘New Myer’ strategy, a five-year plan that aims to put greater focus and investment on the company’s best performing stores and most valuable customers. Improved omnichannel capabilities, reallocating space to popular brands, and more flexible instore labour are key initiatives of the major plan. Myer will raise $221 million from the capital markets to help pay for an overhaul of its department stores after a 69.7 per cent slump in full year profit.
Justin Grey: Has your time in the CEO’s seat at Myer so far felt like it’s been building towards the finalising of the ‘New Myer’ strategy?
Richard Umbers: I walked into the senior role at the helm of what is a very good business, albeit that the model has been challenged in recent years and we’ve been experiencing year on year decline. And a decline in the relevance of our offer to our core customer segment. So under Bernie’s leadership, just before I took over, we started building an investigation of what is really going on in the business. And that evolved into a strategy, and I took it to fruition. Out of that came a really crisp articulation of who our customer was, and from that came a list of initiatives that we needed to put in place in order to reposition the business.
JG: There’s speculation about the strategy having the potential to arrest declining sales and earnings, but that it’ll come down to execution. What plans are in place to negate human error in execution?
RU: We were all very pleased with how the strategy has been received. People see it as robust, credible and very well put together. And I’m thrilled that people see it that way. Now is the question of can Myer execute this. And it would’ve been very difficult for us to be able to prove that. So the one thing that they’re pointing to is the one thing that we could only ever prove by doing it. So now the whole focus of the team can move off the debate of whether the strategy is right or wrong. We knew it was something we could get behind already, but now to have it validated in the sense that it’s been circulated and received support, means that all our teams can now focus on the execution element.
JG: Whole of business makeovers such as this can prove distracting in terms of core business operations. Are you wary of that?
RU: There are different ideas about how you execute successful transformations, but my view is you have to set yourself up for success. And that means deliberately investing in making change happen in the business. It doesn’t happen by accident, and you certainly can’t fit it in at the end of the working day. You need to go into it very deliberately. You need to structure for it to happen. You need to make the organisation predisposed towards change. And you need to recruit people with the right capabilities and make sure that they’re suitably trained and prepared for the role that they’ll undertake. You have to have a strong culture of execution built into the business, good systems and processes, and you’ve got to have a good plan. If you do all of those things, then you’re setting yourself up for a successful execution.
But you do it deliberately. You have to invest in change; it isn’t something that just happens.
JG: There’s a cost associated with change, and when you’re a public company shareholders want change fast. As part of the strategy are there plans to communicate timeframes for the turnaround?
RU: If you’re going to move into a position of sustainable growth, that doesn’t just happen overnight. So we’re going into a position in FY16 where the critical enablers of making the model sustainable will occur. And we’ve put in our plans that we will return to earnings growth by FY17. So, the critical element that will happen over the course of next 12 months is we’re going to turn around the current position, which is the cost line is growing more quickly than the sales line. We have to change that and get the sales line growing more quickly than the cost line. That’s a point of immediate focus, and this was one of the key metrics we’ve called out and we’re moving quickly to address that. But inevitably, as you bring that downward trajectory to flat, and then to increase it the other way, you’re going through a period of time that’s transitional. And this is what’s happening in FY16, and to a certain extent into FY17. And we’ve got to make sure we do that as ruthlessly and decisively as we can, to reset the business. And then beyond that, we can then create a positive operating leverage, which then starts throwing off cash. And that allows us to invest in new opportunities. But you can’t really do that while you’re on a declining trajectory. So this is inevitably a transformation year, which is entirely according to the plan.
JG: The strategy targets a three per cent per annum sales growth through to 2020. Those could be seen as ambitious goals…
RU: There’s plenty of evidence in the marketplace that people can get good growth out of retail. If you get an offer that really resonates with customers, you can achieve anything. It’s a matter of getting the offer right, and to a certain extent it’s a function of how quickly and decisively we can get to a position where our offer is resonating with customers. So at the moment we’re in the biggest brand overhaul that anyone in the business can ever remember. And we’re making the biggest inroads into the nature of the service model that we’ve done in a long time. So the key ingredients are coming together. And that number is over the five years. We know it’s going to take time, but we think it’s good to have some ambitious targets out there to help us all get focused. You can’t shrink to glory; ultimately we have to have a model that does deliver growth. And that’s one of the way we can demonstrate it – get a number on the table. But you’re right, it would be a strong result, compared with where we’ve been.
JG: Myer seems to have lost its appeal to the younger generation (18-24s). Is the strategy around new brands, such as Topshop, all about re-engaging that generation?
RU: It’s about getting the offer right for the customer. It isn’t all about Topshop, but certainly [that’s] very important for that group. To give you another example, we recently launched Tiger Mist into our business, which is quite a leading edge brand that has traditionally only been sold online. It’s a younger fashion offer. We want to connect with that audience, but they’ve historically only sold that brand online. What we’ve given them is an opportunity to showroom it across our business. They’ll carry on selling online, but they’ll now be selling through Myer stores as well. We’re very pleased with how it’s going, and believe they are too. Again, that’s another demonstration that if you change the offer, you can get it right for groups of customers.
JG: How does that translate into communications and above the line marketing?
RU: Part of the strategy is that you’ve not only go to put the offer in, you’ve actually go to communicate it, market it and engage with the customer and get them in through the door. And to a certain extent that’s achieved by teaming up with bands like Tiger Mist, who have an offer that’s inherently appealing. Tiger Mist run their own social media and marketing to support their business. Like any retail journey, it’s not just all about the retailer; it’s about the stakeholders that come in with them. We’re very mindful of the longstanding relationships we have with many suppliers and the support we get from them. We see this as a journey that we hope they’re going to come on as well.
JG: Are there any new categories or verticals that you’re planning to introduce to the store?
RU: We’ve talked quite a bit about athleisure as being an important growth category, and we’ve made significant process there. But there’s a key theme that we have to have a minimal credible offer; you can’t just introduce token brands and expect them to carry. So it’s about getting a completeness of offer. But it is coming together pretty well.
JG: The strategy calls for a more productive store network on a smaller footprint. Is it a fair argument that the current store network isn’t ideal for the new strategy?
RU: The current store network represents a different strategy. As we reposition the business around the ‘New Myer’ strategy, some of the portfolio, about 20 per cent of it, doesn’t really fulfil the brand strategy objectives. So if we go chasing our preferred customer, who we’ve been calling ‘Eva’, there are some stores that, either because there aren’t enough Evas in the catchment, are not aligned to that strategy, which will likely be to their detriment. So we do have to do something about that. Some of it we can address through a localisation agenda and allowing some variability between stores. But the other way of getting the productivity up is to reduce floorspace. And we did that very successfully in Myer Melbourne, and Miranda as well. We changed the footprint of the store – but retained the sales. 20 per cent of the portfolio doesn’t fit the strategy, and there are a number of things you can do about that. The most obvious one is you can invest in the store and create top line growth. And if we can’t, then that’s when we start looking at whether or not we have to reduce the floorspace. And closing the store is only somewhere down that track. Even changing the footprint is something we can look at.
JG: Is staffing still an issue for Myer?
RU: We’ve done a fair bit of analysis on staff numbers – and in particular rosters, and when people are rostered on, which is very important. We believe that we’re overweight in hours in the mid-part of the week, and probably underweight in hours on weekends. So we’ve recently undertaken a voluntary redundancy program, which has invited some people on particular kinds of contracts to take a redundancy. And the reason we’ve done that is because this will free up hours from over-rostered areas of our business and will free up the capacity for us to then be able to invest.
JG: Is your background in IT and e-commerce something that you’ll be calling on as part of the new strategy?
RU: Certainly e-commerce and digital will play a major role. I think one of the things that characterises successful retailers who get involved in omnichannel is their ability to innovate, fail fast, and get on and do new things. What I believe will evolve here is the more resources we put behind building our omnichannel offer, the more we will try pilot opportunities, like ‘click and try on’. Some of those will work, and some of them won’t, but you’ve got to have a mindset that enables you to do that. That’s what helps keep retail innovative, leading edge and exciting and helps keep customers feeling that you’re a contemporary retailer. ‘Click and try on’ is still a pilot, but I’m quite excited by it because in a department store world, a lot of people do want to touch, feel and try on a garment before they take it home. And to a certain extent, it addresses one of the biggest problems many people have with the pureplay online retailers – that you can’t try on and you’ve got to go through the laborious process of returns.
JG: Is Malcolm Turnbull’s taking over the Primer Ministership a good thing for the retail industry?
RU: I’m very comfortable with the business sentiment that’s generally being expressed. There’s a period now of stability in a sense that business has certainty, and that’s really where we need to be. Since the first uncertainty in government, when the first attempt was made to oust Tony Abbott, I think we’ve had some uncertainty, and I’m looking to that concluding and us having a more stable environment. And with that, of course, I hope that consumer confidence returns a bit more and we start to see people more confident about the future, which hopefully will manifest itself in discretionary spend.