in the Australian market. The launch will pitch another international retail brand against the embattled Myer – but it could feasibly also provide a platform for Steinhoff International to initiate a takeover bid for Myer. Steinhoff is already one of Australia’s top retailers in revenue terms with annual sales of around $1.5 billion after acquiring Pepkor Group in November 2014. The Pepkor acquisition added the Harris Scarfe and Best & Less retail chains to its existing local investments, Freedom Furniture, Snooze and Poco. Pepkor South East Asia also has Store & Order and Mozi in Australia, as well as Postie in New Zealand. However, Australasia’s 477-store footprint is just a fraction of Steinhoff International’s 6500 stores across 30 countries, selling furniture, homewares, electronics, clothing and footwear. Listed on the Johannesburg Stock Exchange in 1998, Steinhoff International has annual sales of close to $A17 billion, generated from 40 retail brands and a manufacturing and logistics base. The Debenhams deal is with Pepkor South East Asia, the Steinhoff Group’s subsidiary, which is headquartered in Sydney. The deal was announced in the UK by Debenhams CEO, Michael Sharp, and Pepkor’s MD, Jason Murray, and it is understood that the development funds for the venture will be provided by the Steinhoff International subsidiary. Murray has not indicated how many stores are likely to be opened under the Debenhams brand, but he said they will be “contemporary, small scale flagship stores” in prime locations. The deal also involves a wholesale agreement that will allow Pepkor to range Debenhams brands in Harris Scarfe stores, providing a differentiated range from other competitors, including Myer and the discount department store chains. Australia will be the first foray for Debenhams into the Southern Hemisphere but the retailer has 243 stores across 28 countries in Europe, the Middle East and Asia. Debenhams is a leading international, multi-channel department store brand with a proud British heritage. In the UK, Debenhams has a top three market position in womenswear and menswear, and a top 10 share in childrenswear. It holds the number two market position in premium health and beauty. Famous for its Designers at Debenhams portfolio of brands, the retailer has been collaborating with leading designers for more than 20 years to develop exclusive product across the fashion and homewares ranges. Current designers include Savannah Miller, Patrick Grant, Henry Holland, Ben de Lisi, Julien Macdonald, John Rocha and Jasper Conran. A mutual beneficial partnership Murray said Pepkor was delighted to have secured the partnership with Debenhams, noting the value that could be unlocked from Debenhams brands. “The wholesale arrangement will augment our efforts to revitalise and grow the Harris Scarfe business, while the franchise stores will complement our Harris Scarfe stores and add to our back office scale.” Murray and Harris Scarfe CEO, Graham Dean, said the new Debenham’s branded flagship stores would be “genuine modern department stores”, but the deal would also bolster department store operating experience through the alignment. Harris Scarfe will manage the three-pronged agreement which will see Debenhams product, including the famous ‘Designers at Debenhams’ range, wholesaled and retailed within selected Harris Scarfe stores; the launch of stand-alone Debenhams franchise stores in flagship retail centres; and the establishment of a dedicated, Debenhams led e-commerce channel launch in Australia. “This initiative takes the development of Harris Scarfe forward a further significant step,” Dean said. “For our loyal customers, the partnership brings access to an exciting range of credible, international department store brands. “For our team, the opportunity to be part of one of the most exciting department store stories in the region, and our supply and property partners will appreciate the addition of such a clearly differentiated and exclusive range that will make us an even stronger destination for all lovers of shopping.” Dean said the roll out complements the growth strategy for Harris Scarfe, which is opening new or refurbished Harris Scarfe department stores in shopping centres at Eastlands, Shellharbour and Epping in coming weeks. The deal is of strategic importance to Harris Scarfe, which generates sales of more than $300 million from 55 existing stores but has struggled for profitability since Pepkor bought the chain from the Momentum private equity firm in 2012 for $67 million. Pepkor has conceded that market conditions have been challenging with prices and margins under pressure as other retailers, such as Kmart, Target, Big W and Myer, compete for customers in what has virtually been a no-growth sector. Pepkor posted losses in each of the three years to June 2014 and is unlikely to have achieved any significant improvement in the 2015 financial year despite expanding its Harris Scarfe Home concept and adding four new stores. Before the Debenhams deal, Harris Scarfe had planned to expand from the current 55 stores to around 80 within five years. The franchise deal could see some Harris Scarfe stores converted, as well as a revision of the expansion target to allow for investment in Debenhams flagship sites. Announcing the retail franchise and wholesale agreement in the UK, Debenhams CEO, Sharp, said the retailer had been reviewing the Australian market “for a number of years” and believed Pepkor was a true global player with the necessary resources and local market expertise to drive the business forward in the region. Sharp said international expansion is a key strategic priority for Debenhams and the retailer believes the Australian market “holds a lot of potential” as the UK product range “translates well”. Steinhoff to move on Myer? The Debenhams entry to the market adds further pressure to the struggling Myer, but also increases competition for the other two department store laggards, Wesfarmers’ Target and Woolworths’ Big W. But the move could also conceivably provide a platform for Steinhoff International to mount a takeover bid for Myer, which has seen its market capitalisation fall to $825 million based on a current share price of around 98 cents. Myer shares are now worth less than one quarter of their price in November 2009 when the company returned to the Australian Stock Exchange after a period in the hands of private equity owners. Myer has revealed a turnaround strategy that has not convinced analysts or investors, who have given little impetus to the share price in the past month and the retailer is regarded as vulnerable to a takeover. Private equity firms are understood to have run a ruler over Myer, but they may be more interested in a deal once the retailer takes the pain of writedowns on the closure of underperforming stores and other turnaround measures. The price of Myer, even with a premium factored in for the long-suffering retailer’s shareholders, is well within Steinhoff International’s reach. And its ability to inject new life into the business may be boosted by the Debenhams alignment, albeit the UK retailer itself has not exactly been posting stellar financial performances in recent years. The Myer opportunity would also come with some useful inside knowledge, as Dean held an executive position with the retailer before joining Harris Scarfe. Dean has more than 30 years’ retail experience and joined Myer in 2004 after working at UK department store, Heal’s, and homewares group, Habitat – experience that provides him with an understanding of Debenhams’ culture. Murray is also an interesting potential player in any further move by Steinhoff International, as he is one of Australia’s most experienced retail executives and was formerly CEO of the Just Group, which is now owned by Solomon Lew’s Premier Investments. Murray was at the helm of Just Group when another British department store, Marks & Spencer, struck a joint venture deal to bring that retail brand to Australia. The joint venture never eventuated, but Marks & Spencer retained various registrations in Australia and there have been reports of an imminent Australian launch in the past two years. Marks & Spencer has reportedly been looking for potential store locations in Sydney and Melbourne, with the retailer’s renewed interest in Australia apparently spurred by overtures made in the leasing program for The Emporium in Melbourne’s central business district. Marks & Spencer has around 1330 stores worldwide, including 480 wholly-owned, jointly-owned or franchised stores in 59 countries across Europe, Asia and the Middle East. The lack of urgency to launch in Australia by Marks & Spencer no doubt reflects the difficulty in finding suitable locations and a wariness about the bottom-line and long-term success of other international brands that have opened stores, as well as challenging trading in the UK. Asda’s George last year leapfrogged Marks & Spencer to become the second largest apparel retailer after Primark, relegating the venerable department store brand to third place. While Debenhams has got the jump on Marks & Spencer in terms of a formal announcement about launching in Australia and has a strong local partner in Pepkor, the availability of suitable sites at viable rents may well impact on store rollouts. The cost of key sites in Sydney and Melbourne is a constraint on international retailer entry to the market, particularly those retailers that need a large footprint. Want more Inside Retail? Subscribe to Inside Retail Weekly now and get our premium print publication delivered to your door every week.