Umbers: New Myer “clearly taking longer”
Myer CEO Richard Umbers’ ambitious turnaround plan for the national department store chain may take longer than his original five-year timeline, after he revealed yet another “disappointing” result to the market on Thursday morning.
Umbers’ plan, which is now over two-years old, will be adjusted to reflect changing market conditions and increasing competitive pressures as the business struggles to meet its key strategic targets, revealing a 1.4 per cent decline in impairment adjusted net profit for the year ended 28 July.
“One of the things I’m disappointed in is that we didn’t grow the profit year on year. We did say the EBITDA growth would be ahead of sales growth for this year, and clearly that hasn’t eventuated, so clearly it’s taking longer,” he told media in Melbourne.
“Directionally, the underlying metrics that we monitor internally to see the progress we’re making are still indicating that we’re making progress on our overall strategy and that we’re setting ourselves up in the long-term for the success of the strategy ultimately.”
The priorities remain broadly the same, including ongoing investment in omnichannel initiatives, focus on service-focused experiential retailing and portfolio consolidation – but there’s more work to be done on lifting sales productivity, a key metric that Umbers wants to see increase by 20 per cent.
But with sales per square metre having declined 0.5 per cent in 2017 and only having risen by 3.7 per cent since the turnaround kicked off, CFO Gavin Devonport conceded that things weren’t progressing fast enough.
“Sales per square metre is not moving as fast as we’d like, sales are flat so you have to [go] harder on the space that you are giving up,” Devonport told investors.
Myer plans to finalise a 100,000sqm store consolidation plan in the next few years to drive its sales per sqm ambitions, with an additional 25,000sqm in floor space set to go under three store closures, which will take place between FY18-20 depending on the outcome of landlord negotiations.
No store exit costs have been determined yet, but space handbacks are already underway, with Cairns and Dubbo getting the chop in an attempt to re-focus the productivity of the fleet.
The strategy remains broadly the same, with FY18 plans including investing in omnichannel and digital; an ongoing point of focus having grown by 41.4 per cent in the past year; better utilisation of data from its Myer One loyalty program; and ongoing investment in cost-cutting measures.
Umbers said that trading figures in the first weeks of FY18 were worse than expected, but said he remains confident that the department store chain can make the most out of the crucial Spring Racing and Christmas sales rushes.
He opted not to give specific guidance, but did say that he intends to beat consensus NPAT forecasts of $66 million, with a “robust and detailed” plan in place to get a better result.
But Citi analysts aren’t so optimistic, laying out a $65 million forecast for Myer in FY18, noting that Amazon will have an impact on its business over the next twelve months.
“The FY17 result was of reasonable quality and in line with consensus, while market expectations were relatively low. We expect Myer to face headwinds in FY18e as Amazon enters the market and the consumer backdrop remains challenging,” Citi said.
Online remains a bright-spot for the business, having grown by 41 per cent in FY17 and Umbers appears happy with 15 per cent of orders now coming from click-and-collect.
Same and next-day delivery trials are underway, alongside a radio-frequency identification (RFID) proof of concept to kick-off in the next 4-6 weeks, as reported by Inside Retail Weekly.
Omnichannel is now a $177 business for Myer, with investment to pick-up over the next twelve months to improve on a 12 per cent reduction in fulfilment cost in FY17.
Umbers recognises that Myer’s immediate and fundamental challenge is turning around 20 years of persistent sales decline, but the market remains sceptical about whether the department store can grow sales while maintaining gross margin in the current retail environment.
Umbers is nevertheless pressing ahead with his attempts to wean Myer off blanket discounting, instead refocusing the company on narrow and deep promotional activity through stocktake events and the launch of a new clearance model that will separate promotional and clearance discounting.
Under the strategy, Myer is dedicating entire floors to clearance activity and is even inviting in partner brands to participate.
The appeal to customers who appear unwilling to pay-full-price after years of systemic discounting in the sector has underpinned optimism in the model, particularly for its ability to increase floorspace productivity.
“We’ll always have stock take sales, we’ll always use tactical promotions to drive the business and traffic, but it will be more based around narrow and deep rather than a whole of store blanket,” Umbers said.
“You can get people to come in by throwing money at them, but we need to drive a sustainable and profitable model for the long term.”
Hampering sales efforts are Myer’s exclusive brands, which continue to tail behind concession performance and will be a point of focus for management in FY18.
“Our concessions business continues to grow strongly, while our Myer exclusive brands have been slow to recover despite gains in some areas,” Umbers said.
“There’s a lot of ground to make up in [Myer owned brands], it’s not performing the way we want.”
Myer is progressing on 72 owned brand conversions and has launched in-store product experts for several brands in 33 stores already, in an attempt to avoid further write-downs on its intellectual property following Sass & Bide’s $38.8 million impairment in July.
A raft of experiential programs are also underway, including the impending addition of three more cafes in the coming months and announcements slated on men’s grooming and barbershop concepts.
Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.
Myer will close all stores at close of business Sunday and stand down approximately 10,000 staff without pay for an… https://t.co/5sHH9ESabA3 days ago
Hairdressers have slammed the Government for flip-flopping on store closures, saying 30-minute cuts still put them… https://t.co/NlRdHNpMmI4 days ago