myer-retail-challenges

On March 16, 2015, Australian Associated Press released an article titled “Soft results expected from Myer”. With half-yearly data released today, the ‘soft’ performance has been attributed to “a lack of relevance with customers” and increased costs linked to refurbishments and other investments.


Morningstar analyst, Farina Parsons, has commented that it will be interesting to sight detail on how Myer’s new management intends to turn the business around. Expectations are that the company will announce a review of its store portfolio along with the broadening of its online activities.


Runaway spending on IT

In my assessment, Myer has little chance of recovery as the business has been badly wounded by runaway spending on information technology. Over the last several years, I estimate that close to $500 million has been spent on IT, yet the business still doesn’t have full omni-channel capability.

Even if Myer was to achieve the technological relevance required, the money spent will never be recovered as it is out of proportion with the company’s turnover and net profits.

IT overspending has created a lead weight in their balance sheet, forcing staff reductions and other cost-cutting measures to hold the bottom line.

Most shoppers visiting Myer will testify that finding a staff member to take their money can be a challenge, and this is one of the reasons why people are reluctant to shop there.

Today the business still functions because of its overly generous customer loyalty scheme, but this erodes its margins. Add to this the risk of cannibalisation of brick and mortar sales by promoting the online business, and a grim picture emerges.


Revival is a formidable task

In summary, Myer isn’t suffering from a cyclical problem that could be weather or market-related. It suffers from structural problems, which cannot be easily repaired.

I don’t envy Richard Umbers in his new role as CEO – he faces a near impossible task.

Credit Suisse analysts have apparently said that Myer should consider fast tracking any plans to restructure the company. But, restructure to become what?

The boat is overloaded and the load is permanently bolted to the floor. Anyone who manages to make Myer work will become my next retail hero.

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ABOUT THE AUTHOR
Andrew Gorecki, MD of Retail Directions, has worked with the retail industry since 1985. Industry insiders appreciate his strategic advice and insights, as he lives and breathes for the industry. Andrew received a nomination for the Australian Entrepreneur of the Year Award in 2010.
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