Myer might have a legacy as one of the titans of Australia’s retail sector, but its best hope lies in King’s strategy of shrinking Myer’s costly store footprint and building on its promising online business and loyalty program.
In a period where lockdowns robbed Myer of 23 per cent of its in-store trading daysthe 8.5 per cent increase in total sales delivered for the six months ended January 29 was credible, and the 47.5 per cent increase in online sales was impressive.
The omicron hit Myer experienced over December and January – when both physical sales and online sales were hit with stock and staffing issues, compounding a drop in shopping activity more broadly – appears to be over, with the first five weeks of the second half seeing sales growth of 15.2 per cent, with store sales rising 9.3 per cent and online sales growth running at 48.6 per cent.
The momentum in the online business is crucial to Myer’s future.
King’s theory is that e-commerce players around the world attract higher valuations, so matching or exceeding the online sales growth of pure-play online retailers should eventually lead investors to take another look at the business and, hopefully, rerate the stock.
Online as a percentage of total sales rose from 20.6 per cent to 27.9 per cent during the period, with strong growth across womenswear (online sales up 58 per cent), menswear (up 49 per cent), and homewares (up 80 per cent) .
Clearly, the combination of lockdowns during the delta wave and the disruptions caused by omicron have given online sales an extra lift. And it is hard to get a sense of just how profitable online sales are; dealing with online volumes was the major factor in a 4.3 per cent rise in costs during the period.
But there’s no question that Myer’s online business has been crucial to it navigating the pandemic in good enough shape to restart dividends, and will clearly provide the bulk of its growth in the future.
King also appears to be getting more out of the group’s Myer One loyalty program, which he ranks as one of the top five in the country.
The program has 3.5 million active members who have shopped in the last 12 months, and lifted its “tag” rate (the proportion of total transactions from Myer One members) by 60 basis points to 70 per cent in the first half.
The strongest growth in the program is coming from members aged under 35, which King argues is a good sign of future growth and growth in e-commerce.
But if COVID-19 has been good for Myer’s online business, King admits it has slowed progress in the vital task of shrinking Myer’s retail space footprint, either by closing stores or reducing their size.
King has reduced Myer’s footprint by 9.7 per cent, or 104,032 million square meters, since 2018, and would like to double that in the coming years.
He says after two years of focusing on rent relief in discussions with landlords, space reductions are now back on the agenda and, in some cases, landlords are willing to provide Myer with capital to refurbish stores and get new tenants in.
While the store network does help with online sales – particularly with order fulfillment – there is no doubt that Myer’s legacy store network remains a millstone around King’s neck.
Restraining the space reduction program is a big priority for the second half.