Myer In A World Of Pain As CEO Exits
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Is department store chain Myer entering its death throes?
The shares rose 4.7% yesterday in the wake of the surprise departure of CEO, Richard Umbers, but eased to end the day up 1.8% at 54.5 cents.
It was hardly a convincing bounce, more relief that something had happened in a situation that has been growing increasingly ugly.
Mr Umbers had been in the top job since March 2015. His departure follows a string of profit downgrades, weak sales, falling profits and the collapse in Myer’s share price.
It is not going to help Myer reverse the slide in its sales and profits. Just last week, Myer revealed its sales for January were down 6.5% compared to last year’s as its latest stocktake sale flopped.
As a result it warned its first-half profit could be down 42%. The shares hit an all-time low of 58 cents and then kept setting now lows, dropping to an all time low of 53 cents earlier this week.
Myer said on Wednesday Mr Umbers had stepped down and that the search for a new CEO would begin immediately.
“We are impatient for a turnaround in the company’s performance and the board has determined that it is in the interests of all shareholders for there to be a fresh approach to drive our future direction,” Myer chairman Garry Hounsell said.
Mr Hounsell said the decision “reflects my desire to drive, first-hand, the urgency required to deliver shareholder value”.
Mr Hounsell’s decision comes as 10.8%, Solomon Lew’s Premier Investments, steps up its campaign to oust the Myer chairman and the board.
Premier last week confirmed it would hold an extraordinary general meeting to try and roll the board and replace it with a new one.
Mr Hounsell says he will act as executive chairman until a replacement for Mr Umbers is found.
But the question is now whether anyone can save Myer from a slide into oblivion (and rival David Jones for that matter where sales are also sliding south).
As we reported yesterday the warning about household and consumer caution from Reserve Bank Assistant Governor, Luci Ellis, seems to have been missed by retailers and their owners and investors.
Ms Ellis warned of the dangers from consumers starting to accept that low income (wages) growth will be the norm and not a one-off and adjusting their spending accordingly. They are a must read for investors (http://www.rba.gov.au/speeches/2018/sp-ag-2018-02-13.html).
"Australia has seen a marked increase in the number of major retail players. Foreign retailers have entered the local market in recent years and continue to do so.
“This has also induced the existing players to reduce their costs to stay competitive, for example by improving inventory management.
"This has probably been a bit easier for larger or less-diversified retailers than for smaller firms. Perhaps this is one of the reasons why growth in retail sales has been much weaker for smaller firms than larger firms.
"Whether through lower costs, narrower margins or a combination of both, this competitive dynamic has weighed on prices for consumer durables. And for staples such as food, competition and related changes in pricing strategy (such as Everyday Low Price strategies) have contributed to keeping prices barely changed in net terms for at least seven years,” Ms Ellis said.
"Continued weak income growth presents a particular risk to the consumption outlook in the context of high household indebtedness. Households do not just wake up one day and collectively decide to pay down their debt. But if incomes turn out weaker than they expect, or some other adverse news should arise, the households carrying the most debt might feel they have to rein in their spending quite a bit.
"The living cost pressures that many households feel have therefore been an income story, not a price inflation story. Although utilities prices did increase significantly in some states in recent quarters, much of households’ regular spending has seen relatively little in the way of price increases for a number of years.
"Weak income growth can run below consumption growth for a time, but not forever. If households start to see this weakness in income growth as permanent, they are likely to change their spending patterns in response. We might be seeing this in the details of the consumption figures: growth in spending on discretionary items, like travel and eating out, has slowed while growth in spending on essentials has held up.”
Just about sums up Myer - much of its products are not essentials. Its problems - weak retailing skills and pig headed cost cuts - have added to the malaise but its ultra wary consumers who are causing much of the slow down and profit pressures.
Boards and managements will find it tough to convince consumers to spend more without higher wage growth (and falling debts).
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.