Australia's Myer Stung by Online Rivals

By Ross Kelly 

SYDNEY--One of Australia's largest and oldest department stores acknowledged it was in need of a makeover after a 23% slump in first-half profit sent its shares tumbling on Thursday.

Like many of its global peers, Myer Holdings Ltd. is struggling to cope with a wave of competition from online sellers of consumer goods, as well as the arrival in Australia of specialty retailers such as Hennes & Mauritz AB and Inditex-owned Zara.

Australia's weak economy at the tail-end of a resources boom is compounding the difficulties for traditional retailers such as Myer by encouraging spendthrift consumers to search for bargains elsewhere--often from websites based overseas.

"People are coming into Myer stores, trying something on, then buying it online from someone else," said Brad King, a portfolio manager at Melbourne-based Armytage Private. "And Myer's been slow to the party in getting an online presence."

Myer posted net profit for the six months to Jan. 24 of 62.2 million Australian dollars (US$48.2 million). It warned of shrinking margins and forecast a lackluster full-year result of between A$75 million and A$80 million, excluding one-off restructuring costs.

First-half revenue rose 1.5% after Christmas sales were buoyed by low interest rates and falling gasoline prices. But costs of doing business jumped 6.2%, as the company continued to build its online presence, refurbished stores, and spent more on staff.

"Customers have changed the way they shop and their expectations of retailers have changed significantly," Richard Umbers, Myer's new chief executive, said Thursday. "Our new strategy...will be guided by a clear vision and a plan to win back market share."

He added that Myer's international peers had responded to globalization and digitization by beefing up their online presence, improving the "in-store experience" and overhauling their product range. He didn't provide specific details on how Myer intended to change--pledging to update the market later in the year.

Investors were already wary of a disappointing result following the resignations earlier this month of long-serving CEO Bernie Brookes and the company's chief financial officer.

The Melbourne-based company, founded in 1900 by a Russian migrant, has racked up a string of poor profit results since it was relisted by its then private equity owners more than five years ago. Its shares fell as much as 13% on Thursday and are down by around two thirds since the initial public offering.

Citigroup this week said Myer may need to launch a A$300 million equity raising to fund a transformation, and possibly close as many as seven stores. Armytage Private's Mr. King said Myer needed also to consider paying staff commissions to bring its sales culture more into line with peers in the U.S. and Europe.

Write to Ross Kelly at [e-mail]

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