Lew v Myer enter round three

Sales fell 16 per cent to $2.5 billion, earnings fell 42 per cent to $93.5 million, and Myer slumped $172 million into the red after booking $159 million in asset writedowns and restructuring costs.

“We’re now more than two years into John King’s turnaround and it remains unclear what Myer stands for in the eyes of customers,” Mr Lew said.

Some brands seeing ‘extraordinary numbers’

But before Myer’s minority shareholders pledge their support for Mr Lew they should consider the words of another industry veteran, Max Grundmann, the owner and chief executive of homewares supplier HAG Import, which owns the Maxwell & Williams brand, known for its classic white dinnerware, and distributes Krosno glassware and KitchenAid appliances.

At 74, Mr Grundmann has been supplying retailers for almost as long as Mr Lew, 75, who is a major supplier to Myer through his family’s private companies, which include Voyager Distributing Co and Playcorp.

Three years ago HAG’s sales in Myer had fallen to just $12 million as the department store chain lost market share and posted quarter after quarter of falling sales growth. This year Mr Grundmann, who has 60 Maxwell & Williams shop-in-shops run by Myer, expects his Myer sales to top $30 million.

“Last week we had a bad week with Myer – sales were up 71.6 per cent on the PCP, even with 11 stores in Victoria closed,” Mr Grundmann told AFR Weekend.

“The previous week they were up 84.2 per cent and the week before that 104.8 per cent. The last time we had less than 50 per cent [sales growth] was on July 7 – those are extraordinary numbers,” he said.

Mr Grundmann attributes the surge in sales not only to the cocooning trend triggered by COVID-19, but the “customer first” strategy implemented by Mr King, which is aimed at reversing a long-term slide in sales and profits by giving Myer customers the products and brands they want.

Myer CEO John King (l) and chairman Garry Hounsell.  Supplied

“Shareholders should give them more time,” said Mr Grundmann.

“The reality is the business is being managed better than it has been for some time and the results we’re seeing are considerable,” he said.

“The real question is not Myer’s survival but what type of retailer Myer will be in the future when all these strategies go into implementation.”

What are Lew’s plans for Myer?

Some Myer shareholders believe Mr Lew, the former chairman of Coles Myer, is piling pressure on Myer because he wants the retailer to collapse into administration so he can buy it on the cheap.

“The best way to get it is to pay nothing for it – wait until it goes under,” said one fund manager, who declined to be named.

“A few years ago he was putting a lot of pressure on the company when it was refinancing, now they’ve refinanced again so the heat [from bankers] is off for a while,” he said.

Myer investors believe Mr Lew’s original aim when Premier Investments bought its 10.8 per cent stake in March 2017 was to protect supply contracts and potentially save $25 million a year in rent by using Myer’s floor space to sell its products.

As Myer started shrinking its floor space, handing back surplus floors to landlords, the Lew camp believed there was money to be made by Myer subletting unwanted space to other retailers.

Now that the coronavirus pandemic has accelerated the shift to online shopping and retailers – including Premier Investments – are stepping up store closures, it’s not clear what Mr Lew’s plans are for Myer. Mr Lew and Premier declined to comment.

Myer had borrowings of $78 million and cash of $86.5 million at the end of the July financial year.

But its balance sheet was dwarfed by $1.8 billion in lease liabilities, a hangover from the days when Myer’s former private equity owners entered into expensive long term leases.

The easiest way for Myer to get out of these expensive leases would be voluntary administration, but the company has repeatedly denied it is considering appointing administrators – a move that would put the company under the control of the banks.

One investor suggested Mr Lew could buy the $78 million bank debt – at a discount – and take control of Myer through the back door.

Myer could be turning the corner

While Myer’s 2020 results were dire, some investors believe the retailer is turning the corner and sales will rebound as $50 billion to $60 billion in cash that would have been spent on overseas travel finds its way into retailers’ coffers.

“Myer at the moment is a leverage play on traditional retail improving – if we do have a good Christmas then the share price would respond significantly,” said Wilson Asset Management chairman Geoff Wilson, who owns 7.8 per cent of Myer.

“We’re of the view Christmas with a bit of luck could be a reasonable period for retail, assuming Victoria keeps opening up and $50 billion in international travel spending gets recycled domestically,” Mr Wilson said.

“It’s a difficult period for brick and mortar retail [but] one of the positive signs is Myer has been growing their online business and in the new world you really need that to grow significantly, for a company like Myer to be able to prosper,” he said.

WAM chairman Geoff Wilson says he hasn’t decided how to vote at the Myer AGM. James Alcock

Mr Wilson’s comments suggest the veteran fund manager remains supportive of Myer, after backing the board in 2018 and urging Mr Lew to stop “throwing stones”.

However, Mr Wilson – who last month successfully called for a reduction in the number of directors and directors fees – insisted WAM had not yet decided how it would vote at the annual meeting. WAM is due to meet Myer management next week.

“We’ll make a decision a couple of days before the AGM which way to vote,” he said.

Mr Lew will need Mr Wilson’s support and that of other funds such as Colonial First State, which emerged with a 5 per cent stake last month, Dimensional (7 per cent ) and Mitsubishi (6 per cent) to block Mr Hounsell’s re-election at the AGM.

If shareholders vote against Mr Hounsell’s re-election Myer is expected to appoint one of the existing directors as his successor, most likely 30-year retail veteran and former Just Group executive Jacquie Naylor, who joined the board in May last year.

Ms Naylor used to run Premier’s Just Jeans business and her retail experience would blunt Mr Lew’s criticisms about the chairman’s lack of retail experience.

Corporate governance advisers said Mr Lew, with more than 5 per cent of Myer shares, could call an extraordinary general meeting any time and move to spill the board and appoint his own representatives.

“He could have done that yesterday, it’s pure theatre,” one adviser said.

Mr Grundmann, for one, hopes shareholders give Myer and Mr King more time to complete the turnaround and that the third stoush with Mr Lew is not a major distraction to management amid the toughest retail trading conditions in decades.

“We’re seeing across their home business a halo effect as a result of the execution of Myer’s strategies to make the customer first,” Mr Grundmann said.

“It’s hugely important to us the whole of Myer works effectively and efficiently in the interests of consumers – that’s exactly what John King and (chief merchandise officer) Allen Winstanley and his team understand,” he said.

“But you can’t achieve that turnaround overnight.”

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