Myer merger offer more about fear of future than great opportunity; The $3bn plan rejected by David Jones says much about the state of the department stores, though all may not yet be lost

Myer merger offer more about fear of future than great opportunity

The $3bn plan rejected by David Jones says much about the state of the department stores, though all may not yet be lost

Martin Farrer, Friday 31 January 2014 08.08 GMT

One Citigroup analyst said Myer’s plan is basically a defensive move and doesn’t offer shareholders a big enough upside. Photograph: William West/AFP/Getty Images

If there was ever a sign that the glory days of Myer and David Jones were over, then it came with Thursday night’s merger story.

Although the $3bn plan was knocked back by David Jones in October, it still tells us much about the state of these grand old names of Australian retail.

Between them they have 290 years of history but the days when they dominated the retail scene have passed as they face the relentless growth of online rivals at home and abroad, a huge cost base and increasing competition on the ground from international players such as Uniqlo, Zara and, perhaps, Marks & Spencer.

As the retailers regularly point out, the $1000 GST threshold for imported goods is hammering their bottom line because it often works out cheaper for consumers to buy products from overseas retailers than it does from bricks-and-mortar stores here.

They wanted it lowered before Christmas so the vital festive period could be given a boost but the Abbott government kicked the decision back to March. The result was more Christmas losers for the sector than winners.

Add generational changes in the way people shop – the globalised world of fashion and brands means younger shoppers just don’t have the same attachment to the two big department stores their parents did – and it looks tough for the big two players.

As Craig Woolford, a senior retail analyst at Citigroup says, Myer’s plan is basically a defensive move and doesn’t offer shareholders a big enough upside. Instead, it reveals the vulnerability of these incumbent players to new entrants.

“Myer’s approach demonstrates concern about the future of department stores, not opportunity,” he said on Friday.

“The merger proposal once again focuses on reducing costs for both, rather than growing sales. The pressures from online cannibalising store sales, new competition and continued wage cost escalation mean the department stores need to win back market share to solve their problems.”

Likewise, David Walker, the head of equities at Stocks in Value, told the Australian this is a story about “one overvalued department store buying another’’ and that the two companies are “going nowhere”.

They may be in the dumps but you could argue there is plenty to play for in the online space and the international competitors coming to Australia have yet to establish themselves.

Both DJs and Myer are on the verge of big changes in management which means there is going to be new blood and, shareholders must be hoping, new ideas. Paul Zahra, who announced last year he is quitting, is reckoned to have done a good job in improving DJs’ online offer but a new boss still has a big opportunity.

Myer’s boss, Bernie Brookes, is due to leave in August but he has put in place plans to increase the value of online sales from 1% of revenues at present to 10% within five years. Reaching the target would put Myer roughly where overseas chains such as John Lewis in the UK and Macy’s in the US are now.

If that can be achieved, they might have a fighting chance – as separate companies or perhaps as one entity – but the days when they ruled the roost are gone forever.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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