How the plan to up-end a retail empire was hatched

A tour of the US and Europe added urgency for Solomon Lew to push ahead with an audacious bid to split his empire. But it would come at a cost.

Over the past month billionaire Solomon Lew was at work on an international tour as well as a short break in Europe’s blazing summer, while back in Australia his handpicked chief executive Richard Murray was resisting pressure to actively work on a secret plan to split the fashion and retailing empire.

By the time Lew got to the US, where he was inspecting department stores and saw the growth potential for two of his biggest Australian brands, his patience ran out. Just weeks later Murray was out of a job.

Chairman of Premier Investments, Solomon Lew, with Richard Murray. Picture: Aaron Francis

A holiday in the Greek islands was followed by Lew getting down to business in London, where he was walking the shop floors of his booming children’s stationery chain Smiggle, going through numbers and getting a sense of what was hot and what was not.

Lew was testing the strength of the retail economy and the consumer, as well as the potential for Smiggle to capitalise on the tourism trade. Thinking about options for his empire.

On the way back to Melbourne, Lew extended his stay in Singapore for a weekend, and ran through the Smiggle operations there. He couldn’t make it to Malaysia, where Smiggle also has stores, but the country manager flew Singapore to run through sales numbers with Lew.

Lew has been watching from the sidelines the stellar performance of Brett Blundy’s fast fashion sensation Lovisa, whose shares have surged after its expansion into the US market. He believes he can replicate that through pyjama and leisurewear powerhouse Peter Alexander and Smiggle.

‘Unlocking value’

A demerger is a way of unlocking a higher market valuation for the two businesses by uncoupling them from the lower-growth portfolio of mature brands Just Jeans, Portmans and Dotti. This business, which will be called Apparel Brands, is expected to use its high cash flow to launch acquisitions. A split would see the creation of three new ASX-listed entities – Peter Alexander, Smiggle and Apparel Brands – while Lew’s Premier Investments would retain control in each.

Peter Alexander’s sales of $430m have more than doubled in five years. Picture: NCA NewsWire

The head stock Premier, listed shortly after the stockmarket crash in 1987 with $60m in seed funding, would essentially revert to its original role of a cash box. It would also hold the investments in the respective listed retailers, as well as the 25 per cent stake in Myer and the public and Lew’s private holdings of Breville, which amounts to around 30 per cent.

Premier could then be used as the main vehicle for acquisitions, stoking speculation that this could put Lew a step closer to making a final run at Myer. Those close to Lew say he has more than one more big acquisition left in him and hasn’t yet shown his hand on whether to mount a full raid on Myer. Indeed, Lew has a long history of keeping the market guessing. One person close to Lew says the four-way split wasn’t about trying to find growth for Premier and its brands; it’s acknowledgment that growth was already there and finding the best path for each brand.

But what to do with his CEO, whom he had poached from the consumer electronics juggernaut JB Hi-Fi in an audacious move? A window was now opening to strike the historic split – but for how long?

Sleepwear brand Peter Alexander is seen as having growth potential.   

Premier’s directors – who include former UBS banker Tim Antonie; Henry Lanzer, the managing partner of law firm Arnold Bloch Leibler; and the former treasurer of Tasmania, David Crean – were all behind the billionaire.

Given Lew owns almost 43 per cent of Premier Investments, he has command of the boardroom, but their frank counsel had always been welcome.

A spokeswoman for the Lew camp declined to confirm the billionaire’s travels, but insiders who spoke to The Australian portray a chairman who, the more he saw of international trends and longer term economic opportunities, the more he wanted Murray to press ahead with demerger proposals.

Murray declined to talk about his sudden exit, but those who have worked closely with Lew highlighted how quick and complete the former JB Hi-Fi’s exit was.

In a statement on Monday Lew said he “accepts and understands Richard’s decision to step down”.

Murray has stood down as a director of the board, effective immediately, and will be gone from Premier Retail as its CEO in coming weeks.

Murray’s pivot

The jump to Premier in late 2021 was a surprise move by Murray, the chief executive who was at the top of his game and was widely credited for turning JB Hi-Fi into a powerhouse electrical goods ­retailer.

However, apparel retailing was outside his comfort zone, an industry he had little management experience with.

Lew was getting impatient about what the next phase of growth looked like.

As one fund manager said multi-brand apparel retailing was about making the profit margin through every single step, from design on a blank sheet to sourcing right through to the shop floor.

This allows Premier to be a high-margin retailer, generating more than 21c in earnings for every dollar of revenue. There was no single falling out between Lew and Murray.

Both moved in similar networks along Melbourne’s Collins Street. Both follow AFL club ­Carlton.

Women’s fashion brand Dotti would remain part of the Apparel Brands business. Picture: NCA NewsWire/Simon Bullard.

But for Lew, change was needed for the break-up plan to be brought to life. It is believed that Murray was taken by surprise at how far advanced Lew had mapped out the demerger with other board members.

When former David Jones boss and longtime Premier Investments chief executive Mark McInnes announced his departure from the Lew camp, there was a nine-month staged exit as he prepared the ground for the next CEO, ran the business and led the Premier retail team.

By the time Lew got back to Australia last week the decision to part ways with Murray had been made.

Lew is understood to have spoken bout the plans with several big investors in Premier by phone on Monday morning including Magellan-backed Airlie and Perpetual.

He was encouraged by the early strong backing. Indeed, Premier’s shares shot up more than 12 per cent during the session, on the potential for billions to be added in value. Monday’s announcement added nearly $500m before any plan has been finalised. But with Lew in the driver’s seat, the split is as good as done.

Originally published as How the plan to up-end a retail empire was hatched