Terry McCrann: David Jones turbulence might lure Myer

Like the ‘butterfly effect’ of chaos theory, will a certain director ‘flapping her wings’ on the other side of the Indian Ocean produce — or at least portend — massive, truly seminal change in department store retailing on this side, asks Terry McCrann.

Woolworths Holdings director Gail Kelly is making an abrupt exit. Picture: Hollie Adams

Like the ‘butterfly effect’ of chaos theory, will a certain director ‘flapping her wings’ on the other side of the Indian Ocean produce — or at least portend — massive, truly seminal change in department store retailing on this side?

Former Westpac CEO Gail Kelly has ‘flown’ out of the Cape Town boardroom of the South African Woolworths — no relation to the Aussie one — for the last time.

The reason for her departure was unstated but she was ‘accompanied’ by another director, suggesting at least some degree of boardroom and perhaps even broader corporate ‘turbulence’.

MYER AND DAVID JONES MERGER A SENSIBLE UNION

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Certainly, times are ‘turbulent’ on this side of the Indian, at David Jones, that Woolies’s $2 billion Aussie investment. DJ has just lost — yet another — CEO after its profit halved in the year to last June.

We are waiting to see how DJs performed in the all-important December half-year, as broad retailing turned somewhat sour and old-style bricks-and-mortar retailing — even premium DJs-style — would have found it even tougher.

We are also waiting to see how its slightly down-market neighbour, Myer, performed in its even more all-important half-year to the end of January.

If Kelly’s departure signals something is seriously amiss in Cape Town, Woolies might have to reconsider whether it can afford to continue to own a ‘challenged’ DJs in Australia.

It’s also, once again, had to send its Group CEO Ian Moir across the Indian to oversee DJs. Is it seriously worth it? Can it afford the money and its CEO?

At least Myer still has a CEO — at least, that is, for the moment. That’s UK-retailer John King. After an initial burst in the public eye, he’s gone quiet.

So also, interestingly, has Myer’s variously bete noire and saviour, billionaire Solomon Lew.

Not a peep — or indeed, ‘flapping’ — from either.

The brutal fact remains that bricks-and-mortar retailing is in structural retreat all over the world. In the general department store space, there just isn’t enough room for a Myer and DJs — and indeed, arguably, also a Target.

It’s been my view for some considerable time that the unavoidable at least intermediate step is for Myer and DJs to merge and to then promptly close half their stores.

Watch this space.

The time might be ripe for a David Jones merger with Myer. Picture: Mark Stewart

 

TRANSURBAN KEEPS ON MUNCHING

For good or for bad, the fabulous money-making monster that ate Melbourne — and Sydney and Brisbane — keeps munching and marchingon. Indeed, doing so, literally, across the three urban landscapes.

For good — for its investors, Transurban remains the most profitable business in Australia, generating an extraordinary 75cof gross profit out of every dollar of tolls.

For bad — for the motorists, businesses and taxpayers of the country’s three biggest cities, Transurban remains the most profitable...

In Melbourne, its birthplace, Transurban makes a mind-boggling 88c gross in the dollar. The relatively poorer profits in Sydney(‘just’ 82c per dollar) and Brisbane (72c) and across the Pacific in North America (63c) dragged down the group number.

Yet, its urbane CEO Scott Charlton continues to maintain, and the political wood duck otherwise known as the state TreasurerTim Pallas blithely agrees, that it’s nowhere near earning the ‘super-profit’ that could trigger a $5 billion-plus savingfor Melbourne motorists. So if 88c in the dollar ain’t a super profit, would even 100c-plus in the dollar qualify? For I certainlywouldn’t put even that seeming impossibility beyond Charlton and Transurban.

Especially as Melbourne motorists will continue to see their tolls rise remorselessly every year — and for a dozen years extrato boot — at a pace more than double the rate of inflation. Year after year after year.

In the world of very low inflation (and wages growth) and relentless online competition, who else gets to levy that sort ofgovernment-guaranteed income rise every year?

The core and superb driver of the relentless rise in profitability is the way-above-inflation toll increases every year intersectwith relentlessly rising populations, which deliver almost guaranteed (price inelastic) usage by both consumer cars and businesstrucks.

And the way the Transurban networks have unbreakable ‘locks’ on the three-city traffic.

There are three key figures that add to the fabulous, yet again, bottom line. First, a solid 2.7 per cent rise in averagedaily traffic. That’s actual cars and trucks.

Second, the-above-inflation toll increases — in Melbourne 4 per cent-plus.

Third, very modest cost increases — just 1.5 per cent, in line with general inflation, in underlying terms.

There’s plenty of growth left, in every market, in both volume and margin terms.

For reasons I’ve explained before, it’s all but impossible for anyone else to compete for new linking projects; and when Transurbanadds a new one, it just adds another profit layer to the core toll and volume growth.

Albeit, profitability looks like it’s levelling out around the 88c in the dollar In Melbourne. But it can and indeed is inching higher into the 80s inSydney and Brisbane is starting to follow through the 70s.

The sleeping opportunities — for both project expansion and revenue growth — are in the US and Canada. That Transurban businessis relatively new and smaller and gross profit was ‘only’ 63c in the dollar. But it took a big jump up from sub-60c as heavycapex started to kick into actual traffic.