Outgoing CEO John King pulled Myer out of its destructive spiral

Myer boss John King was always going to be here for the war, not the peace, and has given the required minimum one-year notice ahead of his exit.

In five years, the no nonsense chief executive pulled the department store out of its dangerous downward spiral and given it a new lease of life.

However, the next move by Myer’s accident-prone board remains important. A new CEO needs to build on the platform and prepare the retailer for what is expected to be a tougher economic cycle and a period where online will count more than ever.

A long runway for King’s exit allows for a thorough search, including considering several internal names as well as external candidates.

The next 12 months will mark a tough period for all retailers, this will minimise some of the management disruption. Myer’s 26 per cent shareholder Solomon Lew will also have a say in the matter now he has a nominee in the boardroom.

Myer CEO John King has flagged his exit.

King shows the merits of a leadership team laying out a clear, simple strategy to staff and shareholders and sticking to it despite the external shocks whether are pandemics or boardroom battles. Thankfully he also avoided distractions of acquisitions.

The CEO used the same template as his previous role in turning around then-faded UK retailer House of Fraser early last decade. Namely this involves boosting revenue, improving range, slashing debt and building online channels. However, that experience shows how precarious retailing can be. Under a new owner the high street British chain collapsed only five years after King had left.

In Australia, King quickly refocused the badly listing Myer. He wasn’t captured by its history and instead focused on earnings over sales; made the tough call to cut unprofitable or marginal stores and finally joined the dots between Myer’s well run digital operations and 7 million-plus strong customer loyalty business.

Store closures were painful, but the activity was at the edges of Myer’s portfolio and King pushed through his back end changes without radically up-ending the core of the retailer. More benefit came from sweating the existing store footprint much harder, including making stores smaller.

Under Kings “Customer First Plan” there is an aspiration of $1bn-plus in online sales annually, currently it's tracking at around $760m, although growing at double-digit rates.

Confidence returns

King’s departure next year is for family reasons as much as ending the planning cycle. It was known through retail circles the CEO was doing it tough through Covid-19 where he was based in Florida to be with his wife who for health reasons was unable to travel. Under King’s rolling contract, he is required to give a year’s notice.

On Monday, Myer’s chair JoAnne Stephenson said her CEO will step down during the second half of 2024, without being specific and this will make it six years in the role.

Known for action over words, King said on Monday there is lots more to do at the retailer. “It will be a busy year ahead.”

Olympic champion Stephanie Rice fronted a refreshed Myer range.

Myer is a different retailer today, and without King’s changes it would otherwise be running short of options in an environment when discretionary retailing set to face its worst cycle outside of Covid in more than a decade.

Earlier this year, Myer shares broke back through the $1 a mark for the first time in years, when King joined they were languishing below 40c. On Monday, Myer closed at 67c each, with the retailer feeling the pressure over recent weeks amid broader fears of consecutive interest rate rises hurting consumer spending.

For now Myer sales are running at a record and profits are steadily rebounding. Importantly, it has no net debt on its balance sheet and has been keeping shareholders onside through resuming paying dividends. Myer too has financial runway with a new four year $250m financing package that was locked in before credit became scares.

It is a confident retailer again, and this has allowed it to reinvest in store refurbishments and significantly a new hi-tech national distribution centre under construction outside Melbourne. Once completed, more than 70 per cent of Myer’s online sales will be from massive warehouse and will be processed at much lower cost.

Myer’s rise comes as rival David Jones is in a seriously weakened position following years of false starts under previous owner, Woolworths of South Africa. It is now in the hands of private equity after being sold at a bargain-basement price. Myer has shown it has moved on from its old cross-mall rivalry with David Jones, with the real battle now taking place against dozens of cashed-up competitors online.

ASX risks

There are 31 risks identified by ASX around its ageing CHESS clearing and settlements platform that now faces a much longer working life than it was initially designed for.

With ASX’s newish board headed by Damian Roche going back to the drawing board for a replacement clearing and settlements system, markets regulator ASIC has demanded the stock exchange outlines the risks in keeping its legacy system alive and what it is doing about them.

ASX’s replacement of CHESS was shelved last year as it became clear its new blockchain-powered clearing and settlements platform was going to struggle to get off the ground.

The system that covers everything that happens at the back end of a trade, including transferring shares to a new owner, was already years late and costs were blowing out. These delays and missteps drew a stinging rebuke from both ASIC and the Reserve Bank.

ASX will plan around keeping its clearing and settlements platform in place until 2032. Picture: NCA NewsWire / David Swift

ASX chief executive Helen Lofthouse will stand up on Tuesday outlining her plans for the new ASX to investors, although at this point she can’t answer the central question of what the clearing and settlements platform will look like in the future. This won’t be known until the December quarter when the ASX will update its revised plan for a CHESS replacement. It is worth noting Lofthouse essentially shelved the Blockchain-based replacement days after taking charge of the exchange in August last year.

Given the ASX is now running well behind in its replacement of this core piece of financial infrastructure, corporate regulator ASIC has demanded the ASX should be planning on keeping CHESS alive until 2032. While that should be plenty of time to find a replacement, it still opens the door to Australia’s financial market infrastructure at the end of the decade being built around technology that was designed in the era of the millennium bug.

Among risks identified in the report, CHESS currently has a maximum tested capacity of 10 million trades per day. Trading on average is running 4.8 million per day although the Covid peak hit 7 million per day, which has slightly lifted the numbers. The ASX’s own estimates have trading hitting on average 5 million per day by 2025 and then 10 million by the end of the decade.

At the same time as it is built on old technology, there is a big risk that some of its IT components may not be supported by third party vendors before a replacement system is up and running. This may require plenty of spare parts being stored and additional costly maintenance beyond 2025.

Elsewhere, security is also a major potential vulnerability with older systems open to sophisticated cyber attack. One major defence is that the system is contained within a closed network, not connected to the internet with strict controls over who gets access.

The ASX has promised it will continue to invest and build on CHESS to make sure it is “operational sound” to meet its regulatory requirements and keep financial markets flowing.

Separate to the review on keeping CHESS running, ASIC is overseeing an investigation into whether ASX’s board or executives breached market disclosure obligations as the program was starting to run off the rails.

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