Australia’s Myer department store tragedy is not unique - there are many similar stories around the world. What makes Myer different in 2021 is that two of the nation’s best retail talents want to restore the company’s fortunes.
It is now time for the Myer board to realise that, partly as a result of past mismanagement, their enterprise is now valued on the market at one tenth the size of Solomon Lew’s Premier Investments and Myer has huge onerous lease obligations--- right out of step with the modern world.
Rich entrepreneurs often pursue long-held passions. Kerry Stokes is helping the SAS forces. Bill Gates diverted to a charitable foundation.
Solomon Lew has had a longstanding dream -- I would call it a passion -- to control the Myer empire. The fact that he was removed as chairman of Coles Myer in 2002 still grates.
He now has a new partner in Premier Investments CEO Richard Murray, who masterminded the success of JB Hi-Fi.
Lew’s dream started when the Myer enterprise was Australia’s most successful non-food retailer with by far the best customer database in the country.
But the opportunity was squandered by a succession of Myer managers and boards who simply didn’t understand what was required to be a modern retailer in the online world and harness the old “Myer Card” customer base.
After a session in private equity Myer floated with a value of $2.4 billion in 2009 only to see the shares fall below 10c a decade later, taking capitalisation below $100m. It is has recovered marginally but the overall loss is sickening.
In the years following the 2009 public float Solomon Lew, behind the scenes, indicated he wanted to have a strong role in managing the company and in March 2018 he bought some 11 per cent of the Myer stock at $1.15, again looking to have a major role in running the company. His approach was treated with scorn by the then board.
In the three years that followed Myer shares have fallen from that $1.15 level to around $0.40 and they were even lower prior to Solomon Lew buying more stock.
Back in 2018 Solomon Lew’s Premier Investments retail operation was already going gangbusters but in the next three years he showed that success was no accident and the shares have doubled.
Solomon Lew’s formula is straight out of the management textbook:
* First you pick the very best executives available. Lew picked up the David Jones discard Mark McInnes and the two formed a formidable team to attract top retail talents. McInnes has retired and was replaced by Murray.
* Controlling the supply chain and the margin to the customer. Lew’s stock comes through one location and can be sent to stores or to online orders.
* Lew has one marketing program by brand with online and in-store marketing fully connected.
* Premier Investments invests big sums in technology to build good online sites. This has been significant in all operations but vital for Smiggle’s school and leisure retail operation because it enabled a smooth extension overseas.
* Having the knack of knowing what the customers want to buy ---there are few better at this art than Solomon Lew.
* Seizing the opportunity in the Covid pandemic to lower rents.
Using these techniques Peter Alexander and Smiggle have been standout successes but Just Jeans and Portmans saw off the challenges from overseas retailers.
When this week Solomon Lew increased his Myer shareholding to 15.77 per cent by buying a parcel at $0.40, the board responded as it has done every time Lew has put pressure on it - “Solomon Lew has too many conflicts to be put in control of Myer”.
This time the board trotted out the fact that his group owns 26 per cent of household appliance maker Breville, which is a major supplier of Myer.
My experience is that when a conflict of interest is clearly known it can be managed.
Let’s theoretically assume that these absurd allegations, which were also made in 2018, were theoretically correct and Solomon Lew had pocketed money over the last three years. The value he would have added to the Myer enterprise would almost certainly have seen the stock doubled to about $2 in line with what happened to Premier Investments. Shareholders would have been five times better off.
Lew heads a $4bn plus enterprise and does not need to make money on the side with conflicts of interest. The approach of the Myer minnow should be to ask for talks with Solomon Lew and require him to set out what he wants to do.
Whatever Lew puts forward, if it involves he and Murray controlling the Myer business then it must include an offer to all shareholders at the highest price paid by Premier Investments. It may involve a shareholder vote.
Premier Investments shareholders have been well rewarded by backing Solomon Lew and will continue their support if he makes a thrust for Myer.
But if Solomon Lew and Richard Murray divert their attention to Myer when Premier has a stake of, say, just 16 per cent then Premier shareholders will have every reason to be unhappy.
Accordingly Premier must either own all of Myer or at least a clear majority. And that means making a bid in accordance with Australian rules and conventions.
Myer might argue that it doesn’t need Solomon Lew and Richard Murray and can do the job itself. It’s for shareholders to make that decision, not the board.
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