Olivia Wirth’s grand Myer revival hinges on it all coming together at once

Myer executive chairman Olivia Wirth says loyalty is at the heart of the retailer’s future. Picture: John Feder

For Olivia Wirth there are surprising similarities between airlines and big retail.

The career Qantas executive is now firmly in charge of the 124-year-old Myer

and she has a big agenda ahead of her.

She moved into the executive chair role in March and then in June she assumed full chief executive responsibilities – taking over from John King who had spent the past six years tackling costs, methodically fixing the balance sheet and repositioning the retailer after years of management missteps.

“While the product might be different, there’s actually quite a few similarities behind the scenes,” Wirth tells The Weekend Australian. “If you think about the orientation around customer, you’ve got the day-to-day rhythm of the operation. You’ve got a significant e-commerce and online business.”

Then there’s the need to invest for growth; the focus around loyalty; and demands on of being able to focus on the day-to-day trade while also focusing on the long term.

And then in retailing, like airlines, is a need to work on protecting and finding ways of growing the slender profit margins.

Myer is feeling the squeeze of consumer slowdown. Picture: NCA Newswire

In her first 100 days as both chair and CEO, Wirth has been moving at lighting speed trying to find the long-term solution to Myer’s main challenge, which is constantly being judged on having its best days behind it. There is also a risk she is trying to do too much at once.

Wirth has commissioned a major business-wide review, made a takeover approach, and reversed a sales process Myer had under way on a collection of private brands including sass & bide.

But it’s the strategic review – dubbed Myer Tomorrow – that has come into most focus.

Here everything is under the microscope: the customer base, product offering, store network, e-commerce, supply chain and costs.

At the heart of it is Myer’s secret weapon – the Myer One loyalty scheme that has more than 10 million members. The program is one of the biggest in Australia and boasts the highest tag rates – or usage rates – of any retail program.

The top-level aim of the review is to set Myer up for the next five to seven years by driving a step change in Myer’s market position. It intends to use every possible lever of the Myer business.

Importantly, and unlike early last decade when Myer was on a path to fade away, the review comes from a position of relative stability.

“That stability means we can now turn our minds about what the next phase looks like for Myer,” Wirth says.

The business of retail is rapidly changing both here and globally where traditional department stores have lost their command and need to reshape their proposition. But that also means there’s opportunity, she says.

“It’s really about turning our mind to what does Myer become in five to seven years’ time, and how do we participate in the growth in different verticals, and what are the best assets that Myer has, and where should we invest to ensure that we can tap into that growth?” Wirth says.

Nothing will be left untouched in the review being conducted by management consultants BCG, which is scheduled to be finalised by the end of the year.

Wirth says the early insights so far confirm Myer has the potential to build on its stronghold positions in beauty, make-up, as well as men’s and women’s fashion.

Myer also has the “right to win” in other categories like homewares.

She says the retailer needs to move away from the cycle of discounting while capturing younger customers. Fundamentally, Myer will need to build and invest in Myer One while driving more gains from e-commerce.

However loyalty is “the core differentiator” over competitors, Wirth says. Myer already has the advantage of owning a well established loyalty program.

And given her past experience running the massive Qantas Frequent Flyer program, Wirth knows the power of data in being able to keep people coming back.

“It’s not just about reward, it is also the insights that really help you understand what the customer wants,” she says.

Myer will play to its strengths in fashion and make-up. Picture: Aaron Francis

Elsewhere, the review has so far resulted in a decision to retain private label brands sass & bide, Marcs and David Lawrence. As part of this, some 10 stand-alone sass & bide stores will be shut with the brand moving more fully back into Myer. Four flagship sass & bide stores will remain open.

Beauty, fashion and loyalty are not radical ideas in isolation. Indeed Myer has been working to dominate each segments in various forms for years. So Wirth’s challenge will be in the execution to make sure all the parts work together. Department stores like Myer are competing in a retail market that is rapidly fragmenting. Younger shoppers that Myer is courting are increasingly digital and more committed to brands than the retailer.

Wirth points out the store network remains important as ever. Myer generates 65 per cent of its sales from store-only customers and 10 per cent from online-only. There is 25 per cent of sales from customers that shop both instore and online. Critically these customers spend on average more than double of the store-only or online-only customers and these are the ones Wirth wants to go after.

The Myer boss was speaking as she unveiled the retailer’s full-year earnings, which showed top-line profit down 28 per cent to $43.5m on a series of writedowns including store leases, which discounting impacted margins.

However top-line sales were up 0.4 per cent for the year in a tough consumer market and encouragingly were up 0.8 per cent in the six months to end-July. While they mark Wirth’s first set of results since taking charge, they were numbers she has largely inherited. The second half dividend was slashed as earnings fell away.

And the big unknown to all this is how Myer will look in the future.

Wirth has made a takeover approach of the domestic brands business of Myer’s biggest shareholder, billionaire retailer Solomon Lew. Little has happened at Myer without the scrutiny of Lew, whose Premier Investments owns more than 31 per cent and having him on board is the key difference with this revival plan.

After years of battling the Myer board and at times management decisions, that all changed in March when Lew gave his warm backing to Wirth when she was named as joint chair and chief executive. It is understood Lew had been impressed with Wirth’s contribution since she joined the board as a non-executive director late last year and supported her in the top job.

One of Lew’s closest professional allies Gary Weiss has also joined the Myer board although not as a representative of the billionaire. Lew currently has only one director on the board – former retail executive Terry McCartney.

Such a deal could significantly reshape the earnings profile by delivering more than 600 smaller retail stores to Myer and move it into proprietary retail lines such as Just Jeans, Portmans and Dotti.

Each of the brands represents low growth but managed well by Lew deliver massive cashflows. The savings through combining supply chain and warehousing represents the opportunity as well as diversifying Myer’s revenue. There’s potential to leverage the Myer One loyalty program as well as e-commerce across a customer base that generally doesn’t shop with Myer.

Due diligence is underway on the combination of the two and given the cross-shareholding arrangement with Lew’s Premier Investments, independent shareholders will have to be satisfied the combination represents the best fit. Wirth can’t comment on the process other to say there is “significant opportunity” in the potential transaction.

And this comes back to loyalty, Wirth is convinced if she can use the power of data to win over customers, ultimately she will win over shareholders.

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