Revenge is sweet and profitable for rag trade king Solly Lew

Twenty-two years ago, shareholders ejected Solomon Lew from the board of Coles Myer. Revenge will be both sweet and profitable for Australia’s billionaire rag trader after he cemented a merger deal on Tuesday that will make him the department store’s largest shareholder.

His pursuit of Myer has been lengthy as it has been dogged. It has been aggressive and has eviscerated the careers of many who fought it. But there has always been an inevitability that Lew would prevail.

As an empire builder in the retail industry, Lew has no peer. Nor is there another investor with his patience and tenacity or who drives a harder deal than Lew, even in his 80th year.

No one drives a harder deal than Solomon Lew, chairman of Premier Investments.Credit: Eamon Gallagher

Myer will be transformed into a $1 billion retail empire, in which Lew will have a 27 per cent personal holding. Alongside this, he will have a 40 per cent stake in Premier Investments, which owns the higher-growth and sexier brands Smiggle and Peter Alexander and is capitalised at $5.5 billion.

All this against the backdrop of one of the weakest retail environments in recent history, with the failed carcasses of businesses littered around Australia. Only this week, the company that owns Rivers, Katies and Millers lapsed into administration.

What Lew and his newest partner, former Qantas loyalty boss and now executive chair of Myer Olivia Wirth, will embark on represents a retail experiment – the marriage of a department store, Myer, with a string of lower-end apparel brand chains such as Just Jeans, Dotti, Portmans, Jay Jays and Jacqui E. These brands are owned by Lew’s listed retail company, Premier Investments.

‘Myer will have a future, and a Sol.’

Solomon Lew

Sure, these brands could be fairly described as mature and without a large sales growth upside, but they operate with a large dollop of Lew’s secret retail sauce – a vertically integrated model that produces the kind of retail margins that many competitors only dream about.

The pitch for this merger is for Myer to absorb some of that know-how and broaden its product base to introduce more of its own private brands – and, of course, to introduce a Lew-approved brand of management.

“We need people (at Myer) who are invested in the business,” said Lew, who has been highly critical of Myer’s management in the past.

Of course, some of these brands will find their way into Myer stores, catering to that lower-income and younger demographic segment, but that isn’t the main game.

If some of the margins these Premier brands achieve can drop through to Myer – which operates on much thinner margins – then the somewhat tired department store could get a new lease on its financial life.

Olivia Wirth, chief executive and chairwoman of Myer.Credit: Arsineh Houspian

Speaking about Myer, Lew said on Tuesday that “to make one-and–half cents on sales after tax is a joke”, vowing that the company’s earnings would jump after the merger was completed.

Sure, there is risk attached to any new retail formula. Myer has attempted and failed to improve its prospects by moving more heavily into private labels in the past. Some investment purists who don’t like the idea of a retail conglomerate may abandon their Myer holdings.

But if the share prices of Premier Investments and Myer are any indications, this deal is a hit.

When the tie-up was first mooted six months ago, both share prices received a boost. However, when the detailed terms were announced on Tuesday, Premier shares soared while Myer’s stock was up slightly in early afternoon trading.

Premier Investments will also receive the additional bonus of being able to focus on Peter Alexander and Smiggle’s offshore growth.

Lew says the prospect of these brands being spun out from Premier remains on the table, but the timing is not as clear, given the Myer deal was a priority.

And for Myer? Lew pretty much sums it up: “Myer will have a future and a Sol.”

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