Myer: just window dressing?
Jody Evans, The Age, pg 6, 20 October 2009
A leap of faith is required to believe Myer's forecasts, writes MBS senior lecturer Jody Evans.
In business, we talk about business assets, but when evaluating a company that's about to float, it is also important to look at the marketing-based assets: the brand, the customer base and the value proposition.
When viewing Myer from these perspectives, there are some real concerns.
It's true that Myer has an iconic heritage and this is a fantastic asset for any business and its brand. When something reaches iconic status, consumers feel nostalgic towards it and often have a sense of brand ownership. How many of us remember going to see the Myer Christmas windows as a child?
With these fond memories comes a great sense of attachment; consumers have an anchor-point when they think of a brand. The downside is that if you fail to live up to the expectations anchored in the sentiment, you can quickly lose these consumers.
A retail brand is manifested in the store experience. Yet Myer seems to have lost sight of this. Customers and employees are talking online and offline about how dirty the store carpets are, how poor the lighting is, how the changing room doors don't close and how there is no customer service.
While there are some refurbishment plans, these plans do not form the heart of Myer's strategy. Instead, Myer has invested heavily in IT and supply-chain efficiencies to reduce cost. According to the prospectus, the metric it is now chasing is store growth. It states that Myer is going to open another 15 stores between now and 2015, then another 20 after that.
Store growth is no guarantee of success. Starbucks used the approach for years and found that it leads just as often to store closures as it does to store openings.
Myer needs to go back to store profitability: are each of these stores going to be profitable in their own right and how much are they going to cannibalise sales from existing stores? I believe five of the new stores are safe because they are being built in new areas, but at least 10 of them have a mid to high chance of cannibalisation.
The new strategy also highlights concerns regarding the customer base. Myer's existing customer base is heavily reliant on the Myer one loyalty scheme. This scheme is a strong selling point in the prospectus.
First impressions are that this is justified. More than 60 per cent of Myer's sales come from its 3 million Myer one members. Individuals can only buy Myer shares if they are Myer one customers, so the expectation is that the float will increase Myer one membership.There's an expectation that Myer one customers are going to feel an even deeper loyalty to the brand, but do we remember what shares we hold when we go shopping?
Another concern is that the bulk of Myer one customers are still at the lower level of spending - under $1500 a year. What the prospectus doesn't tell its is how many members spend significantly less than $1500.
The prospectus also talks about foot traffic in the store, quoting figures of 3.5 million visitors a week. More pertinent for a potential shareholder is the number of transactions per week, the conversion ratio of visitor to buyer, or how often loyalty program members return to the store.
There isn't enough evidence to anchor the prospectus to the idea that the Myer one customer base is a truly valuable asset.
A final consideration involves value. The economy will do better as interest rates rise, but if consumers pay more for their mortgages, they will be more selective and more demanding of any retailer offering "value".
In the past, Myer and David Jones were positioned much higher than Target, K Mart and Big W. However, the gap between Myer and Target has shrunk and the gap between Myer and David Jones has increased.
David Jones has done well at reducing the perceived price gap between it and Myer - I can get exclusive designs and great service in a beautiful store for the same price. But at the other end of the market, you can't underestimate Target; it offers great value and is improving fashionability.
If a consumer can get an equivalent product at Target for $10 less, then why shop at Myer? What is Myer doing to persuade me that my experience in their store is worth the price premium? Is it somewhere I want to be or just somewhere I end up?
You really have to persuade consumers that you are offering true value for money. For a retailer, it's partly the price point and partly the quality of the product, but it's also the store experience.
With so much of the prospectus based on benefits yet to be realised, consumers will need to take a leap of faith to believe the benefits will arrive. Myer has done a good job at increasing profits through cost reduction. Now I want to see a strategy truly directed at increasing sales in existing stores.
Jody Evans is a senior lecturer in marketing at Melbourne Business School.
