Myer is reporting the best sales in 18 years. But can it thrive in a cost of living crisis?

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When department store Myer shared details of its $71.1 million profit on Thursday, its leaders insisted that the 123-year-old retail behemoth was resilient and ready to take on the festive season.

“We are really well set up for Christmas,” chief executive John King said when discussing the group’s financial results, which included its strongest annual sales figure in 18 years – $3.36 billion.

“It’s my sixth Christmas at Myer and we’re most excited about the [Myer Christmas] windows we’ll have in Melbourne this year.”

Myer’s chief executive and chief financial officer, who have been responsible for the company’s turnaround, will exit the business next year. Credit: Eamon Gallagher

Investors backed the department store’s result, with shares inching up by 1.6 per cent on Thursday. But there were plenty of reasons for caution about the challenge Myer faces as consumers snap their wallets shut across the country.

The numbers show that the department store’s momentum shuddered to almost a stop in the second half of 2023, with sales growth of just 0.4 per cent. Comparable store sales over the past six weeks were down by 1.9 per cent.

“It is clear the broader macroeconomic factors have had an impact on the wider retail environment,” King said.

Myer has experienced all manner of tricky trading conditions since being founded in 1900, from recessions to the global financial crisis and most recently COVID-19 store closures.

But after a turbulent decade which included the business posting a loss of close to half a billion dollars in 2018, Myer says it has built a foundation that will allow it to thrive – even if it has to face a brutal period for consumer spending.

“Things [spending conditions] are tough, we all know that. But the opportunity for Myer now is to take market share when their competitors are struggling,” said lead portfolio manager at Wilson Asset Management, Oscar Oberg. Wilson is the fourth-largest shareholder of the company, according to Bloomberg, with a stake worth 4.25 per cent.

“There is no debt in the business, there is over $100 million of cash in the bank and inventory is clean. They’ve just got to ride it out and use this period as a great opportunity,” Oberg said.

Since taking the top job in 2018, John King has run a turnaround plan known as “Customer First,” focused on improving the group’s online offer, reducing floor space within Myer stores and exiting some sites.

“The other thing was he had a close eye on productivity and efficiencies,” Morningstar analyst Johannes Faul said. “Profits came back, and the financial health of the business improved significantly.”

Michael Saba, chairman of the Happy Saba group and the seventh-largest Myer shareholder according to Bloomberg records, is also unfazed about how the department store will perform if economic conditions deteriorate further.

“It [spending slowdown] is only temporary, but most the important thing is that the foundations have been built to restore Myer’s glory,” he said.

The business has found a stable base to work from, but it’s clear the winds of change will be flowing through Myer once again next year.

King confirmed earlier this year that he would exit the business in 2024, sparking a global search for his replacement. Myer chief financial officer Nigel Chadwick, who has played a key role in the group’s turnaround strategy, announced on Thursday that he would also retire from his position next year.

Whoever takes the helm at the business from here will have to gain the nod of approval from retail billionaire and Myer’s biggest shareholder Solomon Lew, who now owns close to 30 per cent of the company through Premier Investments.

Lew has never held back in his critiques of Myer’s strategy and management, and secured a significant win in 2022 when his candidate, former Myer Grace Bros boss Terrence McCartney, secured a spot on the board.

Premier has continued to build up its stake in the company and has been increasing its position by three per cent every six months under creep law provisions, which allow major shareholders to up their stake gradually without having to make a formal takeover offer.

Lew’s growing stake has prompted speculation that Premier would put up another board candidate for election at Myer’s annual general meeting this November, but a spokesperson for Premier confirmed this week that it had not made a nomination.

No matter who takes the top job at Myer next year, they will have to grapple with the future of the department store model in an environment where consumers may be much less inclined for shopping sprees.

Debates about the possible demise of the department store are nothing new, and the sale of Myer’s rival David Jones to private equity firm Anchorage Capital Partners in 2022 once again sparked conversations about how the sector should position itself into the future.

The results presentation this week holds some clues about what Myer of the future will look like, based on where it is investing and seeing growth. While e-commerce sales are slowing from their COVID-19 peaks, online retail will play a bigger and bigger part of Myer’s strategy.

The business achieved $690.5 million in online sales in 2023, and is targeting annual turnover of $1 billion a year – a goal King is confident it can achieve in the next five years.

The group is ramping up an automated national distribution centre in Victoria, which is hoped to deliver a better and more consistent online delivery experience. “It will allow us to significantly improve options for how customers get delivery and the speed of the delivery,” King said.

Data and loyalty is also set to play a much bigger part in the future of the business. The department store’s Myer one program now has 4.2 million active members – 16 per cent of Australia’s population.

Whoever takes the helm at Myer will have to gain the nod of approval from the company’s largest shareholder Solomon Lew.Credit: Natalie Boog

“I think the loyalty program will develop a life of its own over the coming five years and will branch out to other services,” King said this week.

The company has already started to ink partnerships with other platforms such as Virgin and American Express to expand how customers can leverage their points when shopping at Myer.

“Maximising these partnerships provides a new source of customer growth, significant revenue streams for both in store and online, plus another opportunity to build loyalty and cement myer as the ultimate one-stop shop,” King told analysts this week.

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