The Impact of Amazon
Asked how deep the impact of Amazon will be in Australia, Myer CEO Richard Umbers says, “We’ll probably overestimate the effect in the short term and underestimate it in the long run.” In practice, he says, no Australian retailer is going to stand by and ignore it. “Denial is the wrong approach. We are going to respond by necessity to make sure we’re one of the [retailers] that will come through.”
Amazon’s arrival is estimated to grow the overall online retail penetration rates in Australia by nearly half by 2021, according to Euromonitor. The challenge will be for retailers to manage down their costs, as the profitability of their online channels is likely to fall with more delivery competition.
The retail chain’s name was etched into Australian history when Sidney Myer opened his first shop in Bendigo, Victoria, in 1900. Today, it is reflective of a sector grappling with structural decline. Retail sales growth is now at half pre-GFC levels as consumers prioritise experiences over consumption.
While it is a strong traditional brand, Myer is heavy on physical assets, legacy systems, structures and people. Its retail footprint spans 67 stores across six states and the ACT, including city centres, malls and high-street locations, and it has more than 12,500 employees.
What is Myer doing?
Umbers believes Myer’s future is linked to its capacity to embrace digital. The company has invested $600 million as part of its five-year New Myer strategy. Implemented in 2015, it’s aimed at improving service, productivity and its online platform and offering. Myer is closing underperforming stores; improving the instore experience to keep customers coming; focusing on premium market brands; and investing in digital so customers can more easily order and take delivery. Better data analytics are aimed at enabling better decision-making at the store manager level, as well as informing the expansion of the instore customer experience with cafes, pop-up stores and activities. Internally, a transformation group is working to action new ideas faster.
We have to be successful online… We’re seeing our business as truly omnichannel. The physical and digital worlds play in the same place.
Myer grew its online business by 41 per cent last year and substantially increased the range and categories sold online. “We took the view that we had to be successful online against that new world,” he says. “We’re seeing our business as truly omnichannel. The physical and digital worlds play in the same place.”
To help drive that strategy, stores are incentivised to encourage customers to use Click & Collect, a same-day service that Umbers says now comprises 15 per cent of orders — double the rest of the broader retail market.
Tough times for retail
Although New Myer has gained some traction, in recent months the company has fallen short of its targets for top-line sales growth and productivity improvements. Weak wages growth and consumer demand have bitten, while sales and earnings have declined. Its annual results in September revealed a sharp drop — the worst since its 2009 market relisting — and investors are increasingly sceptical. Some of its strongest performances have occurred in regional areas, but Myer announced in September that it would not renew leases on its Colonnades store in Adelaide, Belconnen in Canberra and Hornsby in Sydney.
The Solomon Lew Effect
Now, with a formidable activist shareholder on its register in the form of Premier Investments chair Solomon Lew, the ground is shifting quickly, with an investor strategy briefing planned for early November ahead of the AGM on 24 November.
The Myer board has to contend with mounting pressure from Lew, whose 10.8 per cent stake in the company has dropped nearly a third in value since he bought it for $101 million in March. Lew is accusing the company of losing its way and misleading investors. He is now manoeuvring for board renewal. Premier has sought to write to shareholders about any resolutions that might be put to investors at the AGM.
They are the shoppers of the future and the challenge is to win their loyalty now.
“The loss of the high-value young grocery shopper is the biggest risk facing Coles and Woolworths” when Amazon arrives in the local grocery market, says Dr Ross Honeywill, executive director of the Centre for Social Economics.
According to a recent survey of 20,000 people conducted by Roy Morgan Research, “while younger Australians such as millennials represent future value for the supermarket giants, they also represent the consumers most at risk from the Amazon juggernaut” expected to sweep the country in coming months, he says.
A recent briefing by Roy Morgan on its Supermarket Survival Survey revealed that 73 per cent of the highest-value younger consumers, known as neo-millennials, already shop online — and they’re 85 per cent more likely than the average Australian to do so.
Neo-millennials and their gen-X counterparts are “fertile feeding ground for Amazon in Australia”, says Honeywill.