The fact that investors and retail experts are overjoyed about Myer reporting a 1.6 per cent improvement in sales in the first quarter of the 2017 financial year says a lot about the state of department stores in Australia.
This result is considered quite an achievement and an early vindication of its strategy to undertake a major and costly five-year overhaul. The initial response to the quarterly sales result was a 10 per cent jump in the share price.
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But in many respects all that Myer's new management team has been able to do is move the company from one which is in decline to one that is mature and stable and can grow earnings albeit at a modest rate.
While that doesn't sound like a great achievement, under the circumstances, it is impressive.
![Myer's turnaround is not rocket science, nor is it easy.](/web/20170105024958im_/http://www.watoday.com.au/content/dam/images/g/i/m/k/b/x/image.related.articleLeadwide.620x349.gssadg.png/1479440363244.jpg)
Less than 10 years ago, the emergence of online shopping in Australia was billed as the beginning of the end off the full-service department store. And while online competitors took their toll, the department stores fought back - creating the omnichannel concept. Customers could shop in store, online or the hybrid, click and collect.
But the bigger threat over the past five years has been the rolling out of international retailers like Zara, H&M;, Topshop and Uniqlo.
It's been rapid, comprehensive and has carved out a large chunk of market share in that value to mid apparel segment. These new entrants have big format stores and sit next to the department stores under the umbrella of the same shopping malls.
They have been putting the likes of Myer, Target and Big W and even David Jones under pressure and forcing them to rethink their retail concepts.
David Jones managed to increase sales in its first quarter of 2017 by a meagre 0.6 per cent.
To date it's clear that Big W and Target have not found the right formulae to attract customers back into their stores.
Only this week, Big W's recently installed boss, Sally Macdonald exited. Her predecessor had lasted only a year. Over the past three years, it's been a revolving door at Target for managing directors.
Myer is, however, now showing early signs that the stores within its portfolio that have been the early guinea pigs for testing its new concept model are getting a sales uplift.
The 1.6 per cent sales improvement just reported is more significant than it sounds because it was compared against a strong first quarter in 2016. And while some analysts had predicted sales in the 2017 quarter could inch up less than half a per cent, others thought the number would be negative.
Additionally Myer chief executive Richard Umbers has stuck with his forecast for a return to underlying profit growth in 2017. This will be the first growth in seven years.
He also confirmed that earnings before interest tax depreciation and amortisation were expected to grow faster than sales this year, in line with the target in his five-year plan.
Citi analyst, Craig Woolford told clients on Friday that "Myer has tweaked its net profit after tax guidance to be both pre and post implementation costs. Given implementation costs will be $15-20 million higher, post tax in FY17, underlying net profit is likely to be more than $85 million. This could result in an upgrade to consensus core earnings per share of of circa 10%. The upgrade is most likely due to improved gross margin performance."
What Umbers is doing to Myer isn't rocket science - but nor is it easy. He is focusing on what he calls 'wanted brands" which meant the past year has been all about a spring clean - getting rid of smaller labels that occupied corner shelves but didn't sell much to allow the bigger labels, like Topshop and Sportscraft, that bring in foot traffic to have increased acreage.
Myer has also employed a more scientific approach to identifying its core customer and tailoring individual stores around the particular demographic.
The digital revolution has also presented it with the opportunity to better control inventory and better analyse the customer base.
But with 67 stores, Myer still needs to grapple with a large legacy footprint - and there is significant variation in the performance across the portfolio.
The big new overseas entrants don't have to deal with this issue. They can hand-pick locations that suit their offerings
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