The five pillars of Myer's turnaround

Today’s KGB interview with Myer chief executive Bernie Brookes is a benchmark event. Brookes sets out a new vision for retailing in Australia, which large and small retailers need to both understand and mark against their own strategies.

At the same time suppliers to retailers, including media outlets and property owners, also need to understand the implications of what Brookes is saying.

I have isolated five basic changes to retailing that the Myer chief foreshadows. It is a long interview and there will be other nuances and strategies that I have bypassed that will also affect retailing (KGB INTERVIEW: Myer's Bernie BrookesMarch 18).

There is no particular order in the five basic retail changes I have isolated from the KGB interview. The first is the looming widespread integration of the iPad into department store retailing. American retailers have brought this development to Australia and Myer is now embracing it. Most non-food retailers (small and large) will have to follow.

In essence, you select what you want to buy and if it is not available in the store you order it on line via the iPad for collection at the store later or delivered to your home. In its latest report Myer’s sales rose but stocks fell by seven per cent thanks to the introduction of iPad selling in department stores and, of course, online shopping. This form of retailing should not be confined to big operators. It’s a wonderful opportunity for smaller retailers to embrace a bigger stock range without being required to invest enormous amounts in stock and rental property.

Of course as Brookes points out this retailing method doesn’t work in all product lines.

The second change is that Brookes has discovered that if Myer invests in more staff on the shop floor, customers are happier and buy far more goods. Customer satisfaction ratings jump. (This is not news for retail customers.)

Brookes did not directly claim that his investment in service represents an advantage over David Jones but if you study his words carefully it is clear that this what he believes. While it might be obvious to consumers, staff investment represents a fundamental change in management thinking because until now the way to the heart of institutional analysts was to cut costs and cut them hard.

Myer is showing that catering to the whims of the institutional community can be a very dangerous course and those that try and please dumb institutional analysts can wreck their business.

The third change is that Myer is increasingly sourcing its goods directly from manufacturers in China and Hong Kong rather than use agents. This way Brookes is able to get goods much faster to the store and there are no agents clipping the ticket so he is able to compete more effectively with the prices offered by online rivals. This is a strategy large Australian retailers should have adopted a decade ago.

Fourthly, modern retailing is going to be about the assembly of customer bases and therefore marketing will be more about promotions that are tailored towards clients’ recent purchases. Brookes illustrates with himself — all the promotions he as received from Myer have been around men’s clothing because that’s been his main purchase. But now he has grandchildren and he has started to buy toys so the promotions to him have widened, reflecting his change of purchasing patterns.

Australian retailers have been slow to adopt this new technique. Woolworths and Coles have been talking about it for a decade but until recently have undertaken limited work. Woolworths is now getting very serious about its customer base and how it markets to them. For Myer it means less advertising on television and newspapers and the same will happen to other retailers as they follow Myer including Woolworths and Coles.

Finally, owners of shopping centres have exploited retailers for decades. Brookes is now discovering that in all but in the very top shopping centres Myer can negotiate rental reductions down by 10 to 20 per cent. And the savings can be much higher if he is able to close his store down. In one shopping centre, Fremantle, Brookes did close the Myer store and was able to migrate most of his customers to a centre around 10 kilometres away by using the Myer customer database to offer special discounts to those who shift their business.

In some cases, smaller retailers have clauses in their rental agreements that they can leave a shopping centre if Myer goes. This is a powerful Myer bargaining chip. This new downward movement in rents will not affect the really top shopping centres but centres that are less important face a torrid time. A large amount of Australian savings is tied up in retail shopping centres. I don’t think the Australian retirement industry is fully prepared for the new retail revolution.