Is Solomon Lew Gaslighting the Aussie Market?

Myer, poor Myer…

The grand dame of Australian department store retailing…

You’re beginning to fall for the oldest trick in the book.

You may have heard that Myer Holdings Ltd [ASX:MYR] CEO Richard Umbers stood down yesterday. I’m sure Myer downgrading its 2017 first-half sales by 42% last week gave Umbers the nudge to say ‘time’s up’.

Why is Myer crumbling? Why can no one turn this business around?

Umbers joined Myer via Australia Post. One of his key roles at Australia Post was to build the company’s parcel and express delivery services. Parcel delivery rewarded Australia Post with a net profit of $36 million in the 2016 financial year.

Taking over from former Myer chief Bernie Brookes, Umbers understood the importance of online shopping. Something Brookes only began to acknowledge in 2011.

Umbers was keen to adopt and model Myer stores on things that worked in international department stores. Such as clearance racks being located in one section inside Myer, something Umbers says he picked up from US retailer Nordstrom.

The problem is, since Umbers took over in March 2015, the Myer share price has fallen from $1.33 to 54 cents — a whopping 58% decline in three years. Not only that, but the value of Myer has dropped from $1 billion to less than half that at $449 million.

Taking over in the interim is current board member Garry Hounsell. The former bean counter from accounting giant Arthur Andersen told the press yesterday that he had become ‘impatient’ with the turnaround strategy employed under Umbers.

However, Hounsell has no retail experience. Yet he’s already talking about delivering value to shareholders.

Here is someone who understands the ‘bottom line’ but lacks understanding of how retailers work. Hounsell even admits that he’s not one to shop online. He’s more of a traditional, bricks-and-mortar shopper.

Under his guidance, Myer shareholders can expect cost cutting to be high on the agenda. And considering his lack of experience, this may be the only way to achieve short-term boosts to Myer’s bottom line.

Furthermore, there’s a risk that Hounsell will return Myer to the days of chasing Target as a competitor rather than being hot on the heels of upscale department store David Jones.

Frankly, it’s hard to see Myer’s strategy changing all that much.

In the past, Myer has coveted the ‘young dollar’. But chasing this demographic continues to fail. Myer isn’t cool. There’s no teenager in the world that wants to shop where their folks do.

So Myer is still working out who it sells to. 

What is Soloman Lew planning?

This is where the formidable Solomon Lew, chairman of Premier Investments, comes into the picture.

I reckon Lew is slowly attacking the board to win over shareholders.

In March last year, Lew swept in and bought up 10.8% of Myer’s shares, spending $101 million in the process.

Lew bought this stake in Myer from Perpetual Investments, which was the largest shareholder at the time. Rumour has it that Lew promised he wouldn’t make a takeover bid in the short term.

The share price at the time was around $1.13. Since then, Myer shares have fallen 51%. Meaning Lew’s Myer holding may be worth half of what it was a year ago. Knowing he is now at least $40 million in the hole gives him some serious clout with other investors.

But here’s where it gets odd.

Lew has been a vocal critic of Myer and its board. He has constantly heckled the board and criticised any decision they’ve made publicly.

Lew’s pushed for some of his Premier Investments team to come on board with Myer. He regularly complains that Myer has lost the majority of its top staff — those that understand the retail market.

When Garry Hounsell was confirmed as the emergency chief executive of Myer, Lew said: ‘Mr Hounsell lacks the retail industry experience to be the chairman of Myer let alone be its CEO.’ You can bet that Lew’s public attacks on Hounsell will increase in the coming months.

Lew is a notoriously private person. He has one publicly-listed company — Premier Investments. Everything else Lew owns is through complicated trust set-ups.

It’s rumoured that Myer sales bring in about $200 million each year for Lew’s businesses. But that can’t be confirmed one way or the other. Moreover, Lew’s kin control various big-name franchises in Australia as well.

The impact of Lew’s retail investments isn’t known because he is extremely secretive with where his business interests lie. So it’s hard to know what Lew is up to.

But, given his persistence in bringing down the Myer board, he has plans. I’m curious to find out just how much further the Myer share price will fall before Lew unveils them.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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