There’s a spring in the step of Myer buyers

Illustration: Kerrie Leishman.Myer boss Bernie Brookes has posted his first quarterly sales increase in almost three years. But, as the old saying goes, one swallow does not a summer make.

Investors interpreted the news that the department store chain had lifted sales 1 per cent in the first quarter of 2013 as a sign that sentiment might be improving. It even prompted Goldman Sach’s Richard Coppelson to write in his afternoon report: ”Maybe after two years of poor performance in a dire retail environment things look like they might finally be showing signs of stability and a turnaround. So, for the first time ever I’m now getting behind Myer and think that we’ve seen the worst of this stock.”

Whether it is wishful thinking or the beginning of a meaningful trend will largely depend on the all-important Christmas and New Year sales period and how it translates into profits and profit margins. If competitors start discounting it will hurt margins.

What is significant about the latest quarterly sales figures is that while it is the first time in almost three years that top-line sales have increased it is the second quarter in a row that the company has lifted its like-for-like store sales. Next quarter will be the test.

The better-than-expected sales figures put a rocket under the group’s share price, lifting it 6.5 per cent higher to a six-month high of $2.13 as investors digested news that the department store chain might finally be reducing its reliance on markdowns and improving customer service. But it is still a far cry from its issue price of $4.10 a share in November 2009.

The key now is how Myer deals with the many structural changes facing the Australian retail sector in terms of high labour costs, high rental costs, a strong dollar, more product choice and competitive prices on offer from overseas online sites, increased broadband penetration, and continuing comfort in relation to online payments.

Traditional retail in Australia is not set up for online because the cost structure has been set up for customers to come into the stores. It explains why online sales represent less than 1 per cent of Myer’s total turnover, which is peanuts.

Myer boss Bernie Brookes and his equal at David Jones are both committed to improving their online offerings in terms of more products, faster delivery and more price harmonisation between themselves and their international counterparts, but they are still years behind the US and Britain.

This was supported by a survey conducted by Credit Suisse of a panel 20 of upper-income shoppers who were asked to allocate $500 to $1000 among David Jones, Myer, Nordstrom and Net-a-Porter. Not surprisingly, US department store Nordstrom was the standout.

To make it fair, the survey set up a closed sample of products to restrict respondents to shop from a comparable set of products. It found that 73 per cent of expenditure was allocated to Nordstrom, 16 per cent to David Jones, which relaunched its website earlier this month, 7 per cent to Myer and 4 per cent to online designer site Net-a-Porter, more due to the cost of its designer products than the quality of its website.

Nordstrom’s site scored highly on functionality, ease of use, product range and price. The David Jones website was viewed more favourably than Myer’s site on functionality, ease of use and product range. For Myer, the comments were: ”Myer – poor website, inadequate range, inadequate delivery and returns.” The comments relating to David Jones were ”better than previous and better than Myer, insufficient range, inadequate delivery and returns.”

The Credit Suisse report also found that department store leaders tended to generate 15 per cent of their sales revenue from online. Brookes reconfirmed yesterday that the goal for Myer was to have 10 per cent of its sales generated online within five years.

Despite a reluctance to go blazing ahead online, Brookes has started playing hardball with suppliers to try to close the gap between the price consumers can source products overseas and the price charged in his local stores.

Cosmetics are one of the most important product segments sold in department stores. According to some experts, they generate more than 15 per cent of the country’s department store sales and more than 20 per cent of gross profit. They also add value to department stores through the customers they draw, hence their location at the ground-floor entrance.

In some cases the price difference between a lipstick bought in a department store and one bought on a specialised US website was 30 per cent or 40 per cent. When the strong dollar is added into the mix, free shipping, gifts and samples and no GST payable on products worth less than $1000, the overseas offer becomes a no-brainer.

Myer’s latest figures coupled with the latest in-depth figures from NAB’s Online Retail Sales Index show that some of the price harmonisation is starting to pay off. Domestic online sales growth increased by 23 per cent in the year to July, while international online sales were up 29 per cent.

But let’s not get carried away yet. Myer and David Jones still have a long way to go to improve customer service and lift their online game.

The original release of this article first appeared on the website of Hangzhou Night Net.

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