tag:theconversation.com,2011:/fr/topics/myer-3889/articlesMyer – The Conversation2019-11-12T19:00:22Ztag:theconversation.com,2011:article/1259252019-11-12T19:00:22Z2019-11-12T19:00:22ZWhy Australia’s first securities class action judgment (sort of) cleared Myer<p>Myer is in the clear, sort of, after Australia’s first judicial ruling on a securities class action. </p>
<p>It centred around allegations that Myer misled the market about its projected earnings. </p>
<p>The court found Myer had been misleading, but that because shareholders didn’t believe it, it didn’t harm them.</p>
<p>The ruling established <a href="https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2019/2019fca1747">important principles</a> that will guide future judgments. </p>
<p>It isn’t enough for shareholders to show that there was a relevantly false or misleading statement or omission. </p>
<p>They need to also show it hurt them. </p>
<h2>What Myer did</h2>
<p>On September 11 2014, Myer’s chief executive Bernie Brookes indicated that he believed the net profit after tax for the 2015 financial year was likely to beat the previous year’s profit of A$98.5 million.</p>
<p>Five months later Brookes resigned, and on March 19 Myer cut the forecast to between $75 million and $80 million.</p>
<p>The class action alleged that Myer engaged in misleading conduct either because the initial September 11 2014 guidance was misleading or because - even if it was not misleading at the time - Myer allowed it to stand without correcting it.</p>
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<p>It argued the statement inflated the share price, causing buyers to pay too much for the shares and to lose money when the true state of affairs became known. </p>
<p>Myer argued it had no obligation to update the market after Brooke’s statement. </p>
<p>It said the market had already realised the profit would be lower than what he said. And, in any event, what he said was not misleading. </p>
<h2>What Myer was obliged to do</h2>
<p>The <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041e.html">Corporations Act Section 1041E</a> states that people must not make a false or misleading statement that is likely to (among other things) influence trading activity or market prices when that person knows, or ought to know, that the statement is not correct, or does not care whether the statement is correct. </p>
<p>Similarly, <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041h.html">Section 1041H</a> asserts that a person must not engage in misleading or deceptive conduct, which could include failing to correct erroneous statements. </p>
<p>Indeed, <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s769c.html">Section 769C</a> says if a statement is made without reasonable grounds, it is deemed to be misleading.</p>
<p><a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s1041i.html">Corporations Act Section 1041I</a> says anyone who has suffered loss or damage by a contravention of the aforementioned rules can recover the amount of that loss or damage. </p>
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<p>Also, <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s674.html">Corporations Act Section 674</a> says firms must comply with continuous disclosure requirements, which include disclosing material price-sensitive information. The provision gives legislative force to the Securities Exchange continuous disclosure guidelines. </p>
<p>There are two overarching elements involved in securities litigation, both of which were issues in the Myer case:</p>
<ul>
<li><p>the defendant makes a false or misleading statement</p></li>
<li><p>that false statement causes the plaintiff to suffer loss or damage. </p></li>
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<p>Each needs exploring. </p>
<h2>False or misleading?</h2>
<p>At first glance, a statement is false or misleading merely if it is incorrect, especially so if it is about something currently known. But things are less clear when the statement is about the future or a forecast. </p>
<p>Under <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s769c.html">Section 769C</a>, forecasts are held to be misleading if they are not based on reasonable grounds. Omitting information, or failing to correct information, can also be misleading if it creates or maintains a false impression. </p>
<h2>Loss or damage?</h2>
<p>Historically, in fraud type cases, the plaintiffs need to show that they “relied” on the false statement in making a decision. That is, they need to show they were directly misled.</p>
<p>Myer argued that the shareholders needed to show they actively “relied” on its statements when deciding to purchase shares. </p>
<p>The shareholders argued that the legislation does not require active reliance. They argued that it was enough to show that the false statement inflated the share price and that they bought at a price that was too high.</p>
<h2>It was a win and a loss…</h2>
<p>The court sided with the plaintiffs, finding that it was enough for them to show that the false statement (or misleading omission) inflated the share price, that they bought at a price that was too high, and they suffered a loss when the truth was revealed.</p>
<p>And it found Myer had been misleading by failing to correct a forecast it knew was erroneous. It had also violated the Exchange’s continuous disclosure standards. </p>
<p>But it found that Myer’s September 11 2014 forecast was not misleading at the time. It was in line with analysts’ forecasts, and in September 2014 Myer had reasonable grounds to make it. </p>
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<p>Damages would normally reflect the difference between what the shareholders paid and what they would have paid if the true state of affairs had been known.</p>
<p>But given the market, notwithstanding the statement form the Myer chief executive, knew about Myer’s declining profitability and given that that information was reflected in the price, shareholders weren’t damaged.</p>
<h2>…with implications for the future</h2>
<p>The judgment will make future shareholder class actions easier. They will know what they have to prove.</p>
<p>An unanswered question is whether Myer will simply get away with having misled the market, given that it prevailed in the case. </p>
<p>It may not. Regulators - such as the Australian Securities and Investments Commission - still have penalty mechanisms they can use to punish officers and directors for misleading conduct, even if shareholders don’t prevail in court.</p><img src="https://counter.theconversation.com/content/125925/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner receives funding from the Australian Research Council. </span></em></p>Myer misled the market, but the market didn’t believe it. The judgment provides a road map for future class actions.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/918322018-02-15T04:19:35Z2018-02-15T04:19:35ZMyer once stood for the aspirational middle class but now it’s lost sight of who its customers are<p>A big part of retail group Myer’s problem is that it has tried to be all things, to all customers. Myer has tried to hang on to its high-end customers of old, while trying appeal to value-conscious, bargain oriented customers who only shop on sale. </p>
<p>Its place in the marketplace, and in the mind of the consumer, remains unclear. This week, after consecutive write-downs, the share price continues <a href="https://www.asx.com.au/asx/share-price-research/company/MYR">its downward plummet</a> and sits around 54 cents (not far off a tenth of its original share float value of $4.10). The Myer board then dumped its chief executive this week, <a href="http://www.afr.com/business/retail/myer-in-turmoil-after-ceo-richard-umbers-forced-out-20180214-h0w3f4">citing the need</a> for urgent action to stop a fall in sales and earnings.</p>
<p>For centuries, department stores have ruled retail, and in Australia retail was ruled by Myer and David Jones. From the 1800s these stores <a href="https://www.myer.com.au/c/about-myer/the-company/about-us/content-1878-1899.html">linked Australians to the world</a>, giving Australians a taste of high fashion and exposing shoppers to luxury brands not present on Australian shores.</p>
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<p>At their height, department stores focused on the needs and desires of fashionable women. These stores offered female shoppers the freedom to browse and shop, safely and decorously, away from home <a href="http://www.bbc.com/culture/bespoke/story/20150326-a-history-of-the-department-store/index.html">and from the company of men</a>. Department stores had a niche, a clear value proposition, and clearly knew who their customers were. </p>
<p>Fast forward to 2018, and department stores like Myer no longer reign supreme. </p>
<p>No doubt, the past few decades have been turbulent for the retail industry, with the growth of online retailing, the ability for consumers to comparison <a href="https://theconversation.com/more-businesses-are-trying-mobile-apps-to-lure-and-keep-consumers-88684">shop on their mobile</a> while in-store, weak <a href="https://theconversation.com/face-value-business-leaders-are-betting-we-will-spend-more-83211">consumer sentiment</a>, and the influx of <a href="https://theconversation.com/amazon-poses-a-double-threat-to-australian-retailers-78534">international retailers</a>. However, the same market conditions have been present for all retailers. </p>
<h2>Myer’s brand identity has been slowly chipped away</h2>
<p>For any brand, the unique place the brand occupies in the mind of the target consumer is its essential value. It reflects a unique selling proposition and defines exactly how the brand will compete in the marketplace (including all of its subsequent activities such as product range, pricing, marketing communications, desired experience and so on). </p>
<p>Historically, Myer (like many department stores in the western world, including Macy’s in the US, Marks and Spencer in the UK, and many others), was a middle class brand, located at a desirable address, and stood for the <a href="https://www.marketingweek.com/2017/07/12/mark-ritson-ms-decline/">pinnacle of accessible quality on the high street</a>. </p>
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<img alt="" src="https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=456&fit=crop&dpr=1 600w, https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=456&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=456&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=573&fit=crop&dpr=1 754w, https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=573&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/206507/original/file-20180215-124893-149sjcm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=573&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Historically Myer succeeded by occupying a unique position in the marketplace supplying high street fashion and luxury brands to the middle class.</span>
<span class="attribution"><span class="source">State Library of South Australia/flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<p>With few competitors, in the past department stores competed on quality service, a broad range of well-regarded brands that appealed to the emerging middle class, standing for quality and a degree of fashion forwardness (without being so edgy as to turn off the mainstream). As such, the stores also represented a source of aspiration for working-class consumers, something to treat oneself to, to shop for special occasions, and to peruse when you wanted to signal a sense of achievement. </p>
<p>However, with <a href="https://www2.deloitte.com/content/dam/Deloitte/global/Documents/consumer-industrial-products/gx-cip-2017-global-powers-of-retailing.pdf">greater market fragmentation</a>, a wider range of needs to appeal to, and the emergence of large numbers of well positioned local (and global) brands, Myer has struggled for identity and business.</p>
<p>Myer’s lack of clarity in the brand’s unique selling point means it’s being attacked at the top and bottom end of the market. At the top end of the market, the expansion of entry levels products, such as perfumes and accessories, and extensions of French, Italian, UK, Japanese and American luxury brands means consumers wanting to signal their status have a lot of choice. </p>
<p>At the bottom end of the market, fast fashion brands such as H&M, Primark and Zara have strong identities, recognisable brand names and a clear sense of who they are selling to (younger consumers who wish to blend in by standing out). These brands do not appeal to everyone, and are even loathed by some, but therein lies their strength. In appealing to a narrowly defined set of needs and executing that position in everything they do, <a href="https://www.jstor.org/stable/1252054?seq=1#page_scan_tab_contents">they build loyalty</a>, resulting in ongoing sales.</p>
<h2>Trying (and failing) to reach a target market</h2>
<p>Myer’s lack of brand clarity is also reflected in its practice of relying on other brands to give it a sense of cool or iconicity. In 2015, <a href="http://www.annualreports.com/HostedData/AnnualReportArchive/M/ASX_MYR_2015.pdf">Myer went through a transition</a>, shedding several long standing management team members who had transformed, and floated, the iconic retailer. Myer stalwarts, including CEO Bernie Brookes and CFO Mark Ashby, passed the helm to a new generation of management, including Richard Umbers as CEO and Daniel Bracken as Deputy CEO. Hopes were high for the “New Myer” strategy. </p>
<p>The <a href="http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/MYR-New-Strategy-media-release-010915.pdf">New Myer strategy</a> focused on female shoppers, high-profile brands, improved service and in-store experiences, complemented by a strong online shopping platform. Investors were asked to place their faith in a A$600 million plan to save the retailer, including a deal with Topshop.</p>
<p>In August 2015, when the strategy was announced, Myer’s share price <a href="http://investor.myer.com.au/Share-Price-Tools/?page=Historical-Share-Price">hovered around A$1.26</a>. After taking a 20% stake in the Australian Topshop franchise in 2015, Myer’s aspirations for Topshop <a href="http://www.afr.com/business/retail/myer-profit-plunges-80pc-to-119-million-after-writedowns-restructuring-costs-20170913-gygell">shattered in 2017</a>. It closed 17 Topshop stores, writing off A$45 million. Myer shares subsequently closed at an all-time low of 82 cents. </p>
<p>This approach of using each season or new release to provide a positive spillover for the main brand is old-fashioned. It relegates the brand to lower status than the means of reinforcing its image. By comparison strong brands use their identity to drive every aspect of their business.</p>
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<p>Myer’s branding challenge is also its reactive stance. Its <a href="http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/file/MYR-New-Strategy-media-release-010915.pdf">focus as part of its New Myer strategy</a> has been on “an intuitive omnichannel Myer, easy to choose, and easy to use, delivered in-store and online”. </p>
<p>But this “seamless integration” between digital and in-store is an example of trying to fend off the threat of online retail, rather than being on the front foot. While there is nothing wrong per se with trying to integrate channels, placing this aim at the heart of one’s strategy leaves us questioning: where is Myer’s brand? </p>
<p>Ironically, much of the problem stems from looking outward too much - looking for something to entice consumers, speak to the latest trends, adopt the latest technology, or respond to the latest competitive threat. While there is nothing wrong with any of these strategies, they must be framed through the lens of the brand.</p>
<p>What is lacking is Myer’s heritage, and the need for this to be carefully reframed and updated for the present day. If the brand once stood for middle class aspiration, Myer needs to now consider how the middle class has changed, and identify where there is a a role for an iconic Australian brand to service a new set of needs, for a new generation of consumers. </p>
<p>Consumers have changed, and so too has aspiration. The question leaders of a department store like Myer need to ask themselves is how can a retail brand like Myer be as desirable today, as it was in the past?</p><img src="https://counter.theconversation.com/content/91832/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What is lacking is Myer’s heritage, and the need for this to be carefully reframed and updated for the present day.Sean Sands, Associate Professor of Marketing, Swinburne University of TechnologyMichael Beverland, Professor of Fashion Enterprise, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/608512016-06-20T20:14:41Z2016-06-20T20:14:41ZSeven ways to tell whether a private equity-backed IPO should be avoided<figure><img src="https://images.theconversation.com/files/127240/original/image-20160620-9559-15bbqnn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Private equity IPOs can over-perform for investors.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>Private equity-backed IPOs (Initial Public Offerings) have come under significant scrutiny following several high-profile failures: but are these representative or merely anomalous blights on an otherwise well-performing sector? </p>
<p>Last week, the proposed private-equity backed listing of <a href="http://www.afr.com/brand/chanticleer/asx-blocks-guvera-initial-public-offering-20160617-gpls0i">Guvera music was blocked</a> by the ASX following concerns raised by the Australian Shareholders Association over its business model and valuation based on earnings.</p>
<p>Guvera were looking to raise $100 million in an IPO that valued the business at more than $1.3 billion, despite the fact that it lost $81 million last financial year on revenue of just $1.2 million. The move by the ASX follows Guvera re-issuing its prospectus after scrutiny from the Australian Securities and Investment Commission (ASIC).</p>
<p>Another notorious PE-backed IPO was the 2012 float of Dick Smith, backed by Anchorage Capital. It ended in significant losses for initial investors and was dubbed by Forager Funds Management analyst Matt Ryan as <a href="https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/">“one of the great heists of all time”</a>. </p>
<p>The high-profile the IPO of Myer, backed by TPG Capital, also performed poorly: Myer listed at <a href="http://www.theaustralian.com.au/archive/news/myer-initial-public-offering-prices-at-410-a-share/story-e6frg90f-1225792461360">$4.10 per share</a>, fell to <a href="http://www.smh.com.au/business/myer-shares-slump-on-debut-20091102-hset.html">$3.75 per share</a> on the first day of trade, and fell to $1.20 per share by the end of 2015. </p>
<p>However, several other PE-backed IPOs have performed strongly between 2013 and 2015, including <a href="http://www.avcal.com.au/documents/item/1177">Aconex, Ooh! Media and Mantra group</a>. This raises the question of whether the average PE-backed IPO underperformance and what factors might investors look out for. </p>
<h2>Do PE-backed IPOs necessarily underperform?</h2>
<p>So should investors make a rule to avoid PE-backed IPOs in general? In fact, there is little evidence that PE-backed or VC-backed IPOs underperform for investors. In Australia, from 1994 to 2005, the difference between VC/PE backed IPOs and other IPOs is <a href="http://dx.doi.org/10.4337/9781781955376.00030">not statistically significant</a>. </p>
<p>The Australian Venture Capital Association Limited (AVCAL) in conjunction with Rothschild reports that while non-PE backed IPOs did perform better in 2015 than did PE backed ones, PE-backed IPOs <a href="http://www.avcal.com.au/documents/item/1177">outperformed from 2013-2015</a>. AVCAL argues that “PE-backed IPOs strongly outperform non-PE backed IPOs after the first year of listing”, with PE-backed IPOs outperforming non-PE backed IPOs by 23% during that one year after listing. </p>
<p>Similarly, <a href="http://www2.deloitte.com/au/en/pages/finance/articles/deloitte-2016-ipo-report.html">Deloitte</a> argues that “the performance of private equity backed listings suggests results are far more positive than market sentiment reflects” and that $1 invested in each PE-backed IPO since the beginning of 2013 would yield an average return of 48% by the end of 2015.</p>
<p>Using the set of ASX listings for at least A$100 million reported by AVCAL (and their classification of whether a firm is PE-backed), we can look at the average value of $1 invested in each of the PE-backed IPOs versus $1 invested in each of the non-PE backed IPOs. </p>
<p>When doing so, to avoid the possibility of outlying PE-backed firms experiencing super-positive returns and this biasing the results, the daily return is winsorized (limiting of extreme values) and any return over 100% is excluded (this adjustment actually biases in favor of the non-PE backed IPOs). </p>
<p>The below graph, which is consistent with that produced in the AVCAL report, demonstrates that PE-backed IPOs outperform their non-PE backed counterparts. A similar trend appears over longer two-year and three-year time horizons (though, more recent IPOs will not yet have had the opportunity to accrue such a lengthy return history). </p>
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<img alt="" src="https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=437&fit=crop&dpr=1 600w, https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=437&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=437&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=549&fit=crop&dpr=1 754w, https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=549&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/126882/original/image-20160616-19909-xqz0br.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=549&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Average value of $1 invested after an IPO in PE-backed and non-PE backed companies in the sample.</span>
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<p>The findings its wrong to suggest PE-backed IPOs do not underperform on average - while there are some instances of underperformance, the average PE-backed IPO actually performs strongly.</p>
<h2>Seven factors investors should consider</h2>
<p>This suggests that PE-backed IPOs do not necessarily underperform. But clearly, not all PE-backed IPOs will outperform either. So here are seven factors associated with post-IPO performance investors should look for: </p>
<ol>
<li><p><strong>Length of investment.</strong> The length of the PE-fund’s involvement with the company will help to indicate if the PE fund actually contributed to the company. In several poorly performing PE-backed IPOs (such as Myer and Dick Smith) the PE fund had invested for only one to two years. When at least part of that time is also spent preparing the company for listing, this would likely be insufficient time to fully transform the company. Clearly, the time required to improve the company will depend on its complexity, but a typical situation would often call for several years of PE-investment prior to IPO. </p></li>
<li><p><strong>Prior litigations.</strong> Companies backed by VC and PE funds that have been sued recently (or for whom their portfolio companies have been sued) warrant further scrutiny. Funds that have been sued have <a href="http://dx.doi.org/10.1111/j.1540-6261.2012.01785.x">difficulty attracting future funding</a> and if investors are reticent to invest in the fund itself, it could imply beliefs about how the fund might manage companies it lists on the market. </p></li>
<li><p><strong>The backer’s portfolio size.</strong> VC and PE funds that are <a href="http://dx.doi.org/10.1093/rof/rfr011">larger</a> and invest in <a href="http://dx.doi.org/10.1017/S0022109015000113">more portfolio companies</a> tend to perform worse because they spread themselves too thinly across portfolio companies, suggesting that their portfolio companies my perform worse. </p></li>
<li><p><strong>Distance between the company and its backers.</strong> The <a href="http://dx.doi.org/10.1016/j.jbusres.2012.04.016">geographic distance</a> between the PE (or VC) fund and the portfolio company could be a concern. For example, an overseas based fund might face <a href="http://dx.doi.org/10.1016/j.jcorpfin.2013.01.003">greater barriers to a successful outcome</a>. </p></li>
<li><p><strong>Number of backers.</strong> A company with more interested pre-IPO investors is likely to have greater growth prospects and has more scope for the disparate investors to pool their expertise to aid the company. However, there are diminishing returns to having more backers, with each additional supporter likely to have less scope to incrementally benefit the company. </p></li>
<li><p><strong>Geographic diversification of the backers.</strong> To an extent, a backer who has supported more companies in <a href="http://dx.doi.org/10.1017/S0022109013000501">multiple industries and multiple regions</a> can have gained a breadth of experience and connections with which to impart the portfolio company. There are limits, with excess diversification potentially causing the fund to spread its attention too widely. The fund’s record would help to indicate whether such diversification has benefited the fund’s investments previously. </p></li>
<li><p><strong>PE fund’s continued involvement in the company.</strong> It is generally a positive signal if the PE fund that continues involvement in the form of board positions or ownership stakes (exceeding the minimum time, or amount, legally required). </p></li>
</ol>
<p>Essentially, while investors should always examine each IPO on its merits, there is no reason to avoid PE-backed IPOs per se.</p><img src="https://counter.theconversation.com/content/60851/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner receives funding from the Australian Research Council Grant DP140103039</span></em></p>Private equity-backed floats may not deserve the bad reputation they have.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/598072016-05-23T02:47:34Z2016-05-23T02:47:34ZMyer and eBay’s virtual reality shopping turns looking into seeing<figure><img src="https://images.theconversation.com/files/123478/original/image-20160523-9551-n7nvuv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The virtual reality service incorporates both vision and touch.</span> <span class="attribution"><span class="source">eBay</span></span></figcaption></figure><p>Department store Myer and online shopping giant eBay have teamed up to offer something different to consumers in a bold bid to change the way we shop, interact with, research and purchase products. </p>
<p>Their creation of a <a href="http://media.ebay.com.au/world%E2%80%99s-first-virtual-reality-department-store">virtual reality (VR) department store</a> – a place where consumers can shop if they are unable to visit Myer’s bricks and mortar stores - enables them to challenge the retail status quo.</p>
<p>Whether it came about by chance, intuition or meticulous research, the new offering is an experiment in sensory marketing. This is an area of marketing that combines perception, sensation and cognition.</p>
<h2>How we use our senses to shop</h2>
<p>There’s been a recent <a href="https://hbr.org/2015/03/the-science-of-sensory-marketing">rush towards the field of sensory marketing</a>, which was first pioneered by Professor <a href="http://www.aradhnakrishna.com/">Aradhna Krishna</a>. </p>
<p>Krishna <a href="http://www.sciencedirect.com/science/article/pii/S1057740811000830">defines sensory marketing</a> as “marketing that engages the consumers’ senses and affects their perception, judgment and behaviour”. Essentially, sensory marketing considers how a consumer sees, tastes, touches, smells and even hears the product and/or service experience. Sounds like common sense, but the uptake by retailers and managers to incorporate sensory elements into their products, stores and exchange designs has been slow. This is intriguing considering the plethora of emerging evidence on the power sensory modalities have on our decision making.</p>
<p>We use our senses to navigate our world and shape our decisions. Incorporating sensory elements into physical settings may be relatively easy, but an online environment presents a much harder, yet equally as important challenge. The Myer/eBay initiative is definitely a step in the right direction. </p>
<p>The service incorporates both vision and touch. It facilitates a means for consumers to connect with their brands in a new and novel way. I can hear you saying, “Don’t we look at products all the time normally?” “How are you touching the products?” There are two answers. First, customers have to hold the VR system in their hands and against their face. By doing this they are physically connecting their skin receptors to the VR department store. This could facilitate what is known as an <a href="https://www.princeton.edu/%7Ekahneman/docs/Publications/Anomalies_DK_JLK_RHT_1991.pdf">endowment effect</a>. </p>
<p>Secondly in terms of vision, customers are looking at products in a very different way. They have a deep and sustained focus, something they have unlikely embraced before. <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3956003/">Research suggests</a> that a deeper and longer visual fixation on products and brands during visual search may create positive connections in consumers’ minds. What this means for purchase behaviour in the VR store only time can tell.</p>
<h2>Where to next?</h2>
<p>With the deep focus required to operate the VR department store, opportunities are available to expose consumers to subliminal imagery which could be used to <a href="https://faculty.fuqua.duke.edu/%7Egavan/bio/GJF_articles/apple_ibm_jcr_08.pdf">trigger a favourable response</a>. Further sensory opportunities exist by providing congruence of sight, sound and touch during the shopping experience. It’s likely smartphone manufacturers will soon start building eye tracking technology into their devices so this type of shopping becomes commonplace. </p>
<p>Initially at least, the VR department store may see a reciprocity effect – where consumers who have received the free eBay VR device return in kind by spending hours in the virtual store and shopping above and beyond their discretionary budgets. The fear of course is the novelty will wear off quickly.</p>
<p>The challenge for the Myer/eBay alliance is to maintain any interest they attract and convert this interest into a real return on investment. In terms of online stores, maybe we have always been looking, now for the first time we may be seeing.</p><img src="https://counter.theconversation.com/content/59807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David P. Harris does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new shopping experience from two retailing giants shows companies are embracing sensory marketing.David P. Harris, PhD Student - Sensory Marketing and Consumer Psychology / Sessional Lecturer in Marketing, CQUniversity AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/593822016-05-17T19:34:32Z2016-05-17T19:34:32ZKeep calm and keep shopping – how elections impact retail sales<p>It is well known that retail sales have regular cycles that can be disrupted by external events, such as federal elections. While anecdotally <a href="http://www.foxbusiness.com/features/2012/10/19/why-retailers-cant-wait-until-election-day.html">it has been suggested</a> that uncertainty around elections causes shoppers to close their wallets and purses, there appears very little evidence either <a href="http://www.ampcapital.com.au/article-detail?alias=/olivers-insights/may-2016/the-2016-australian-federal-election-and-investors">domestically</a> or <a href="http://chicagobooth.edu/capideas/blog/2015/september/relax-us-elections-dont-drive-consumer-spending">globally</a> to support the claim that an election campaign will <a href="http://spanishnewstoday.com/spanish-shoppers-shrug-off-election-uncertainty-and-keep-spending_69188-a.html?Banner=56">negatively impact consumer spending</a>. </p>
<h2>The Blame Game</h2>
<p>Retailers are notorious at playing the “blame game” when it comes to their sales and profit reporting. They too quickly point the finger at Mother Nature, for being too hot or too rainy, the releasing of blockbusters that distract shoppers, and even customers themselves for being too price conscious, chasing discounts that erode their margins. </p>
<p>This month, Myer CEO Richard Umbers warned that the election campaign is expected to <a href="http://www.abc.net.au/worldtoday/content/2016/s4460824.htm">hit consumer sentiment</a> and negatively affect Myer’s outlook. </p>
<p>Surprisingly, Australia’s other large department store, David Jones, remained silent. It appears David Jones is just getting on with business and <a href="http://www.theaustralian.com.au/business/companies/myer-third-quarter-sales-surge/news-story/dcd13743e54ddbb9cbbe29fbd5bce449">delivering store sales growth</a> twice the rate of the Australian department store sector. Seemingly, there are other factors affecting retail stores sales, other than an impending federal election. </p>
<h2>Is there evidence?</h2>
<p>Researchers from Princeton University and the University of Chicago found elections had <a href="http://www.businessinsider.com.au/politics-is-meaningless-to-us-consumers-2015-8">little impact on how consumers actually spend</a>. In their study, spanning four presidential elections, their initial findings identified a correlation between a voters’ “ideological opposition towards a winning candidate” (measured by a voter-ideology score) and a lower score on the Michigan Consumer Sentiment Survey. </p>
<p>However, the correlation did not prove causality. For example, when President George W. Bush was elected in 2000, negative sentiment had no effect on consumers’ self-reported spending plans or on their subsequent automobile purchases and credit-card use. Consumers ideologically opposed to President Bush were not happy about the election outcome, but this slump in sentiment had no effect on what they planned to spend, or actually spent. </p>
<p>It is a similar picture here in Australia, where commentators are looking a little more closely at <a href="https://ausopinion.com/2013/02/18/retail-suffers-in-election-years/">claims elections stifle retail spending</a>. A review of the <a href="http://www.roymorgan.com/morganpoll/consumer-confidence/consumer-monthly-results">ANZ – Roy Morgan Consumer Confidence Index</a> demonstrates a similar phenomenon to that in the US. With the exception of September to October lead into the November 2001 election, marred by the 9/11 attacks in New York and the collapse of Ansett, in most cases, confidence remained positive. </p>
<p>Prior to the October 9 2004 election, the September consumer confidence grew by over 6% on August. Similarly, October 2007 was up nearly 6.5% on September in the lead up to the November 24 election. </p>
<h2>Confident but deferred</h2>
<p>The operative word used among consumers during times of uncertainty is “deferred”. IBISWorld chairman Phil Ruthven finds that shoppers tend to take a “wait-and-see approach” during election campaigns, which sees spending curtailed on big ticket items like cars, consumer electronics and high-end fashion, but household basics such as food and basics <a href="http://www.smartcompany.com.au/people-human-resources/leadership/3511-election-means-lean-times-for-retailers/">generally remain insulated</a>. In most cases, consumer confidence tends to bounce directly after elections. </p>
<p>There are far too many variables in play to suggest that an extended federal election alone will derail consumer confidence and stifle retail spending. In fact, some consumers who expect to be the recipients of election sweeteners such as tax cuts, infrastructure projects and or job opportunities, may actually increase spending. The <a href="http://www.psychologicalscience.org/index.php/news/releases/the-power-of-suggestion-what-we-expect-influences-our-behavior-for-better-or-worse.html">power of suggestion is strong with such consumers</a>. Once consumers anticipate a specific positive outcome will occur, they believe their subsequent thoughts and behaviours will actually help to bring about that outcome. </p>
<h2>What retail categories are most affected?</h2>
<p>Food, groceries, fuel and basic clothing generally remain well protected during uncertain times. Despite increasing price competition between the players, the food and grocery division <a href="http://clients1.ibisworld.com.au/reports/au/industry/industryoutlook.aspx?entid=1834">remain moderately strong</a>. </p>
<p>Ultimately, shoppers still need to put fuel in their cars and food on the table. However, most exposed are “big ticket” retailers selling furniture, consumer electronics and automobiles. <a href="http://clients1.ibisworld.com.au/reports/au/industry/industryoutlook.aspx?entid=407">Fashion clothing and accessories</a> are expected to struggle as such purchases are tied to discretionary spending. </p>
<h2>Other factors?</h2>
<p>Granted, the <a href="http://www.smh.com.au/business/property/shopping-centres-wary-of-unseasonably-warm-winter-weather-20160505-gondyo.html">combination of unseasonable warmer weather</a> across Australia and the growth of global fashion retailers like H&M, Uniqlo, Zara, Forever 21 and Top Shop in the domestic market, will definitely pose a challenge for retailers. </p>
<p>This year incumbent players like Myer, David Jones, Premier Investment and Specialty Retail Group are not just competing with one another, but also <a href="http://media.ibisworld.com.au/2014/05/30/tight-squeeze-global-fast-fashion-giants-put-local-retailers-pressure/">these new entrants</a>. This year, more than ever before, shoppers have more choice. </p>
<p>While most consumers remain confident, some retailers are certainly looking towards challenging times ahead. Granted, this is the first federal election held during winter in 20 years and timed “smack bang” in the middle of half yearly, stocktake sales. With an eight week election period well underway, shoppers will continue to buy the basics, but will defer upgrading big ticket items until an outcome is announced on July 3. </p>
<p>An unseasonably warm autumn and a glut of global fashion retailers in the market, will encourage incumbent retailers to cut prices little deeper this year. Great for shoppers, but tough on the books. It is looking to be a tough year ahead for retailers.</p><img src="https://counter.theconversation.com/content/59382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fears from retailers that shoppers will curtail purchases is generally unfounded - but not for a few categories.Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/496502015-10-28T00:47:53Z2015-10-28T00:47:53ZLaw allows Myer to outsource responsibility for labour hire workers<p>When cleaners for Myer last week <a href="http://www.abc.net.au/news/2015-10-22/myer-accused-of-underpaying-cleaners-through-sham-contracting/6876760">called the retail giant out</a> for underpaying them, it wasn’t the first time.</p>
<p>The cleaners were hired as independent contractors by Myer supplier Spotless, and subsequently assigned to work for Myer. The department store released a statement pointing this out and arguing it was Spotless that was their formal employer.</p>
<p>In Australia, as in many other countries, companies are legally entitled to use third parties to help supplement their workforce. They can, for example, outsource labour through trilateral working arrangements such as labour hire, where a supplier engages workers and supplies them to a host company, in exchange for a fee. </p>
<p>This is legitimate and legal, unless the labour hire business is found to act as a mere screen between the employees and the host company. In this case the host company is deemed to be the actual employer. </p>
<p>Provisions under Australia’s <a href="https://www.fairwork.gov.au/about-us/policies-and-guides/fact-sheets/minimum-workplace-entitlements/modern-awards">modern awards</a> apply to labour hire employees, but labour hire itself is largely ungoverned by specific legal provisions. This legislative loophole has seen a surge of unscrupulous practices aimed at shifting the real employer’s responsibilities onto third – sometimes less reliable – parties. </p>
<p>There is now a Victorian <a href="http://economicdevelopment.vic.gov.au/__data/assets/pdf_file/0015/1215411/9390-IRV-Inquiry-in-the-Labour-Hire-Industry-and-Insecure-Work-Brochure.pdf">inquiry</a> into labour hire and insecure work, with a submission deadline of November 27, 2015.</p>
<p>We have previously <a href="https://theconversation.com/australian-dream-a-nightmare-for-many-labour-hire-employees-37479">analysed the issues</a> of “dodgy” labour hire contractors operating in the horticulture sector and the exploitation of migrant workers on Australian farms.</p>
<p>Labour hire workers perform their activities under the instructions of and for an entity that is different from the one that hires them and pays their salary. This can jeopardise the protections associated with the standard bilateral employment relationship – such as unfair dismissal laws, occupational health and safety, collective rights and other working conditions like a minimum wage and paid leave entitlements. </p>
<p>Under the current law, it is sometimes difficult to identify the actual employer and, secondly, qualify the worker either as an employee or independent contractor.</p>
<p>The system of engaging labour hire workers as independent contractors - considered legitimate in the past - in light of some of the latest court decisions, has been mostly deemed sham contracting, unless skilled workers are involved.</p>
<p>Even when the employee status is not an issue, if the labour hire business, as in most cases, is deemed to be the employer, the unreliability of most fly-by-night operators makes it difficult to successfully enforce workers’ rights.</p>
<p>In many continental European countries that have ratified the relevant ILO Convention, instead, labour hire workers are identified by the law as employees of the supplier and can be hired either on a fixed term or on an open-ended basis. Moreover, unlike in Australia, the legislation provides a joint-liability regime between the labour hire business and the host company, as well as a strict control over the labour market intermediaries by means of a stringent licensing system. </p>
<p>Labour hire can play a positive role in the labour market, despite many Australian labour hire employees being vulnerable to unscrupulous practices aimed undercutting labour conditions. The presence of specialised intermediaries can improve the efficiency of the job matching process, and such arrangements also function as a springboard towards standard employment or at least provide the opportunity for such workers to remain employed. </p>
<p>But the issues of sham contracting and the association with <a href="https://theconversation.com/is-illegal-phoenix-activity-rife-among-construction-companies-43111">phoenixing activity</a> aimed to elude, among others, employment obligations, need to be tackled and addressed both at state and at federal level. The current Victorian inquiry could be the start of a new approach towards the regulation of labour hire in Australia.</p><img src="https://counter.theconversation.com/content/49650/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Maria Azzurra Tranfaglia does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s law could be tightened up to better define the responsibility for labour hire workers.Maria Azzurra Tranfaglia, PhD Candidate and Research Fellow, Centre for Employment and Labour Relations Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/453702015-07-31T05:44:59Z2015-07-31T05:44:59ZWelcome to blandsville? Myer and David Jones embrace grocery-style streamlining<p>Australian department store retailers David Jones and Myer have both recently moved to rationalise the number of clothing brands they offer in their stores. This strategy brings two common retail sayings to mind. First “to win in retail, you can’t be everything to everyone”, and second, “if you’re not growing, you’re going backwards”.</p>
<h2>In retail, you can’t be everything to everyone</h2>
<blockquote>
<p>“It is high time we retailers realised that we cannot be all things to all people. When we try to do that, we end up with no particular appeal for anybody.”</p>
<p>– Martineau, Pierre “The personality of the retail store” (1958). </p>
</blockquote>
<p>These sentiments have never been more pertinent than in today’s retail environment where competition is fierce to secure market share and squeeze what little growth is left out of mature fashion apparel markets.</p>
<p>Maturity is forcing retailers to take one of two routes to compete for share of customers’ wallets: competing on price, or competing on superior benefits that are highly attractive to specific customers. While price is still an important part of the retail mix for upmarket department stores such as DJs, for the most part these retailers have left this price war to the discount end of the market – Kmart and Big W. Taking the second route to compete – provision of unique benefit to customers – requires retailers to make choices after defining their target customer.</p>
<p>Taking a walk through either a DJs or Myer store just five years ago would have given one the sense that these were “upmarket” retailers with a premium image and expensive brands to boot. Defining exactly who they were targeting, however, would have proved more difficult. With store floors cluttered with an eclectic range of brands and own label clothing, it would seem that they were targeting anyone who could shop in their stores and were prepared to pay the prices. </p>
<p>The entrance of savvy global retailers into the Australian apparel market, such as H&M and Woolworths SA, combined with shifting expectations of customers has changed the clothing retailing game. Searching for growth in a crowded market is forcing retailers like DJs and Myer to carve up the market into different consumer segments, and target a few specific segments with their offers. As Daniel Bracken, Myer’s chief merchandising and marketing officer, <a href="http://m.theage.com.au/business/retail/myer-clears-out-private-labels-as-part-of-brand-cull-20150729-gimzin.html">says: </a></p>
<blockquote>
<p>“We have a very clear focus on who the most valuable customer is to our business and that’s what is driving us to put these new brands in our business.”.</p>
</blockquote>
<p>Identifying and targeting attractive customer segments in the market requires a deep understanding of who they are, where and why they shop; and strategic shifts in the retail offer.</p>
<p>The recent <a href="http://m.theage.com.au/business/comment-and-analysis/big-department-stores-forced-to-axe-the-runts-of-the-brand-litter-20150729-gin12i.html">reductions in the ranges</a> offered at Myer and DJs – around 100 and 180 brands from their respective brand portfolios, shows they are in the midst of significant transformation. This means shifting from a store for everyone (my store, Myer) to a focus on specific customer segments. Undoubtedly these retail transformations are focused on growth.</p>
<h2>In retail, if you’re not growing, you’re going backwards</h2>
<p>A key metric that clothing retailers live and die by is gross margin return on investment – GMROI. That is, how many gross margin dollars are earned on every dollar of inventory investment. </p>
<p>There are two ways to grow GMROI in retail: (1) increase sales to the customer; and (2) decrease internal/inventory costs. In reducing their ranges and moving to increase the floor space dedicated to targeted branded and own label ranges, retailers DJs and Myer are seeking to improve ROI from both directions. </p>
<p>If implemented well, these range reductions will also benefit shoppers. For instance, fewer brands on the shop floor reduces clutter and increases the visibility of the brands that are ranged, making it easier to shop. Fewer brands on the shop floor should also lead to reduced out-of-stocks – which is a top source of dissatisfaction for customers and a key reason to take their wallet to another retailer, permanently. </p>
<p>So what does this mean for small, local apparel brands? Undoubtedly the range rationalisations in DJs and Myer will impact wholesalers and small local labels that relied on these retailers stock and sell their offers. Increasingly, however, we are seeing branded manufacturers bypassing the big-box retailers and forging their own retail channels direct to their target customer through online stores, funky pop-ups and concept stores – such as the Bendigo-based family owned boutique furniture manufacturer Jimmy Possum. Unlike the grocery scenario in Australia, customers have power in this market and are prepared to shop in alternative channels for their clothing.</p>
<h2>The vanilla-fication of clothing retail?</h2>
<p>Is the brand rationalisation being played out on the store floors of Myer and DJs just the start of the “vanilla-fication” of clothing retail in the Australian market? Are we seeing a homogenisation and shift towards “blandsville” in the name of corporate profit growth and margin? Not likely.</p>
<p>What is more likely is that we are going to see smarter, tighter, and more targeted ranges of own label and supplier brands that reinforce the image of the retailer and resonate with their ideal customer. </p>
<p>Rather than banking the profit gains from these tighter ranges, expect to see DJs and Myer reinvesting these gains into tailoring the store environment to the target customer and delivering genuine, seamless <a href="http://www.igd.com/our-expertise/retail/innovation-digital/18003/omnichannel-retail--what-it-is-and-what-it-may-become/">omni-channel experiences</a> across all retail channels – online, mobile, in store – to build a competitive edge. </p>
<p>The range reductions on the shop floor in DJs and Myer may herald a shakeup in the local market to a more exciting and innovative space, with local brands moving out from the shadows of the big-box department stores and establishing their own innovative routes to the customer – such as digital and pop-up, using their size and agility to carve out their own space.</p><img src="https://counter.theconversation.com/content/45370/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michal Carrington does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The reduction of brands at major department stores could actually be a good thing for customers.Michal Carrington, Lecturer in Marketing, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/382212015-03-04T23:14:28Z2015-03-04T23:14:28ZLessons in management from Qantas and Myer<p>In this reporting season it would be hard to find two companies more different than well-known Australian airline Qantas and retailing giant Myer.</p>
<p>The half-yearly Qantas result exceeded the rosiest expectations of most analysts. Most notable has been the pace of the company’s turnaround as it was only a year ago that its management sought some form of <a href="http://www.afr.com/p/national/qantas_bailout_still_possible_nsVI6a3kl8kVlb6bbNGWzL">bailout</a> from the Commonwealth.</p>
<p>Qantas’ CEO, the taciturn Irishman <a href="http://www.qantas.com.au/travel/airlines/qantas-ceo/global/en">Alan Joyce</a>, attributes the sudden change of fortunes to his own <a href="http://www.qantasnewsroom.com.au/media-releases/qantas-half-year-2015-financial-results">strategy of cost reduction</a>. The reality is somewhat more complex. </p>
<p>While the airline was facing the proverbial “perfect storm” of competitive and cost pressures in 2013, 2014 has been <a href="http://www.theaustralian.com.au/business/aviation/mayday-call-just-a-memory-as-alan-joyce-pilots-qantas-to-brighter-future/story-e6frg95x-1227154437840">perfectly benign</a> – plummeting oil prices, a declining Australian dollar and a local competitor (Virgin Australia) becoming much less aggressive in local and international markets.
It seems that Virgin and Qantas have learnt the hard way that <a href="http://en.wikipedia.org/wiki/Cournot_competition">duopolists maximise profits by slugging customers – not one another</a>. But they have learnt.</p>
<p>The story at Myer, however, is pretty much all bad. The market capitalisation of the currently listed firm now sits below A$1 billion – around two thirds what the private equity firm Newbridge Capital paid for it in 2006. Its share price is barely 40% of the IPO price of A$4.10 paid by investors in late 2009. This week Myer chief Bernie Brookes joined the <a href="http://www.smh.com.au/business/comment-and-analysis/a-clean-sheet-at-myer-but-history-repeats-20150302-13sspf.html">long list of senior executives</a> to resign from the company since 2010.</p>
<p>The <a href="http://www.smh.com.au/business/comment-and-analysis/a-clean-sheet-at-myer-but-history-repeats-20150302-13sspf.html">pundits are predicting</a> that the half-year results, due on March 19, will be a shocker.</p>
<h2>Managing for growth</h2>
<p>Unlike Qantas, Myer has followed a growth strategy since 2006 – opening more than a dozen new stores – including some in unlikely places (for example, Maitland and Mackay). Myer’s management seemed intent on taking on the naysayers who said the large format department store was dead in the face of e-commerce. If Myer’s loss is half as bad as speculation suggests, it will be evidence that the naysayers had a point after all.</p>
<p>Leaving aside the peculiarities of these two stories, some bigger questions emerge. In the dynamic and uncertain economy of 2015 – should firms seek to improve performance through cost reduction or through growth? Like any good question that even slightly impinges in the economic domain, the answer is simple - it all depends.</p>
<p>The problem for Myer is that the wider environment (that encapsulates changes in technology and freer trade, as well as emerging consumer tastes) is fully against the Myer retail model. Myer’s customers are voting with their feet, and more pertinently their computer mice, <a href="http://business.nab.com.au/online-retail-sales-index-in-depth-report-january-2015-9980/">as e-commerce in Australia takes off</a>. </p>
<p>Had Myer followed a more cautious approach – would it be in the mess that it is today? The answer is probably, but most likely not as deeply. With the benefit of hindsight, the rush to grow new stores when the world was moving away from Myer’s business model was rash.</p>
<p>For Qantas, cutting costs has been part of the story of its improved fortunes, but the real improvements have had little to do with management decisions. Lower oil prices go straight to the airline’s bottom line and a lower Australian dollar sees more Australians holiday at home – and Qantas’ real strength lies in its dominant position in the increasingly cosy domestic duopoly it shares with Virgin Australia. </p>
<p>The domestic duopoly, in turn, is sustained by some very practical barriers to entry relating to airport facilities and landing slots that make Qantas’ local operations a perennial profit maker. </p>
<p>It would be quite something for Qantas to let this domestic cash cow wither. Indeed, even as Qantas cut costs, it had an eye on maintaining the quality of service it provides to the real heroes of its story – the business travellers whose employers pay upwards of A$1500 for a return ticket between Sydney and Melbourne.</p>
<p>There are some shared lessons, however, from these tales of two very different results.</p>
<h2>Playing to strengths</h2>
<p>First, firms need to know what they are good at and what will sustain their performance. </p>
<p>These need not be the same thing – the problem for Myer is that it is quite good at doing things that customers no longer want. In strategic management - we call these <a href="http://business.illinois.edu/josephm/BA545_Fall%202011/S12/Leonard-Barton%20(1992).pdf">core rigidities</a> - Qantas, on the other hand, understands its key strategic capability – moving price-insensitive business travellers between our distant major cities.</p>
<p>Second, very few firms can change the world. Perhaps Apple is an exception – it is a firm that has changed the way we use information technology. Qantas and Myer, on the other hand, are highly susceptible to changing tastes, technologies and competitive realities.</p>
<p>Finally, the times suit Qantas – but they probably won’t for long. The fundamental realities of the airline industry make it liable to wear all sorts of exogenous shocks – from terrorism, other disasters, fuel price shocks and subsidised international competitors (and the list goes on). The investors piling into Qantas at its current inflated prices would do well to remember this.</p>
<p>Will the times ever again suit Myer? Probably not. The changes impacting its business model seem to be accelerating, rather than receding. The <a href="http://www.abc.net.au/news/2015-01-28/the-decline-of-american-shopping-malls/6050956">decline of America’s shopping malls</a> is a trend Australia looks likely to follow. As the malls close, so will their tenants like Myer. The large format department store seems doomed to fail. Perhaps the best strategy for Myer is to manage its decline with grace.</p><img src="https://counter.theconversation.com/content/38221/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice has received funding from the ARC, the ALTC and the Centre for Workplace Leadership. He is a member of the ALP and the NTEU.</span></em></p><p class="fine-print"><em><span>Nigel Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Firms can choose to manage for growth or cost cutting, but either way need to know what they are good at.John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/283942014-06-25T01:18:06Z2014-06-25T01:18:06ZCollateral benefit? Solomon Lew’s pot of Country Road gold<p>Retailer David Jones has found itself in the middle of ongoing market intrigue since last year, spurred on by a merger approach from Myer. The advance was rejected without shareholders being made aware. </p>
<p>Into this mix came revelations directors had acquired DJs shares with knowledge of Myer’s approach. ASIC investigated the directors’ share trades but took no action. </p>
<p>Then, seemingly out of the blue, South African retailer Woolworths made an offer for DJs with an attractive premium and which has been strongly supported by the DJs board. The next ingredient into this mix was Solomon Lew, the 9.89% stakeholder in DJs who shaped up as an obstacle to Woolworths’ plans. </p>
<p>This is where it stood until the <a href="https://au.news.yahoo.com/a/24304409/woolworths-offers-to-buy-lew-out-of-country-road/">news</a> broke that Woolworths had offered to acquire Lew’s stake in Country Road, at a significant premium. The South African retailer currently has 88% of Country Road and is seeking total control, provided it gets the acceptance from Lew, together with the remaining other few shareholders. Lew is understood to have threatened to <a href="http://www.smh.com.au/business/retail/high-stakes-david-jones-play-could-deliver-solomon-lew-a-207m-country-road-payday-20140624-3aotw.html">block</a> the David Jones acquisition unless Woolworths acquired his stake in Country Road.</p>
<h2>What is collateral benefit?</h2>
<p>Once again, ASIC may return to the DJs mix - providing the Woolworths takeover of DJs goes ahead, and the acquisition of Lew’s shares in Country Road (if the proposal goes ahead) amounts to a “collateral benefit” under section 623 of the Corporations Act. </p>
<p>Under the Act a bidder must not during the offer period for a takeover agree to give a benefit to a person to induce the acceptance of an offer, unless that benefit is offered to all shareholders.</p>
<p>The Act defines a benefit widely as a payment of “cash or otherwise” and the courts and the Takeovers Panel confirm this approach by deeming relevant the “total effect” of the transaction giving rise to the benefit. An important point is that the benefit must be significant or material enough to induce acceptance. </p>
<p>Country Road shares have skyrocketed this year and the A$17 per share offer by Woolworths is far in excess of the below $5 prices of January. If Woolworths succeeds with Country Road Lew will certainly benefit, but this benefit would clearly not be available to his fellow DJs shareholders. </p>
<p>If Lew then falls into line with the Woolworths plan for DJs, the question is whether he was “induced”. It is uncertain which of Woolworths or Lew has been doing the courting, but both are set to gain.</p>
<h2>The need for transparency</h2>
<p>Takeovers are regulated under the Corporations Act, which aims to ensure they take place in an efficient, competitive and informed market. It also reinforces the rights of takeover target shareholders to a “reasonable and equal opportunity to participate in any benefits accruing” as a result of a proposal to acquire a substantial interest.</p>
<p>While the concepts of benefit and inducement seem likely to be relevant to Lew’s position, it must be noted that the Act focuses on “the bid” and “the bid class”, both of which are in terms of a takeover rather than a scheme of arrangement as is most likely to eventuate between Woolworths and DJs. </p>
<p>However, this is not the only provision relevant to the issue of a collateral benefit. Even if the offering or giving of a collateral benefit does not contravene section 623 of the Act, it may still amount to unacceptable circumstances if the benefit offends the principle of equality found elsewhere the Act (section 602).</p>
<p>The Takeovers Panel assesses the principle of equality by considering the commercial balance of advantages flowing to and from the security holder. Whether a transaction is likely to induce an acceptance is assessed by looking at the following: would the transaction affect the shareholders attitude to the acquisition; is the transaction distinct from the bid; is the timing of the transaction relevant and; evidence of net benefit.</p>
<p>The broader position of both ASIC and the Takeovers Panel in relation to the application of collateral benefit prohibitions is a positive step in ensuring market transparency.</p>
<h2>It depends if the deal stays friendly…</h2>
<p>Although at present the relationship between Woolworths and DJs seems friendly enough, if a scheme can’t be agreed upon Woolworths may resort to a takeover bid. In these circumstances where benefits have accrued to Lew they will need to be disclosed in the bidder’s statement. </p>
<p>If Woolworths is successful in both of its goals of acquiring all of Country Road and then DJs, Lew looks certain to make a substantial net gain, mostly as a result of his Country Road holdings. Whether this is a collateral benefit in breach of the Corporations Act or just good business will depend on several factors including the timing of Woolworths’ impending push for control of DJs, the attitude of minority DJs shareholders if a scheme does eventuate, ASIC’s approach to its role in policing the area, and obviously the evidence as to the crucial arrangements.</p><img src="https://counter.theconversation.com/content/28394/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Quilter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Retailer David Jones has found itself in the middle of ongoing market intrigue since last year, spurred on by a merger approach from Myer. The advance was rejected without shareholders being made aware…Michael Quilter, Senior Lecturer, Department of Accounting and Corporate Governance, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/181802013-09-17T20:41:54Z2013-09-17T20:41:54ZFrom little things big things grow: what’s in store for DJ’s strategy?<figure><img src="https://images.theconversation.com/files/31282/original/jzfjdjzm-1379043092.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">David Jones plans to reinforce its position as a high-end retailer by downsizing stores and focusing on customer service.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The <a href="http://media.theage.com.au/business/company-reports/djs-flags-new-strategy-4743876.html">recent proclamation</a> by David Jones CEO Paul Zahra that traditional department stores are likely to become smaller, fashion-focused and devoid of low-margin items reflects the various competitive influences helping to shape the retailing sector. </p>
<p>It also implies that those innovative Australian retailers prepared to make changes to their operations - whether onshore or offshore - are likely to be in an optimal position to gain a strategic competitive edge. </p>
<p>With the development of village-format retail stores, David Jones illustrates its belief that this innovative approach is the best mechanism for yielding superior customer and retailer outcomes in the face of such sector pressures. </p>
<h2>The effect of online retail</h2>
<p>Forces driving competition are not idiosyncratic to the Australian marketplace as our retailers also operate in the global economy. </p>
<p>Myer chief executive Bernie Brookes <a href="http://www.theage.com.au/business/retail/myer-quick-to-deflect-blame-after-poor-results-20130912-2tln2.html">recently claimed</a> that the retailer’s reduced profits were a function, among others, of GST exemptions on overseas purchases under A$1000. This claim contains elements of truth. </p>
<p>Local retailers are rightly alarmed that this loophole has cultivated a rising consumer preference towards purchasing products from retailers located overseas. The Australian Retailers Association estimates that around 40% of online retail purchases by Australian consumers are from retailers located overseas. </p>
<p>Thanks to the internet, Australian consumers can now more conveniently access such retailers and compare prices. This has pushed prices down in stores like Myer and David Jones, causing them to re-think operations. </p>
<p>As internet sales have become more mainstream across an ever-widening range of product and service categories, this trend is unlikely to abate. </p>
<p>In fact, it is highly conceivable that Australian consumer purchasing patterns, and perhaps more importantly their attitudes towards overseas retailers, will eventually result in Australian retailers relocating overseas. </p>
<p>This is even more probable if the new Abbott government’s attitude towards this uneven GST impost remains unchanged – forcing Australian retailers to consider alternative avenues to help take advantage of this loophole in our federal tax system. </p>
<h2>The new strategy</h2>
<p>The response by retailers will depend on how they think to best create customer value - either by locating parts of their operations overseas or by making structural amendments to their onshore modus operandi.</p>
<p>However, it is clear that the customer is ‘king’ in this equation and will dictate what retail firms must do in order to retain their continued loyalty. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=899&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=899&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=899&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1130&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1130&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31377/original/d89yxdsg-1379302100.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1130&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The smaller DJ’s stores will only stock quality fashion, cosmetics and accessories.</span>
<span class="attribution"><span class="source">Eva Rinaldi via Flickr</span></span>
</figcaption>
</figure>
<p>With its initiative, David Jones has decided to reinforce its commitment to the Australian marketplace, rather than attempting to exploit any direct cost advantages associated with operating from an overseas base. This approach seems to best fit their current high-end position. </p>
<p>Under this model, it is anticipated that David Jones will stock a reduced scope of merchandise comprising mostly quality (fashion) brands, and it will support this by offering the best possible service to their customers. </p>
<h2>Will it work?</h2>
<p>The only question that remains unanswered is whether this new strategy is going to be successful in the context of a price-motivated customer. This is a complex question and, without the benefit of hindsight, is even more difficult to answer. </p>
<p>However, we can say with great certainty that David Jones is high-end, has a well-known and established brand name, and has attracted a loyal customer base. </p>
<p>Its strategy change promises to continue offering the finest brands and a high level of service. And given its long-standing history as one of Australia’s premium department stores, this strategy can only help to consolidate its current position in the Australian marketplace, by re-emphasising previously held consumer views about the retailer. </p>
<p>Continual reinforcement of ones ‘place’ in the market is a critical element of retailing. So, in that regard, DJs has got it right. </p>
<p>However, one of the dangers associated with this new approach is that this action potentially exposes the retailer to further competition from high-end European, as well as boutique Australian, fashion retailers. </p>
<p>David Jones’ success will depend on the company positioning itself well in this cut-throat area of the retail sector. The retailer must ensure its offerings are distinctively different from similar fashion-based retailers. </p>
<p>This can only be attained if the company adheres to the basic principles of the retailing concept: being value laden, being goal-orientated, effectively coordinating the value chain, and, perhaps most importantly, remaining entirely customer focused. </p>
<p>While only time will reveal the success or failure of this new direction, David Jones has once again shown that innovation in retailing is tantamount to securing its future.</p><img src="https://counter.theconversation.com/content/18180/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Russel PJ Kingshott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The recent proclamation by David Jones CEO Paul Zahra that traditional department stores are likely to become smaller, fashion-focused and devoid of low-margin items reflects the various competitive influences…Russel PJ Kingshott, Senior Lecturer in Retailing, School of Marketing, Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/97302012-09-21T01:49:53Z2012-09-21T01:49:53ZNot the end for department stores - but time is running out to embrace technology<figure><img src="https://images.theconversation.com/files/15724/original/96j38mgs-1348187920.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">David Jones' 40% full year profit slump shows time is running out to embrace the sort of technology shoppers clearly want.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>David Jones’ 40% full-year profit plunge sends a very clear message to the Australian retail sector: if you want to perform you need to reform. </p>
<p>Such reform means a number changes to aspects of a retailer’s business operations that must be designed to further enhance the customer value proposition. </p>
<p>It would be far too easy to concede that DJs lower than expected performance, coupled with the <a href="http://www.abc.net.au/news/2012-09-13/myer-fremantle-store-closes/4259494?section=wa">closure of Myer’s Fremantle store</a>, shows a retail sector in serious decline with the “department store” as we know it under serious threat of extinction. </p>
<p>But such a doom and gloom picture for these retailers is most likely far from the truth, simply because shopping in such stores resonate the essence of Australian society. </p>
<p>By this I mean our innate desire to be social animals, whereby such yearnings are intrinsic to the shopping experience offered by our major department stores. </p>
<p>A more prudent analysis of the situation facing DJs - and similar retailers for that matter - is that their under-performance is simply symptomatic of one of a number of challenges facing the sector both within Australia and globally. </p>
<p>These challenges are not terminal but very solvable with the appropriate remedial action. The most pressing is taking full advantage of available technologies and incorporating this into the consumer value proposition at the same time as remaining competitive. </p>
<p>On this point there has been much debate about the inability of Australian retailers to compete effectively with their foreign based counterparts due to the relatively high GST thresholds (currently AUD$1,000) for products sourced overseas. My view is that arguments for and against government intervention are only a small part of the picture. </p>
<p>The real issue facing retailers here is how to best re-configure their operations to cater to changes in consumer buying patterns that involve a cyber-world narrative. The Australian Retailers Association recently noted that around 40-60% of goods purchased by Australian consumers are made from offshore websites. </p>
<p>While this does provide some traction to the view held by analysts that this is damaging to Australian retailers, the fact that only 5% of total retail sales are purchased online indicates two things. </p>
<p>First, the “competitiveness” problem is not too large at the moment. Second, and perhaps more importantly, there is still time to remedy this problem. </p>
<p>Therefore the key challenge facing retailers is the best manner to make the customer experience more engaging and valuable given the imminent changes that and internet age and other forms of technology bring to the sector. </p>
<p>Simply reducing our analysis to a price-mechanism as the best (and perhaps only) means to respond to this challenge is overlooking the real issue, namely operational reform. </p>
<p>Of course technology helps reduces costs, but a retailer’s inability to respond to changing consumer buying preferences is the real Achilles heel and should be a focal point of retail strategy. A two-pronged approach in which technology reduces overheads while at the same time increasing customer engagement and value, is the ideal outcome. </p>
<p>To this end, <a href="http://www.davidjones.com.au/files/ASX-Release-Strategic-Directions-21-March-12">the initiatives unveiled by DJs in March</a> to transform into an “<a href="http://econsultancy.com/au/blog/10687-stores-will-never-die-with-omni-channel-retailing">omni channel retailer</a>”, including upgrading their point-of-sale technologies, will offer an appropriate platform to begin building a multi-channel capability that attains these dual outcomes.</p>
<p>From this perspective, its announced profit downturn should be viewed as a short-term “speed bump” in their reform process, designed to cater to a changing world rather than signifying a sector in rapid decline.</p><img src="https://counter.theconversation.com/content/9730/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Russel PJ Kingshott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>David Jones’ 40% full-year profit plunge sends a very clear message to the Australian retail sector: if you want to perform you need to reform. Such reform means a number changes to aspects of a retailer’s…Russel PJ Kingshott, Senior Lecturer in Retailing, School of Marketing, Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.