Myer CEO Bernie Brookes

Myer CEO Bernie Brookes

Bernie Brookes, the CEO of Myer, Australia's largest department store chain, speaks to just-style about how the retailer is working to improve its operations and tempt shoppers into its stores.

Many of Myer's recent initiatives may not be immediately obvious to consumers, but efforts made under the hood are yielding significant benefits for Australia's largest department store chain. The retailer, with 67 stores and total sales of A$3.1bn annually, has been working hard to manage inventory, reduce the number of promotions, cut shrinkage, improve operations, service, supply chain, and sourcing, says CEO Brookes.

Markdowns
Brookes says that Myer is one of the few retailers in the past 12 months to have decreased the money it spends on markdowns. "We've reduced the frequency we promote and we've reduce the depth we promote."

What that has meant in practice, is that instead of running 15 luggage promotions at 45%, Myer would run 12 luggage promotions at 40% off. "So you take the top off the level of promotion and lower the number of them," he says. "We've been over-relying on promotional marketing, so we've been taking ourselves off that drug gradually over the past 12 months, and we'll continue to do so."

"I think all retailers are starting to realise if you sell a 100 dollar note for 90 dollars, and it doesn't matter if, whatever you do, people aren't coming in anyway, so why give it all away?"

He says that "to the customer, we don't think it will make a lot of difference, we don't think it's affecting our sales, and it's certainly helping to protect margins".

Operations
Another initiative that is yielding results is the installation of a closed circuit TV system, which Brookes says reduced shrinkage by A$15m last year.

And where other retailers are working to cut costs in wages, Myer is "going against the tide" and investing AUD25m in extra wages, which means an extra 8-10 people in an average store. The retailer took the steps because "our service is not as good as it used to be, and we've acknowledged that."

The retailer has also spent some AUD600m on technology and its supply chain over the last four years, which has helped it reduce its lead time to less than 23 days, down from 80 days before.

"In 2006, the business had an old supply chain, a POS that was 24 years old, cash registers and IT that hadn't had money spent on it in over 25 years and in addition the business lost A$60m," says Brookes.

"So now, five years later, the business has made A$25m, we've had all new POS, all new supply chain, four hubs in China, a new merchandise system, which cost us $600m dollars and given us that move towards fast fashion."

Sourcing
The majority of Myer's products come from China, with the company operating four hubs and two sourcing offices.

One of the sourcing offices manages its China sourcing and the other manages the rest of the world. The global sourcing office buys from Vietnam, Bangladesh and Malaysia, says Brookes, with just 16% of what the retailer buys coming from countries outside China.

While the retailer has not been hard-hit by volatile cotton prices due to its advance buying strategy, Brookes says the company works with its suppliers to try to reduce costs.

"We re-engineer the product, so we take the pocket off, reducing the cost of supply with them to buffer those price increases," he explains, adding that the company also looks at backloading and increasing the number or orders to make it easier for suppliers to deliver.

However, the retailer has seen deflation of 2.8% over the past 12 months, "so that reflects really getting more competitive than moving prices upwards".

Front of house
The retailer is not only focusing on back-end improvements, with more visible steps to entice customers into its stores including a focus on exclusive brands such as Sass & Bide - in which it took a 65% stake last year - revamping stores, and developing its online and social media offer.

Sass and Bide
Myer bought a 65% stake in denim brand Sass & Bide for $42.25m in March this year. Brookes says the plan now is "stretch the brand".

"We're stretching the penetration of the brand into other areas," including a recent foray into sunglasses and planned jewellery and intimate launches. It is also opening three new standalone store and rolling out a further 15 concessions in its stores.

"Over the next few years we'll explode it into new categories and expand it into our stores. And we expect it to be a very profitable venture," says Brookes.

He adds that Myer has largely been hands-off in terms of design, but that Sass & Bide has begun taking on some of its infrastructure and supply chain.

"We've had David [Briskin, Sass & Bide chief executive] and [co-founder] Sarah-Jane [Clarke] team up and go into our sourcing office in Hong Kong. They're getting some supply from us, they're using our supply chain, they're using our fit out people, But we're not dabbling and interfering in the design. We're just saying here are some things that we have, if you want to use them, use them."

Online
Myer has also been working to develop its online presence, a channel Brookes admits Australian retailers haven't been fast enough to embrace.

"As much as it's fair to be a little bit critical of retailers who are playing catch-up now, it was really the increase in the value of the Australian dollar that drove it faster," after Australian consumers began shopping on international sites, says Brookes. "That exponential growth happened quickly and caught quite a few retailers by surprise."

For Myer, the online business is growing at about 300% per week, and he expects to "double that business in this year alone, and keep doubling it at a rapid rate".

The company has now completed its online fulfilment and distribution centres, with a revamped site to be launched in November, and a second phase to launch in February 2012.

While Brookes admits the e-commerce side has lagged, boasting Facebook, Twitter, Tumbler and online community presences, he is particularly proud of the strides the retailer has taken in developing its social media presence. "We're a long way behind in e-commerce, but we're at the forefront of social media and that digital area," he emphasises.

Fast fashion
Brookes is also positive about the entry of international players into the Australian market - especially since they have helped increase foot traffic into Myer stores.

"In relation to the Zaras that have arrived, they've all moved in next door to our stores, so it's like a bee and a honey pot, and we've increased traffic in the doors that are next to Zara. They're attracting more people into the Melbourne and Sydney central business district, so that's making it very exciting for us. We like them being there."

Trigger point

As the retailer booked declines in the 2011 financial year, with sales down 3.8% to A$3.2bn, and net profit fell 3.5% A$162.7m, Brookes is waiting for a "trigger point" to "spark consumer spend." However, he expects a better Christmas this year than last year, which was hit by flooding and cyclones around Australia.

Interest rate declines, changes in government policy around carbon tax, pokie machine tax, flood tax as well as improvements in global economies are some of these "trigger points".

"If a couple of those come good, there will be an improvement in consumer confidence and they'll be more interested in spending their money," he concludes.

Other articles in this series include an overview of the Australian retail landscape, an interview with Sportsgirl managing director Elle Roseby and an interview with Target managing director Launa Inman.