Myer Investment Analysis

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Myer Investment Analysis
Industry Analysis
The Australian department store sector has undergone significant change over the past decade. The discount department store is increasingly competitive. Financial crisis has resulted in higher unemployment rate and lower consumer sentiment, effecting retailing sales. However, these negative events have been partially offset by the Federal Government’s economic stimulus package and reduction of official interest rates. In non-food industry of Australia, there are restrictive property and zoning laws, causing barriers for entrants. The leading retailers such as Myer and David Jones have great brand identification and customer loyalty. Their large scale and mature supply chains ensure their cost advantages over potential new entrants. Among existing rivalries, discount department store market is more competitive than the premium end of the market. David Jones has significantly grown share of EBIT within premium. Target has strong offering of private label fashion and home wears. Compared to these key competitors, Myer has larger private label offering and lower entry price points. They have different market orientations. In non-food industry, the threat of substitute is high since large number of alternative products is available. The products with relatively lower price in discount department store have similar functionality to those in premium department store. Moreover, due to financial crisis, many consumers have converted to discount department stores. The suppliers’ power varies among different retailers. Myer’s Asian buying is now primarily facilitated by Li & Fung. In addition, Myer sources from over 800 suppliers globally. It indicates suppliers have strong power in some specific fields such as Asian buying in Myer. However, the wide access to global suppliers has ensured high flexibility which reduces suppliers’ power relatively. The products in this industry form a significant part of buyers’ costs. Buyers are sensitive to the prices. The department stores and cost advantage pursued by premium department stores offer buyers more options. Besides these five forces in the industry, Myer’s positioning contributes a lot to its stable growth (Refer to Appendix A). Company Positioning Analysis

Myer’s positioning depends on its internal factors such as strengths and weaknesses and external factors including opportunities and threats. As for internal factors, Myer has an experienced management team, world class supply chain and IT system. Investment in team members has improved customer focus and productivity. The success in loyalty program builds Myer’s customer insight. In addition, Myer has larger private label offering and lower entry price points. It has traded at a 12% discount to retail sector. However, the weakness in former store portfolio has caused Myer to reposition several times. Myer’s strengths and improved store portfolio currently position it as a full service but middle market department store. In addition, increase in interest rate has decreased customers’ disposable income, which creates opportunity for middle market. Myer’s cost advantage, stable growth and $400 million investment in transformations bring in sufficient capital, which is helpful for market expansion. Its increasing breadth of offering help win new market with different customer tastes. The improved management capacity, world class supply chain and advanced IT system make it possible to set up shops in wider geographical locations. Consequently, the group targets top 3 quintiles of population, which comprise just less than 80% of national disposable income. The threat comes from changing customer tastes and loss of key staff. Myer increases exclusive brands and private labels to meet different customer tastes. To maintain key staff, Myer applies cash and equity incentives. To confront ever-changing market effectively, Myer adopts different strategies and directions. Company strategy and...
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