Introduction
Myer is Australia's largest departmental store with more than 60 outlets and an online shop, where customers can order products from the comfort of their homes. The company employs 125,000 people and makes use of 1200 suppliers worldwide. Myer is embedded in the culture of Australia, as it has operated for more than 100 years in most cities. The company has a broad range of products; eleven in total, ranging from men wear to apparel and electrical goods. On the opposite, Myer has had mixed fortunes in the last five years. The company peaked in 2013, with revenues of $3.1 billion. However, in the years after 2013, the revenues and profits went down, and the company share price dropped by more than 100%, from $2.6 to $0.90 in 2015 (Financial Times, 2016). The company has underperformed all the key stock indices, most notably, a resultant 55.88% decline compared to 15.20% growth of the S&P Aust Index ASX 200 Index. In September 2015, the company released its new business strategy that is spread over five years. In the strategy, management aims to invest $600 million in the business, with $480 going out as capital and implementation costs amounting to $120 million. The new strategy aims to restore profitability to Myer by 2020 (Research and Markets, 2016).
Macroeconomic Analysis
Australia is one of the richest countries in the world with a gross domestic product per capita of $37828. When adjusted for purchasing power parity, Australia's GDP per capita (GDP per capita PPP) goes up to $43218. Australia's annual growth is estimated to average 2% year on year in the next five years, resulting in a total of 4.0% expansion. On the other hand, the average general increase in prices will average at 1.5% annually from 2016 to 2020. Unemployment rate will remain stable at 6% and the markets will grow fueled by Foreign Direct Investment which will double from current AUD $23 billion to AUD $46 billion, in five (Trading Economics, 2016).
Source: Trading Economics
The economic expansion will definitely drive sales for Myer in the next five years, mainly because people will have disposable income. Primary expenditure will go to consumer goods and homeware, and Myer sits in the middle of the marketplace. Growth is still positive after inflation adjustments, a show that Australia’s economy will be better overall that it is today. That will spur expansionary expenditure by households, driving the sales and revenues of Myer upwards.
The level of income will remain sluggish in the next four years at an average of 4%. That implies that, consumers will be pressed by the need to control their expenditure because their income will grow in low rates (Spasic, 2016). Ideally, the macroeconomic climate for Australia is a bit stable, and the slump of the dollar against major currencies will halt midway to 2020. Two possible explanations will be that, the Australian dollar will hit its real value, and the increasing Foreign Direct Investment will quench the demand for external dollars.
In the short term, the political speculations regarding to the proposals by Prime Minister Malcolm Turnbull to issue a double dissolution will hit consumer confidence and spending patterns. The political burden of a double election and the uncertainties on the ability of the economy to bounce back from the elections will make customers to slow their spending, and adopt a watch and see strategy. In the second and third year, however, the economy will be back on its feet, and consumer confidence will drive growth and prices in the retail sector.
Levels of technology in Australia are very high, at the same level with global standards. Young people fresh from the universities have the necessary skills that can be relied by the companies for sustained growth in the next five years. As a developed economy, Australia’s legal framework is stable, and companies operating in the country do not have to worry about overbearing legal requirements and compliance issues.
Industry Analysis
Traditionally, Myer Holdings shared the Australian retail market with David Jones and Harvey Norman. However, in the recent past, many new entrants like Zara and H&M have entered the Australian market, threatening the existing companies like Myer, that have been on a downward spiral in the last four years. Shoppers in Australia are opting to buy from the new entrants because they are cheaper and affordable. In the annual report for 2015, Myer Holdings directors admitted that the company is threatened by new entrants.
H&M and Zara are global products with a footing in any markets across the world (Smyth, 2016).The fact that Myers will be competing with bigger brands with the financial muscles to take over the industry poses a challenge on how well the company can survive the new threats. More interesting will be how Myer will react to the dollars coming from other markets where Zara has been making profits. Zara is one of the most respected brands in clothing industry, with a fast production strategy that puts new versions in the markets in every few months.
The biggest threat of the new entrants will be on buyers. Already there have been claims that Myer sells its goods expensively, and people are opting for the new entrants in the market like Zara. If buyers demand lower prices for the goods, the new Myer strategy will be squeezed due to the fact that forecasts are hinged on sales at the current prices. In a dynamic market that depends on customer preferences, it is easy for a company to be competed out by peers in the market. Myer’s traditional competitor, David Jones, is also going through a period of low growth (The Conversation, 2013).
Myer has a strong network of supplies across the world, a factor that has been helping it to outdo the traditional competitors for a very long time (Myer Holdings, 2015). The ability to maintain suppliers in a period when resources are limited is determined by the compensations to the suppliers. With the entry of new players in the Australian market in quick succession, Myer may find herself struggling to get products on time, compared to a company like Zara. If suppliers decide to increase the prices of their goods, or to work with competitors, then Zara will be at the receiving end.
Conclusion
Myer, with 67 departmental stores, still remains the biggest retailer in Australia. Recent struggles and low profitability might have slowed the company’s growth and return to investors, but the new strategy is perfect in design to make Myer bounce back. Australia’s economy outlook is positive, and indicators show that there will be expansion and availability of disposable capital. The political uncertainties aside, customer confidence is poised for a rebound, and the 3% growth in the next five years is very feasible.
References
Financial Times, (2016). Myer Holdings LtdMYR: ASX. [online] Financial Times. Available at: http://markets.ft.com/research/Markets/Tearsheets/Summary?s=MYR:ASX [Accessed 17 May 2016].
Focus Economics, (2016). Australia Economic Outlook. [online] Focus Economics. Available at: http://www.focus-economics.com/countries/australia [Accessed 17 May 2016].
Myer Holdings, (2015). Annual Report. Australia: Myer Holdings Limited, p.19.
Research and Markets, (2016). Myer Holdings Limited (MYR) - Financial and Strategic SWOT Analysis Review. [online] Researchandmarkets.com. Available at: http://www.researchandmarkets.com/reports/1495494/myer_holdings_limited_myr_financial_and [Accessed 17 May 2016].
Smyth, J. (2016). International invaders shake up Australia’s home grown retailers - FT.com. [online] Financial Times. Available at: http://www.ft.com/intl/cms/s/0/c37495d0-bb84-11e3-8d4a-00144feabdc0.html#axzz48unOJG3d [Accessed 17 May 2016].
Spasic, M. (2016). The Verdict on the Australian Economy in 2016. [online] The Daily Reckoning Australia. Available at: http://www.dailyreckoning.com.au/the-verdict-on-the-australian-economy-in-2016-cw/2016/01/22/ [Accessed 17 May 2016].
The Conversation. (2013). Poor strategy has left Australian retailers open to overseas entrants. [online] Available at: http://theconversation.com/poor-strategy-has-left-australian-retailers-open-to-overseas-entrants-21009 [Accessed 17 May 2016].
Trading Economics, (2016). Australia | Economic Forecasts | 2016-2020 Outlook. [online] Tradingeconomics.com. Available at: http://www.tradingeconomics.com/australia/forecast [Accessed 17 May 2016].
