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Speaker 1: Welcome to Fearing Greed QNA, where we ask and answer

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Speaker 1: questions about business, investing, economics, politics and more. I'm Sean

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Speaker 1: al Mart and today, as the economy starts to improve,

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Speaker 1: most of the discretionary retailers are picking up too, but

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Speaker 1: not all of them. Yesterday, department store Mayer announced a

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Speaker 1: thirty percent drop in profit, sending its share price down

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Speaker 1: around twenty five percent. Roger Montgomery is the founder and

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Speaker 1: chief investment officer at Montgomery Investment Management. Remember this is

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Speaker 1: general information only, and you should seek advice before making

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Speaker 1: investment decisions. Roger, welcome back to Fear and Greed.

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Speaker 2: Great to be with you, Shaan, and particularly on this subject.

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Speaker 2: I remember when Maya floated and I wrote a piece

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Speaker 2: that I was quoted in the Financial Review saying that

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Speaker 2: it was a walking dinosaur and investors would be lucky

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Speaker 2: to make their money back on the IPO price. And

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Speaker 2: that's certainly born out.

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Speaker 1: So what's gone wrong? And I mean, just give us

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Speaker 1: briefly what happened with premiere and apparel brands and whether

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Speaker 1: or not it's kind of too much actually bringing the

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Speaker 1: two together.

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Speaker 2: Yeah, so Myers moved aggressively into the online space and

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Speaker 2: They did that via a deal with Solomon lou and

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Speaker 2: I guess that deal really, you know, one way of

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Speaker 2: looking at it is to say, well, it's a survival

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Speaker 2: strategy for the department store, or for department stores generally

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Speaker 2: diversifying into high growth e commerce brands. But what it

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Speaker 2: also does is exposes the company to the risks associated

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Speaker 2: with heavy debt and also you know, usual integration challenges,

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Speaker 2: and you got all that going on at the same

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Speaker 2: time that pure play online competitors are eroading market share.

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Speaker 2: But that's you know, that's a I guess a medium

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Speaker 2: term challenge. The more immediate challenge for my was, you know,

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Speaker 2: an elevated level of Markdown's higher marketing costs, loyalty program expenses,

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Speaker 2: we're higher as well. We just mentioned that investment in

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Speaker 2: digital transformation as well. And consequently management have said, well, look,

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Speaker 2: this is a transition period quote unquote, and they're focused

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Speaker 2: on long term growth, but those long term I guess,

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Speaker 2: you know, the share price reaction tells you that there's

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Speaker 2: some doubt about the long term prospects, not only for

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Speaker 2: Maya but for department stores generally.

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Speaker 1: How much of it can they compete with the Temple

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Speaker 1: and websters of the world. Department stores like Maya or

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Speaker 1: is it too much legacy. It's kind of like newspapers

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Speaker 1: in a sense, too much legacy to actually do it.

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Speaker 2: I think you're right. I think you know, department stores

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Speaker 2: like my face a few ongoing challenges. One of them

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Speaker 2: is rising operational costs, including higher wages, higher energy prices,

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Speaker 2: supply chain disruptions, you know, and all of those have

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Speaker 2: been exacerbated in Australia because of inflation. And what happens

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Speaker 2: is those costs eat into very thin margins, particularly now

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Speaker 2: as consumers sort of tighten their belts or have been

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Speaker 2: tightening their belts, and then as as you alluded to,

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Speaker 2: the entire retail landscape has shifted dramatically. You know. It

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Speaker 2: used to be that you got dressed up and you

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Speaker 2: went to David Jones and Meyer in the city and

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Speaker 2: that was a big day out, and you spent the

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Speaker 2: whole day browsing all of the brands that they had

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Speaker 2: in those stores. But consumers now can find all those

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Speaker 2: brands themselves, they can find them online, they can get

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Speaker 2: them delivered, if not the same day, the next day

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Speaker 2: or the day after, even from overseas. I mean gosh,

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Speaker 2: I bought a new pair of skiing pants and when

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Speaker 2: did I guy those? I bought those on Thursday and

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Speaker 2: they were delivered Monday, so you know that. And they

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Speaker 2: were from they were from Sweden. So you know, it's

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Speaker 2: very difficult for department stores that have to attract or

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Speaker 2: are very reliant on foot physical foot traffic to compete with,

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Speaker 2: and youngest are prioritizing those online platforms because of the

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Speaker 2: convenience and the vast selection that's available to them. Then

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Speaker 2: of course you've got you know, the physical stores themselves,

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Speaker 2: large large department store footprints, like Meyers. They've got huge

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Speaker 2: fixed costs associated with them, the rent, the staff. I

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Speaker 2: know some friends once joked that the reason why the

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Speaker 2: loyalty card was called once called it the Maya one card,

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Speaker 2: is because on each floor there was only one staff

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Speaker 2: member and you couldn't find them. You know, that sounds

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Speaker 2: a bit harsh, but you know it's it's doubly difficult

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Speaker 2: to operate a business when you've got those very very

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Speaker 2: high fixed costs and that contingent liability associated with all

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Speaker 2: of their stores. And then of course department stores ultimately,

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Speaker 2: and this is why I've commented in the past that

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Speaker 2: they're walking dinosaurs. They risk losing relevance because how do

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Speaker 2: they differentiate themselves. They're reliant on legacy brands, They're slower

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Speaker 2: to adapt. Your fashion is very fast changing, and you know,

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Speaker 2: it's very difficult for them to keep up.

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Speaker 1: What about stores like Compare Mayer, then places like JB

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Speaker 1: Hi Phi, Harvey Norman, they've been on a real run.

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Speaker 1: I think both those stores are up fifty percent over

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Speaker 1: the past twelve months. I get that they're different products,

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Speaker 1: but there's still bricks and watar they're still but there's.

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Speaker 2: Small store footprints. You know, there's small store footprints all

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Speaker 2: their footprints. There's store footprints that suit the catchment that

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Speaker 2: they're in, you know, and they they are really marketing that.

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Speaker 2: The value promise, it's all of it. You know. In

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Speaker 2: JB High Fi you mentioned JB Highi. You walk in

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Speaker 2: there and there's there's sights to those yellow stickers that

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Speaker 2: say you know the price. It immediately conjures up the

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Speaker 2: idea that you're getting good value. Plus the staff are

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Speaker 2: experts on the products. You know, they've got specialists for

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Speaker 2: the laptops, they've got specialists for headphones and drones and

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Speaker 2: cameras and so on, So you're going to get good

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Speaker 2: advice when you go there as well, and you're probably

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Speaker 2: going to get a cheaper price.

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Speaker 1: And so same dere with Bunnings or West Farmers presumably.

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Speaker 1: I mean, it's almost like the general department store. The

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Speaker 1: general party is the problem.

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Speaker 2: The issue, Yeah, the issue is the small range within

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Speaker 2: a large number of brands, but across multiple sectors of retail,

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Speaker 2: so they're not specialists in anyone whereas the others tend

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Speaker 2: to be specialists. You know, the acquisition that Maya has

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Speaker 2: made is really a defensive move against those pure players,

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Speaker 2: you know, the ones that you've just alluded to that

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Speaker 2: are in bricks and order, but also the e commerce

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Speaker 2: players as well as the giants like Amazon. You know,

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Speaker 2: it's really really hard to compete without alienating your core

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Speaker 2: department store customer base. But you know, one of the

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Speaker 2: best pieces of advice that I'm sure a lot of

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Speaker 2: people have heard in businesses don't if you don't disrupt yourself,

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Speaker 2: someone else is going to disrupt you.

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Speaker 1: Okay, So you're not going to be rushing out putting

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Speaker 1: you buy a recommendation on Maya anytime soon.

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Speaker 2: Roger no I think it's you know, when the IPO

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Speaker 2: was launched, you know, I wrote a pretty scathing indictment

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Speaker 2: against department stores and particularly the valuation of that company

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Speaker 2: at the time. And you know, I'm not surprised to

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Speaker 2: see the shared price so much lower than that price now.

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Speaker 2: But yeah, I don't see the catalyst for this business

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Speaker 2: dramatically changing unless the online business becomes a bigger business

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Speaker 2: than their their legacy business.

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Speaker 1: Roger, thank you for talking to Fear and Greed.

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Speaker 2: Always a pleasure.

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Speaker 1: Short it was Roger Montgomery, founder and chief investment officer

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Speaker 1: at Montgomery Investment Management. Just a reminder to please seek

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Speaker 1: professional advice before making any investment decisions. If you've got

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Speaker 1: something you'd like to know than censory your question on LinkedIn, Instagram, Facebook,

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Speaker 1: or at fearangreed dot com today you I'm Sean Almer,

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Speaker 1: and this is Fear and Greed a Q and DA