INTERVIEW WITH BILL WAVISH, EXECUTIVE CHAIRMAN OF MYER 50 DAYS AFTER ACQUISITION
Q. Bill, what were the first things you and Bernie did upon arriving at Myer?
A. I had had a over six months doing due diligence, then Bernie and I had two months to get ready between when the sale was announced and when we got the keys on June 2. Thus by Day One we had detailed strategies formulated with help from TPG Newbridge and Debenhams. Our Team was almost complete, comprising mainly retained Myer executives, together with a sprinkling of new talent. Our "Hundred Day Plan" was ready in great detail. We were able to hit the ground running.
A clear focus was for us to develop a clear plan and vision and numbers to satisfy ourselves, TPG Newbridge, the Myer Family and our financiers, yet to remain flexible enough and listen enough to our remaining Myer executives, especially given our limited knowledge of fashion. We have tried to tread that path very carefully, and I believe that the Team understand and appreciate that.
On Days 0 and 1, we took the Management Board of ten (2 had yet to join) to Mornington Peninsula to get to know each other, to talk strategy, and importantly to talk "Culture." At that time we told them that we appreciated that they had endured a long arduous and uncertain time during the due diligence period and the sales process by CML. Bernie and I said that we wanted each Management Board Member to fly business class to London for a week with their partner to look at Debenham's (and London) then to come back and further review strategy. Interestingly, the Debenhams Team have themselves personally invested in Myer alongside us as a vote of confidence.
Then on Days 8 to 12, Bernie and I flew together with John Hawker, Store Operations Director, around Australia to meet every one of our 60 store managers and their key staff. We had all day sessions in each state capital where they very openly and straightforwardly gave us their views on the business and the many opportunities available. They were wonderful invigorating sessions. A key message we were sending to an organisation that was used to being instructed what to do by no less than two Head Offices, was that the stores had an equal voice in all matters, and indeed we renamed the Head Office the "Support Office." That is, a culture of "if you are not serving the customer, you are serving the team member who is serving the customer".
Q. You mentioned that you and Bernie don't come from a fashion background? Does that matter?
A. Yes and no. The Debenhams view is that it is an advantage not to come from fashion, and that they came from outside fashion retailing too. We have retained most of the fashion team within Myer, and have added Judy Coomber who returns to Myer to be Director leading half of our fashion categories. Bob Boutin remains and is Director leading the other half. We have some fashion expertise on our Main Board, and through TPG Newbridge we can access Neiman Marcus and the legendary Micky Drexler at J Crew. But the key thing is to listen to our staff, listen to our suppliers, and most importantly, listen to our customers. There has been no shortage of advice to Bernie from all of those sources on the hot-line he set up - [email protected].
Q. So tell us more about your management team? You both come from Woolworths, so is it full of Woolies people?
A. No. Bernie and I are the only ex-Woolworths Directors. Of the Management Board Directors, those who remain from the previous Myer, other than John Hawker and Bob Boutin are; Martin Carter as Home, Electrical and General Merchandise Director; Tim Clark as IT Director; Prakash Menon as Supply Chain Director; and Paul Bonnici as Marketing and Creative Director. We have been joined by Greg Travers from WMC as Strategy and HR Director; Hisham El-Ansary from Integral Energy as CFO; and Alison Smith from Nike as Concessions Director, as well as Judy Coomber.
Q. What is your number one priority?
A. Serving the customer better. We know that's easier said than done, but there are many ways that priority can be reinforced by day to day activities. That might be starting each meeting with a customer complaint. When I was doing the due diligence I walked many stores and didn't see the floor manager on the floor. When we took over I asked John Hawker (Store Operations Director) whether it was true that the Store Managers were not often on the floor, and if so why? He said that unfortunately it was all too often true, but that one had to understand that they spent much of their time doing paperwork in their offices from not one but two head offices! We now have a Red Team under way reviewing, eliminating, automating and getting more junior people to do store paperwork. Needless to say the managers are very happy, and in due course we hope that the customers will be too. We will measure and reward Customer Satisfaction. Chris Denove and James Power's book "Satisfaction" is a great read on this subject. Bernie and I would hope and expect that by December we will be able to measure and customers will indeed notice, a higher level of customer service in our stores.
Q. What about suppliers? You mention talking to them, but as Private Equity are you going to squeeze them?
A. Suppliers are our partners - it's easy to say, but hard to walk the talk. To date, Bernie and I have not had a lot of dialogue with our suppliers, although Judy, Bob and Martin and their Teams are talking to them everyday. Bernie has seen a few key ones already, and we are about to begin a formal consulting process with them as we near a decision on our long term supply chain strategy. Also we will get them together in September after we have 100 days under our belt and report to them on progress to date. Myer's terms from suppliers vary greatly, as do the quality and strength of their brands. We probably have too many suppliers. We will gradually get around to talk to each of them, but there is no cookie-cutter answer - it's horses for courses.
Q. We have all seen your "History Making Sale - never to be repeated." What does this mean? How successful has it been? Are you going down market? What benefits flow from it?
A. In Bernie and my view, Myer was badly overstocked when we took over. In addition it had a "no warehousing" policy whereby all stock was pushed through to the stores. The stores could not handle the volumes, so 22 of 60 stores saw the need to rent individual outside storage. You can imagine the cost, inefficiency, spoilage, etc of such a system. The product would go from Dougherty's Road warehouse in Melbourne, to the Bourke Street store in the city, would be off-loaded, then sent back to the store's own private warehouse less than a kilometre from its start point at Dougherty's Road.
In addition stock was not being fully cleared at the end of each season, and inventory had been accumulating for several seasons. In one amazing case, there was a warehouse in Western Australia full of women's intimate clothing. The History Making Clearance will get rid of all this excess inventory. Already the sale is the biggest ever in the history of Australian department stores (the previous record was of course in a Myer summer sale), and it is not yet over. There are still some great bargains to be had. By completion of the clearance we will have sold over $150 million of stock that will drop down as cash into the balance sheet. We are past the $100 million mark and have been able to permanently close 20 of the 22 mini- warehouses belonging to individual stores. (Hobart and Launceston remain for Tasmanian logistic reasons.) You can imagine the savings in rental, freight, stock damage, interest and labour. In fact it frees up 400 staff, but there will be no redundancies due to normal staff turnover and the build up to Christmas. We will not be going down market, we will stay where we are. We may gradually add more private brands. The positioning of the History Making Clearance (ie not a sale) in black and white, with no Myer brand, and $ price points was to reinforce the separation and the one-off nature of the sale. The customer loved it! The test will be to see how the presentation of our stores recover from this later in August and how our presentation will further improve in the run up to Christmas.
Q. You mentioned "Red Teams". What are they? Are you embarking upon a cost cutting exercise? What resistance to change have you experienced?
A. The dozen Red Teams meet fortnightly and cover some sixty initiatives which range from customer related matters, to IT, supply chain, cost reduction, etc. It's a lot to take on simultaneously but we have a wide range of participants and its great new experience for staff. One key signal to the business is that all teams are not based in Melbourne. Bernie and I have been hugely impressed with the quality of the management, hence our preparedness to take on so much at once. We have seen absolutely no resistance to change. You might say that Myer is well used to change. That is true, but we believe that it is a case of experienced staff knowing that things like clearing stock in season is what ought to happen. Of course with the much increased store importance and the increased customer focus, the new owners are very popular with the stores staff. But the Support Office has been very enthusiastic and our new incentive programmes should see them well rewarded. The Support Office is deeply involved in the Red Teams, in many cases leading them and thus the changes. We are working towards a much more decentralised decision making process, and there is no doubt everyone likes empowerment.
Already we have achieved very significant cost savings. Interestingly, although one might expect loss of buying power in the separation from CML, not a single cost is higher than the previous price, and most are considerably lower.
Q. You mentioned IT and supply chain. Both you and Roger Corbett have repeatedly emphasised supply chain and IT in your Woolworths presentations. What can you say about Myer's?
A. Our supply chain is currently largely handled by CML until we transition to our own new chain in about 18 months. We regard supply chain strategy as crucial, and we have a key team working on that at the moment, led by Peter Ramsay. Peter was a vital leader of the Woolworths strategy formulation with us several years ago. We are determined to move straight to the correct final world-class solution without any interim steps. The answer is emerging, and we are about to embark upon the supplier consultation phase. We think that we can finalise the model by September and it will take about a year to execute.
As part of the CML transaction, we acquired the lease of the major Dougherty's Road warehouse in Melbourne. With the emphasis Bernie and I place on the importance of supply chain, the supply chain staff, previously not regarded as a mainstream part of the business, have been bemused by our internal presentations leading off with the logo, "Supply Chain is Sexy." According to the staff at the major Dougherty's Road distribution centre, Bernie was the first CEO to visit the distribution centre since Baillieu Myer over twenty years ago.
IT over-arches the physical supply chain. Quite a bit of work and development is needed in IT. The MyMerch merchandising system is nearing the go-live phase and may be switched on before Christmas. It will have some speed of data access benefits that will be nice to have.
The work of the CML staff in the supply chain, IT and other transitions has been highly co-operative, and I have nothing but praise for them.
Q. You have lost the Burwood store to David Jones. Why was that and what was the impact? How goes the "war" with David Jones?
A. This was part of a complex and expensive deal negotiated between CML and Westfield. Our smaller northern competitor paid $20 mil for the rights to Burwood store, and we will receive that as a reduction of our purchase price from CML. We will be disappointed to lose the store, but we have been recompensed to neutralise the impact. All staff will be redeployed. The bottom half demographics of the store make it seem a strange move to us. We are looking at several new stores, and would expect our 70% lead over the smaller competitor to increase. Currently our sales are growing faster. Our sales this year about to finish will be over $3.2 billion whilst the other guy will do less than $1.9 billion according to broker estimates. There is no "war." In many ways, our competition is the specialty stores. Our goals and benchmarks are against world's best practice, and in many financial cases this is Debenhams and Neiman Marcus. To what extent we succeed or otherwise is in our own hands.
Q. Much has been said lately about weakness in consumer retail demand in Australia. Are you seeing it?
A. No, based upon recent sales, but maybe that is obscured by the clearance activity. We are not at the bottom end of the demographics in the discount department store business and so are less susceptible to the variations of the economy. Our sales are growing nicely. However, we think that the economy is not a key to our future progress. If we execute our plans well, we will have strong growth in our top line, and exponential growth in our bottom line.
Q. With an acquisition price of $1.4 billion, did you pay too much? What makes you believe you can succeed where others have not?
A. Our aim is to significantly improve the profitability of the business. Based on progress in the first 50 days, and with the sales, cost, inventory and cultural improvements seen already, we are extremely confident that we will be successful. We have a number of advantages over others. Debenhams have been extremely helpful. TPG Newbridge are masters of the 100 day plan and other tools from their well of experience- Neiman Marcus, J Crew, Burger King, Petco, America West Airlines, Bally shoes, Ducati motor bikes, and the list goes on. Being private equity and able to do the long term fix and not to be hooked on short term stock market imperatives is a big plus. But most of all, I believe that we have assembled the best retail team in Australia, and Bernie is proving to be a great Managing Director.