Shrewd Lew strikes again
By Manuel Greenland, Senior Portfolio Manager, Australia
07 April, 2017
Retail department store Myer has struggled against increasingly difficult trading conditions. Its department stores have lost market share to specialist retailers. The entry of international players like Zara and H&M into Australia, and the imminent arrival of internet colossus Amazon, has increased competition.
Myer’s investors have had a torrid time, with the share having never traded above its 2009 initial offer price of $A4.10. None of this stopped the respected rag-trade billionaire Solomon Lew from making a surprise purchase of 11% of Myer’s shares in March. Based on the sheer weight of Lew’s reputation, Myer’s shares jumped almost 20% on the news.
Some investors may have thought that Lew intended to buy all of Myer. Given his retailing acumen and financial muscle, Lew is well positioned to turn Myer’s fortunes around and return it to growth. There would be superb returns to anyone who could buy it while it is performing poorly and sell it later as a success. Among the brands in his listed retail business Premier Investments, Lew already has a successful niche retailer in Smiggle which itself has demanding growth ambitions. Would Lew really want to turn around a poor performer with an out-dated customer proposition when he is building Smiggle for the future? We think not.
Lew is not just a great retailer; he is also a master strategist. In 2014 Woolworths of South Africa needed his co-operation in their acquisition of Australian retailer David Jones, because he owned 10% of David Jones at the time. It would seem that Woolworths had to buy Lew’s stake in another retailer, Country Road, in order to win that co-operation. In one fell swoop Lew gained on two separate deals.
Given Myer’s challenges, it would be far easier to turnaround as a private company, outside the view of public shareholders. Anyone wanting to buy, delist and turn Myer around now needs the co-operation of Mr. Solomon Lew; and if the Woolworths acquisition of David Jones is anything to go by, that co-operation will come at a price.