Bernie Brookes makes his stand

Myer boss Bernie Brookes says he is confronted with the challenge facing his business every night when he arrives home to find that his son has bought from an online store, “something which he should have bought from Myer”.

While Brookes jokes that he used to try to send his son to the naughty corner, he says the flood of parcels has slowed in recent months after his son had a few “online disappointments” such as an ill-fitting pair of jeans and a few shirts with sleeves that were too short.

This is just a small example of why Brookes has taken what he says is a “contrary view” to the idea that online retailing could eventually kill off bricks and mortars stores.

While he says Myer’s websites are currently “average at best” Brookes believes the company – and other mainstream retailers – will eventually overhaul pure online retailers in Australia.

As proof, he points to the United States, where he says that 18 of the top 20 online retailers also run extensive store networks – Amazon and 1800 Flowers are the only pure-play online retailers on that list.

“Over the next few years, people are going to prefer to buy from local retailers,” Brookes told a breakfast today hosted by SmartCompany blogger Brian Walker and his Retail Doctor Group consultancy.

Brookes says that he sees “significant barriers” for pure online retailers that will give bricks and mortar retailers the chance to build sales and profits through a combined online/offline offering.

These barriers include relatively high freight costs in Australia; broadband penetration levels; the lack of a mail-order buying culture that exists in the US; the exclusive ranges that department stores can build; and in-store services that physical retailers can offer.

“[Online] is not something you should be frightened of,” Brookes told the retailers in the room.

Brookes attitude to online is underlined by his view of the headwinds currently smashing the retail sector.

While many commentators – including retail lobbyists – say the industry is being hit by a structural change driven by the rise of the internet, the strength of Australia’s currency, changes to the industrial relations landscape and increased household savings, Brookes says the current headwinds are cyclical.

He says Australian retailers saw similar periods of poor consumer confidence in the 1970s, 1980s and early 1990s and the market will eventually turn.

“It’s nothing more than a cycle,” Brookes says, arguing that successful businesses must be prepared to stick to long-term plans and keep investing in lean times to ensure they maximise the benefits of an uptick in the economy.

“Don’t get too tactical when times get tough.”

Though Myer is continuing to push ahead with moves to improve its online presence, the bulk of its capital investment in the coming years is in bricks and mortar, including an aggressive rollout plan for 12 new stores over the next three years (taking total stores to 80).

Brookes is a persuasive speaker and history suggests that his premise that the current retail malaise is a storm that has to be ridden out could well prove to be correct.

But what else can he really say? Myer is so invested in its physical retail model that to concede the business is being hit by structural changes suggests its future is very cloudy indeed.

And while it’s always dangerous to say that this cycle is different, it does appear Brookes and Myer are going to face a few unique challenges in the coming years.

With the Australian dollar likely to remain stronger for longer, the erosion of in-store sales by eCommerce will continue. The parlous state of the global economy will improve, but with a very slow recovery likely the turnaround in consumer confidence that Brookes needs might be some time in coming.

Brookes may well be right that bricks and mortar stores can eventually grab a much larger slice of the online retail pie by cleverly integrating their online and offline operations.

He may also be right that Myer’s investment in its strong loyalty program Myer One, its supply chain efficiency and its exclusive brand strategy, leaves it in a strong position to make this transition.

But with an online presence that it admits is “average at best” the retailer has a lot of ground to make up. The question I came away from this morning’s speech with was: How quickly does it really want to make that transition?

Myer is working to improve its websites, but as Brookes made clear this morning, his big bet is really on positioning his bricks and mortar stores for a turnaround in consumer spending.

If that doesn’t arrive soon, Myer may face a bit of structural change of its own.