Myer buys into TopShop to address falling profits

Myer is buying 25% of the Australian TopShop franchise in a bid to boost its ailing balance sheet with the retail giant reporting today a 21% drop in underlying net profit to $77.5 million. 

As part of the deal Myer will invest in TopShop’s seven existing stores and will roll out TopShop concessions in more than 20 Myer stores from November 2015.

Myer chief executive Richard Umbers revealed the deal this morning as part of the unveiling of the “New Myer Strategy” under Umbers’ direction.

Umbers took over as chief executive from Bernie Brookes in March this year.

The strategy involves a $600 million investment over a five-year period with a greater focus on Myer’s best stores and most valuable customers.  

Myer will raise $221 million from capital markets to fund the strategy, which will include concentration on Myer’s 40 to 50 most-wanted brands and the addition of more restaurants, cafes and event spaces.

Myer is also aiming to increase Click and Collect as proportion of online sales and improve delivery times for online ordering.

“Today’s announcement is a powerful validation of Myer’s commitment to delivering inspiring brands and wonderful experiences as we set out to bring the love of shopping to life,” Umbers says.

“TopShop, TopMan is a wanted brand globally and fully aligned with our strategic objective to provide a sharper, more focused offer to our customers.”

Umbers says the brand brings “outstanding fashion” and “cutting-edge design” to Myer customers who want current and affordable styles.

The fast fashion retailer will deliver new product into Myer stores twice a week according to Hilton Seskin, chairman of TopShop Australia.

“The Myer partnership brings scale to the business within the Australian market,” he says.

“The international design team from TopShop TopMan UK ensures seasonally relevant, constantly updated product that reflects the local market’s demand for global trends direct from the runway.”

Brian Walker, chief executive of the Retail Doctor, told SmartCompany it’s a “pretty smart deal” all around.

“It’s all really about Myer revitalising itself,” he says.

“It’s about Myer trying to eke out a point of difference.”

Walker says the deal will rescale Myer to be more relevant particularly in the youth market and will allow the store to address its loss of market share to international fast fashion retailers like H&M and Zara.

“From TopShop’s point of view it gives it an existing footprint and eliminates the need to find sites,” he says.

Walker says TopShop needs to ensure it keeps its edginess and its mix. 

“Anecdotally TopShop’s sales here were starting to flatten out a bit so that could address this,” he says.

“Myer has a way to go but this is a good step in the right direction.”   

While underlying profits are down Myer announced total sales grew 1.7% in the 12 months to June to $3.1 billion, up 1.1 on a same-store basis.