Global Strategy and Leadership Project 1 OVERVIEW The assignment requires you to prepare a Balanced Scorecard (BSC) or Myer as at 2016 and consider (i) what has changed in the BSC since 2010 and (ii) what will change in the BSC for 2020 with Amazon entering the retail market in Australia (see article on Amazon at the end of the assignment “Amazon’s entry puts big retailers at risk: Credit Suisse” David Rodgers, The Australian, March 20, 2017) Assignment Due Date: 16 April at 4pm Weighting: 15% (100 marks) Word Length: 1,500 words (with a 10% override) 1) ANALYSIS/REPORT TOTAL = 100 MARKS (15%) prepare a Balanced Scorecard that could have led to the much improved performance of Myer in 2016 (see article entitled “Myer doing better under CEO Richard Umbers”, David Walker, The Australian, 31 May 2016) as compared to the performance in 2010 (which was measured based on Article 3.1 published in 2010, and forward plan for 2020 for the entry of Amazon into retail in Australia. (a) Discuss what measures you have changed in the financial perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. (Maximum 350 words) (20 marks) (b) Discuss what measures you have changed in the customer perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. (Maximum 350 words) (20 marks) (c) Discuss what measures you have changed in the internal process perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. (Maximum 350 words) (20 marks) (d) Discuss what measures you have changed in the learning and growth perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. (Maximum 350 words) (20 marks) (e) Discuss possible dysfunctional consequences of the possible balanced scorecard for 2020. (Maximum 150 words) (10 marks) Written Communication and Presentation of Report (10 marks) Myer doing better under CEO Richard Umbers (article at back of assignment) DAVID WALKER The Australian, May 31, 2016 Question 3.10 Based on Reading 3.1, the following BSC assesses Myer Ltd’s performance. BSC quadrant Examples relating to Myer Ltd performance Financial perspective Weak performance overall, made up as follows: • lack of top-line growth • reliance on unsustainable cost cutting to improve profitability • lowest footprint expansion of any speciality or department store for the eight years ended 2008 • tripling of net profit growth since the sale to private equity investors in 2006 • declining share of retail sales (i.e. not growing as fast as industry) Customer perspective Weak performance overall, made up as follows: • 30% customer conversion rate (i.e. traffic through store to purchasers) below key department store competitor David Jones and significantly below 82% for Woolworths • declining share of retail sales • stocking of international and national brands • MYER one loyalty program growth—increase in sales through targeted offers Internal process perspective Medium performance overall, made up as follows: • use of buying power to negotiate lucrative deals from suppliers • cutting of cost base, reliance on cost cutting to improve profit • investment in supply chain and IT systems to get stock into stores more efficiently • focus on improved visual merchandising and layouts to better match customer movements Learning and growth perspective Medium performance overall, made up as follows: • opening of new stores over next five years • research of customer purchasing patterns • development of product association to grow sales (i.e. shirt and cufflinks/tie) • leveraging MYER one loyalty program and using data to develop tailored offerings Overall, Myer Ltd can be rated as having a weak to medium performance on the basis of this analysis. As Myer Ltd is a listed company on the Australian Securities Exchange, the weak financial performance has a high weighting in this overall assessment. A comprehensive reference list (see GBS Resource Bank – link available on L@G) - Ensure that this complies with the required format of a reference list - https://app.secure.griffith.edu.au/reference_tool/index-core.php In addition to the GBS Referencing Tool, you can also access an interactive Referencing Tool that looks at referencing styles, including: AGPS Harvard APA (American Psychological Association) 7157AFE GLOBAL STRATEGY AND LEADERSHIP – Customised Rubric 3.2 Application of Models to Real-World Events: Demonstrate research, analytical, evaluative and problem solving skills and apply models to real-world events, issues and problems Student Names & Numbers: Criteria Unsatisfactory Satisfactory Good Very Good Excellent Marks (i) Discuss what measures you have changed in the financial perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue. No references used to support arguments. The students have shown some ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated. The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated The students have shown a high level of ability to present the issue in a logical manner and to analyse the specific issue. References used to support arguments in the majority of cases. The students have shown an outstanding level of ability to present the issue in a logical manner and to analyse the specific issue. References are clearly articulated and expertly used to support arguments throughout. /20 (ii) Discuss what measures you have changed in the customer perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue. No references used to support arguments. The students have shown some ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated. The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue. Generally references are used to support arguments. The students have shown a high level of ability to present the issue in a logical manner and to analyse the specific issue. References used to support arguments. The students have shown an outstanding level of ability to present the issue in a logical manner and to analyse the specific issue. References are clearly articulated and expertly used to support arguments throughout. /20 (iii) Discuss what measures you have changed in the internal process perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue. No references used to support arguments. The students have shown some ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated. The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue. Generally references are used to support arguments. The students have shown a high level of ability to present the issue in a logical manner and to analyse the specific issue. References used to support arguments. The students have shown an outstanding level of ability to present the issue in a logical manner and to analyse the specific issue. References are clearly articulated and expertly used to support arguments throughout. /20 (iv) Discuss what measures you have changed in the learning and growth perspective and why you have changed them (i) for 2016 and (ii) what you expect to change for 2020. The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue. No references used to support arguments. The students have shown some ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated. The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue. Generally references are used to support arguments. The students have shown a high level of ability to present the issue in a logical manner and to analyse the specific issue. References used to support arguments. The students have shown an outstanding level of ability to present the issue in a logical manner and to analyse the specific issue. References are clearly articulated and expertly used to support arguments throughout. /20 (v) Discuss possible dysfunctional consequences of the possible balanced scorecard for 2020. The students have shown limited ability to present the issue in a logical manner and to analyse the specific issue. No references used to support arguments. The students have shown some ability to present the issue in a logical manner and to analyse the specific issue. Some references used to support arguments but the majority are unsubstantiated. The students have shown a good ability to present the issue in a logical manner and to analyse the specific issue. Generally references are used to support arguments. The students have shown a high level of ability to present the issue in a logical manner and to analyse the specific issue. References used to support arguments. The students have shown an outstanding level of ability to present the issue in a logical manner and to analyse the specific issue. References are clearly articulated and expertly used to support arguments throughout. /10 Written Communication and Presentation of the project including: Clarity of Expression, Logical Exposition, Succinctness, Spelling and Grammar, Referencing.(8 marks) (This mark is for an overall assessment of the written communication skills displayed for these three issues.) The students’ work reflects poor English expression. Writing is unclear, not succinct, and frequently has spelling and grammatical errors. The students present their analysis in an unclear and disorganised manner. APA or HARVARD reference style is not used. The students’ work reflects fair English expression. Writing is unclear, not succinct, and has some spelling and grammatical errors. The students present their analysis in an unclear and disorganised manner. APA or HARVARD reference style is not consistently used. The students’ work reflects good English expression. Writing is clear with few spelling and grammatical errors. The students present their analysis in a clear and logical manner. APA or HARVARD reference style is used consistently with minor flaws. The students’ work reflects very good English expression. Writing is clear and succinct with few spelling and grammatical errors. The students present their analysis in a clear and logical manner. APA or HARVARD reference style is used consistently. The students’ work reflects excellent English expression. Writing is very clear and succinct, with very few, if any, spelling and grammatical errors. The students present their analysis in a very clear and logical manner. APA or HARVARD reference style is expertly used. /10 COMMENTS and TOTAL MARKS /100 Myer doing better under CEO Richard Umbers Myer CEO Richard Umbers in the Bourke St store in Melbourne. Picture: David Geraghty Myer • 1 • 2 • DAVID WALKER • The Australian • 12:00AM May 31, 2016 • Save • • Myer became one of the more notorious private equity float disasters for investors — and there is quite a catalogue to choose from. The department store shares were sold at $4.10 in the 2009 float, closed at $3.75 on their first day of trading and never traded at or above the float price. Until recently the journey was one long litany of disappointments with falling profitability, excessive dividend payouts followed by dividend cuts, failed recovery strategies, and then a dilutive equity raising at 94c in September last year to recapitalise the group. But under new management led by CEO Richard Umbers, Myer’s sales performance is starting to improve and the company is now on my watch list for the first time in its seven years as a listed stock. Many people believed the arrival of large foreign retailers would make life harder for incumbent department stores by increasing competitive pressures, but still expected the quality of management would be the primary reason a traditional department store would perform well or fade away. This view is now being borne out. With the change to new CEO Umbers in March last year, followed by the launch of the ‘‘New Myer’’ strategy in September, the stock deserves further consideration by any serious investor. Three important metrics when researching any retail stock including Myer are: 1. Total sales, an indicator of the overall health of the company. 2. Comparable store sales — a measure of how the group is operating on a store by store basis. This excludes the boost a group may receive in opening new stores. 3. Sales per square metre, a key efficiency measure in retailing. One central problem used to be Myer’s confused approach to its customers. The post-private equity Myer was never clear about who its target customers were and haphazardly aimed for a broad mid-market approach that ended up being perceived as a down-market offer by some shoppers due to poor service and often messy, disorganised stores. Under new management Myer decided to go up-market with a more premium offer. This brings its own risks but at least Myer has now segmented its customer base, a successful strategy we have seen at many companies and not only in retail. The company delivered 7.1 per cent comparable store sales growth for the first half of 2016 — drawing investor attention to Myer’s 12 NSW and Victorian flagship and premium stores. This was higher than the 3.3 per cent comparable store sales growth across the whole network. These stores get priority for implementation of the New Myer initiatives so they will grow in proportion as Myer deweights its less valuable small and regional stores. Last week, for example, Myer announced the closure of its Wollongong and Orange stores and management has signalled a bias to allocating less capital to the other small stores. At a current share price of about $1.10, Myer is trading in line with value of about $1.15. As long as consumer sentiment holds up Myer’s sales are likely to grow solidly in coming periods due to these key factors: the introduction of more desirable third-party brands; having less unproductive trading space; and introducing more focused capital expenditure. While the long summer will dampen fourth-quarter results, the trend improvement is more material and directors are clearly more confident because they restored the interim dividend and upgraded the lower end of their 2016 earnings guidance range. As an enterprise Myer has basically become less risky. The growth in sales per square metre is telling and underlines the benefits of a mix shift towards desirable brands with better merchandising and service in premium and flagship stores. After several quarters of sales growth and improving sales productivity, it is increasingly clear the merchandise changes should drive ongoing sales growth in coming periods. The better sales performance is not yet visible in margins and earnings, as Myer is investing fairly heavily in refurbishments at the premium stores. There is also margin pressure from the Australian dollar’s depreciation. Despite better management Myer remains a consumer cyclical exposed to the vagaries of the economy and consumer sentiment, so it’s still more of a cyclical trade than a long-term hold. But for the first time in seven years Myer as investible. David Walker is senior analyst at StocksInValue.com.au Amazon’s entry puts big retailers at risk: Credit Suisse Australian online retail share of spending David Rodgers, The Australian, March 20, 2017 Retailers such as Myer, Harvey Norman and JB Hi-Fi face a “broad-reaching” impact from the prospective arrival of Amazon that appears to be “under-appreciated” by the investment community, says Credit Suisse. The Swiss investment bank says the disruptive effects on retailers’ business models and pricing are likely to be felt within five years of the global online retailer reaching our shores. A scenario analysis by Credit Suisse found that if Amazon were to enter the domestic market this year, department store operator Myer could lose up to 55 per cent of its potential earnings before interest and tax by fiscal 2022, compared with a situation where Amazon doesn’t enter the market. “Amazon forces businesses to change their business models, often to their detriment,” Credit Suisse analyst Grant Saligari said. “The lesson for Australian retailers is to be prepared with a defendable range, sustainable cost structure and sustainable allocation of capital.” Myer is the most at risk from Amazon in Australia, based on a company risk assessment combining online purchasing factors associated with customer engagement and distribution barriers, with company-specific characteristics of gross margin, cost of doing business and price positioning. For Solomon Lew’s Premier Investments, the potential impact of Amazon would be mitigated by the growth of Smiggle outside Australia. But excluding the stationery retail chain, the risk to Premier is also very high, due to the value of its customer engagement in the clothing category and its relatively high gross margin and cost of doing business. Harvey Norman, JB Hi-Fi, Supercheap Auto, Rebel and Amart Sports, BigW, Kmart and Target face “above-average risk”, while The Good Guys screen as “below-average risk”, primarily because of the bulky nature of its product and relatively low gross margins and operating costs. “Almost anything that can be put in a small box is likely to be vulnerable to Amazon,” Mr Saligari said. Offshore experience shows products that are easily substitutable or with widespread availability have been challenged, while products with limited distribution or physical or regulatory barriers to distribution have been more resilient to competition from Amazon. But Amazon’s entry would bring threat and opportunities for retailers, according to Credit ­Suisse. “For retailers with strong sourcing capability and low distribution, access to Amazon’s distribution capability could be attractive,” Mr Saligari said. “Conversely, retailers without access to globally competitive sourcing are likely to struggle, irrespective of existing distribution capability.” While Australia probably isn’t a high priority market due to its small population, the nation has many characteristics potentially attractive to Amazon and no insurmountable entry barriers. Attractions include a growing high-income population; population concentrated in a relatively small number of cities and adequate population density; high internet penetration and online shopping propensity; high retail labour costs; and attractive retail sector profitability. Five years after entry, Amazon was likely to reach a better than 5 per cent market share in many categories and third-party sellers were likely to bring global sourcing and pricing capability, in addition to Amazon’s own sourcing, according to Mr Saligari. “Supply chain changes (were) likely to disrupt domestic pricing, enhanced delivery standards (such as two-day Prime delivery) would begin to switch previously store-based shopping trips — often of high value items — to online, resulting in an adverse retailer basket mix and fall in shopping centre traffic.” In Mr Saligari’s view, there are a number of electrical, home and sporting goods categories in Australia with large enough price discrepancies versus international comparisons, and generate excess profits or have “excessive” cost structures. And a number of retailers operate with high gross margin and cost structures, which in many cases “would not be competitive with Amazon”.