Myer move to extend its retail options with FSS Retail

Myer may be preparing to launch a fresh acquisition spree for bolt-on fashion and house-ware brands after quietly setting up a corporate vehicle aimed at owning and operating free-standing retail stores.
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The move comes as Myer continues to entice upmarket rival David Jones into merger discussions to create a $3.2 billion department store behemoth that is pitched to help both chains slash their cost bases as well as better fend off incursions from the rush of foreign retailers setting up in Australia’s shopping centres and through dedicated online stores.

Documents obtained by Fairfax Media show that 12 days ago Myer established a new corporate entity, FSS Retail, believed to stand for ”Free Standing Stores”, which will potentially aggregate under the national retailer’s wings several new fashion outlets that operate outside Myer’s traditional department store format.

FSS Retail begins its corporate life with three directors; Myer chief executive Bernie Brookes, Myer’s chief financial officer, Mark Ashby, and its head of strategic planning, Greg Travers. Among his many roles, including being in charge of the office of the CEO, Mr Travers is responsible for reviewing and delivering new business opportunities for Myer.

FSS Retail is potentially being positioned to help Myer expand from its network of 67 department stores around the country by building free-standing stores that might be placed within shopping centres or along suburban retail strips.

It will also help Myer in its ambition to expand its portfolio of exclusive brands.

Last financial year Myer’s exclusive brands grew its sales by $40 million and now account for 20 per cent of the department store’s $3.1 billion in annual sales.

The retailer has set itself a target of 1 per cent growth in its Myer exclusive brand category over the next few years and the bulk of that is expected to come from acquiring new fashion labels that bring with them a portfolio of free-standing bricks-and-mortar stores.

In September Myer bought the 35 per cent of popular label sass & bide it didn’t already own for $30 million – adding to the $43 million it paid for its initial majority stake – handing it sass & bide’s portfolio of 25 free-standing stores in all mainland capital cities as well as New York and New Zealand.

In December last year senior Myer executive Megan Foster stepped down as boss of the sass & bide chain, returning to the department store fold to run its free-standing stores.

As yet Ms Foster, a one-time general manager of marketing for Myer and responsible for the $300 million redevelopment of its flagship Melbourne CBD store, is not a director of FSS Retail and it is unknown whether she will play any part in its development.

Meanwhile, further investor pressure is expected to weigh on the David Jones board this week to push its directors to begin merger negotiations with Myer. The pressure increased after Myer chairman Paul McClintock sent a letter to his counterpart at David Jones signalling some flexibility in a fusing of the two national department store chains.

The David Jones board at first rebuffed the Myer merger proposal, but late last month looked to have softened its stance, saying it would consider any proposal that was on terms that were in the best interests of its shareholders.

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Industry super funds are not all low-cost havens

It is simply untrue to assert that the funds managers of today face no risk. Yes, the money rolls in, and yes, the fees are raked out of our superannuation regardless of performance.
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But funds managers do face risks that their teachers, nurses and other working folk clientele could only contemplate. For one, there is the haunting spectre of sustaining a stain on one’s shirtfront while fine dining at an upmarket CBD nosherie.

Whether the greatest risk is posed by a splotch of ragu or of salsa alla marinara, who knows? It may even be truffle oil, or spillage from an oaky Barossa shiraz.

Lunching misadventures aside however, the risks are low and the fees inordinately high for the nation’s investment institutions. Having recently highlighted the racket that is retail funds – the vertically integrated big bank wrap platforms that dominate the investment landscape and trot off with roughly 2 per cent of our super every year – it is time to look at the industry funds.

The fees are lower, therefore the returns higher. The latest figures from the Australian Prudential Regulation Authority (APRA) show industry funds performed about 30 per cent better than retail over 10 years. It’s not that they are superior money managers, they just charge lower fees.

But get this: industry funds place billions of dollars to invest with the retail funds anyway. Rather than just plonking this wholesale money in index or ”passive” funds, a lot of it is awarded to active managers.

The irony is the active managers don’t do any better than passive, they just charge more.

The other point is the operating expenses of the industry funds are on the rise.

The largest manager, Australian Super, has seen administration and operating expenses rise from $103 million in 2006 when it managed $28 billion and had 1.3 million members, to $214 million. (It now manages $65 billion and has 2 million members). That’s a jump from $79 per member to $107 per member.

This tends to make a mockery of the case the industry funds put for their deregulation, that it would bring economies of scale; that is, more money, lower costs.

Transparency is also inadequate. Amid the glossy pictures of smiley happy people in its annual review there was a tiny mention of a $214 million cost for IT matters.

Botched IT projects and a big advertising spend are probably the two main culprits for increasing costs at the industry funds.

Even though they are apparently not-for-profit, they spend members’ funds to advertise and thereby expand their pools of money. It is ironic that the more money under management, the harder it is to outperform the market.

So there is some unnecessary empire building going on.

Further to poorly disclosed IT cost blowouts, Superpartners – the joint venture between AustralianSuper, HOSTPLUS, HESTA, MTAA and Cbus – experienced a $130 million blowout and three-year delay last year, according to The Australian Financial Review. This year it was a $250 million blowout and four-year delay.

The retirement funds – AustralianSuper, HOSTPLUS, HESTA, MTAA and Cbus – recorded their investment in IT systems as an injection of equity capital in Superpartners, not as an expense.

As for transparency, there is no standard to which to adhere. Taking a look at the HESTA annual report for instance, it shows most of the money in Australian and international equities resides with active fund managers.

It doesn’t break out active versus passive but passive would have to be less than 25 per cent since the only two domestic managers with any passive allocation are BlackRock and Industry Funds Management (the industry funds’ fund manager).

The report doesn’t provide any colour on the performance of the individual investment managers. Some of this information is available on the managers’ websites (typically the ones who have done well). For other managers, it is difficult to find performance data anywhere.

It is a good thing fees charged by the industry funds are far lower than their retail counterparts. But they have their shockers, too.

The Orwellianly renamed Progress Super Fund (it used to be the Bookmakers Superannuation Fund) lost 8.7 per cent a year over the past five years versus the median fund return of 3.2 per cent.

It ought to take a good look at its investment management mandate (with a stockbroker in Melbourne). Excessive fees of 2.9 per cent a year were charged for its ”balanced” option.

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John Singleton eyes Prime Media after board departure

Macquarie Radio Network director John Singleton has expressed interest in the regional TV company Prime Media, after Prime foreshadowed the departure of a chunk of its board following the surprise loss of its cornerstone investor.
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Mr Singleton told BusinessDay that he was ”very interested” in Prime Media, the regional affiliate of ratings leader Channel Seven, which might become a takeover target if media ownership laws are loosened to allow takeovers of regional free-to-air broadcasters by metro ones.

Prime Media’s chairman Paul Ramsay last week sold his 30 per cent stake – worth just under $100 million – to new and existing institutional shareholders, and flagged his departure and that of two other directors. It is unknown whether Mr Singleton owns any Prime shares.

Mr Singleton’s expression of interest comes after he and business partner Mark Carnegie dumped their small stake in Fairfax Media, owner of The Age, following a public stoush with the company over failed talks to merge their respective radio stations.

Talks about combining Macquarie Radio Network, which owns Sydney’s 2GB station, and Fairfax’s radio arm, owner of 3AW in Melbourne, have been going for about a decade, Mr Singleton said.

He and Mr Carnegie own 70 per cent of Macquarie Radio Network.

Documents lodged with the ASX show Gutenberg Investments – belonging to Mr Singleton and Mr Carnegie, plus major shareholder Gina Rinehart – has trimmed its stake by 0.15 per cent to just under 15 per cent of the company.

The trio’s stake was combined on legal advice, due to the friendship between Mrs Rinehart and Mr Singleton.

Mr Singleton and Mr Carnegie sold at 94¢ a share, a hefty profit on their one-year investment that was designed to deliver the radio merger.

Another major Fairfax shareholder, the fund manager Allan Gray, has trimmed its stake in Fairfax by 1 per cent to 10.4 per cent.

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H&M signs leases for major foray into Australian fashion

Melbourne’s GPO will become home to Sweden’s H&M. Photo: Paul HarrisSwedish fashion group H&M has arrived in the country and taken out a 10-year lease on a property at Eastern Creek, Sydney, being developed by Australand.
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The retailer has confirmed its first shops will open at the Macquarie Centre owned by AMP Capital Shopping Centres at North Ryde, Sydney, and the former GPO in Bourke Street, Melbourne, owned by superannuation fund, ISPT.

It was also speculated that the world’s second-largest fashion chain, after rival Zara, has signed a lease at the ISPT-owned 345 George Street, Sydney.

The property is leased to Bankwest and National Australia Bank, but in the medium term, it will be renovated to give H&M about 3000 square metres over three levels.

H&M’s Collection of Style has taken space in The Strand, Melbourne, which is next door to the former GPO in Elizabeth Street.

The lease comes as more international brands make Australia their new home.

US fashion store Forever 21 is opening its first store in Brisbane and its representatives have been in Sydney and Melbourne scouting for locations. Japanese group Uniqlo is opening in the Emporium Melbourne and is also looking at space at the Mid City Centre in Sydney.

At the 25-hectare Eastern Creek Business Centre, in the stage four development, H&M has signed the lease via a third-party logistics firm DB Schenker, at Kangaroo Close, incorporating 16,000 square metres. The average rent in the area is about $115 per square metre.

When completed, stage four will accommodate about 145,000 square metres with an end value in excess of $200 million.

Other tenants at the site at the intersection of the Westlink M7, M4 Western Motorway and Wallgrove Road, include OfficeMax Australia and Kuehne and Nagel.

In its half-year result, Australand’s chief executive, Bob Johnston, said vacancy rates were low and supply remained constrained for high-quality industrial and logistic properties.

According to CBRE’s fourth quarter, 2013 Australian industrial MarketView report, 13 major industrial transactions were completed, valued at more than $5 million, reaching a total of $1.56 billion – 49 per cent higher than during the same period in 2012.

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Gold production hits a 10-year high

Making the grade: White gold prices are falling, output is rising. Photo: Warren HackshallGold output in Australia, the world’s second-biggest producer, climbed to the highest in a decade last year as miners increased processing of higher-grade ores, according to mining consultant Surbiton Associates.
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Production increased 18 metric tonnes to 273 tonnes in 2013 from a year earlier, the highest annual output since 2003, Melbourne-based Surbiton said. Output in the fourth quarter rose to 74 tonnes from 70 tonnes in the previous three months, the highest since the quarter ended June 2003, it said.

Gold fell 28 per cent in 2013, capping bullion’s worst year since 1981, as some investors lost faith in the metal as a store of value and investor holdings decreased. Bullion has rebounded this year as concern the US recovery may be losing momentum and turmoil in emerging markets boosts haven demand.

”Producers are responding to lower gold prices by treating less low-grade material and this results in higher output and reduced costs,” Surbiton director Sandra Close said in a statement.

”The downside in processing higher-grade ore is that some lower-grade material that was economic to treat at higher prices is no longer profitable.”

Gold will decline to $US1011 an ounce as the US Federal Reserve tapers monetary stimulus and the dollar strengthens, Westpac said recently. Goldman Sachs said it would drop to $US1050 by the end of the year.

US Federal Reserve boss Janet Yellen said last week the central bank was ”open to reconsidering” the pace of scaling back asset purchases should the economy weaken. The Federal Open Market Committee, which next meets on March 18-19, announced a reduction to bond buying at each of its past two meetings.

Bloomberg

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