KGB: Bernie Brookes
Myer's chief says online operations will grow significantly, and the department store could have met its guidance but chose to resist some cost cutting to invest for the future.
Myer's chief executive officer Bernie Brookes tells Business Spectator's Stephen Bartholomeusz:
– He has never seen the retail environment as volatile as at present, and the equity market is a key driver of day-to-day sales.
– He doesn't think the federal government should provide further economic stimulus, but allow the market to work while avoiding barriers such as new taxes.
– Myer could have maintained its previous guidance through cost cutting in two areas, but chose not to because it was conscious of investing for the future.
– Maintaining exclusivity on some of Myer's top brands is critical to the success of the group's online strategy.
– While Myer aims for online sales growth to reach 8.5 per cent of total sales in the next three to five years, that figure could grow as high as 12 per cent.
– The potential for growth in online sales means there will be an opportunity to further reduce Myer's physical footprint.
Stephen Bartholomeusz: You referred today to the retail environment and you said it was difficult, unpredictable, uncharacteristic. You've been a retailer for a very long time, have you ever experienced retail conditions quite like this?
Bernie Brookes: No I certainly haven't. I mean we've had periods of time such as related back to the uncertainty associated with Y2K and certainly related back to the introduction of GST and what would be the implications there, and they're probably the only times where I think the front driving window for retailers was a little uncertain. And this is certainly a period where each day when we get our text to look at the sales you just do not know what's going to happen. It's a very, very unusual trading period where there's wild swings in people purchasing, today's equity market has an impact on tomorrow's sales and this is a highly reactionary environment and one that makes it very difficult to drive forward.
SB: I know you and others, including myself look to a whole range of different influences to explain why consumers are so defensive. If you had to point to the single biggest one what would it be?
BB: Oh I think the equity market fallout for me has a sizeable impact. The equity market is an A, B and C customer. The equity market has an impact on superannuation and I think you know although there's not a large percentage of Australians holding shares, there's a large percentage of Australians that see the value of the companies that they work in decreases as well. So the equity market I think has a sizeable impact. And I think the second thing is the uncertainty associated with both the cost of living – the uncertainty associated with the political environment the uncertainty associated with the macroeconomic environment – and when each consumer gets out of bed every morning they're faced with looking at the price of petrol, what's happened in the equity markets, looking at the price of oil and it's a cumulative effect.
So while I've answered your question with lots of things they all accumulate and it's like playing a game of 'Kaboom'. You just keep pumping up things more and more that make it a bigger balloon that eventually affects the customers. And there's always bad news, there's always bad news in regard to petrol bad news in regard to the mining tax, bad news in regard to people playing up in parliament, so it's all bad news on the front page of the paper or in the press. And despite the fact that unemployment's coming down, people are still frightened about their future job prospects, and despite the fact that they know they're getting compensated somewhat for the carbon tax they're still worried about the significant increases in the price of electricity.
SB: There's nothing much the government or any of us can do about equity markets, but should the government, and maybe the RBA do something out of the ordinary beyond the latest rate cut and the federal budget cash handouts?
BB: Oh, I'm not a fan of the government providing a stimulus to the economy because I always think at water finds its own level. And if this is the way the financial markets should be, then you might be able to stand in the way of them for a short period of time but you're not really going to control or colour what's happening in the economic environment. However I do think that the government are not doing retailers any favours with the imposition of taxes, the delay, or the decision now not to provide a reduction to the corporate tax rate. Certainly they don't help with not imposing GST on purchases from overseas websites. And you know it's not as if we ask them for incentives, nobody's due any handouts, but the government's providing barriers. And I think it's those barriers – whether it be the Medicare health levy or anything else – it seems as if they're giving with one hand and taking with another. But in doing that people only remember where they've taken things away rather than given things back.
SB: Moving more closely to Myer, in the past you've been able to protect your profitability against declines in sales by dialling down your costs, and you've done that really effectively through most of this period. Does the downgrade this week signal that you've run out of capacity to continue to do that?
BB: Oh, we could have actually reduced our costs: there are two costs we've got in the last quarter that we could have reduced and got our guidance, and this was a really difficult decision. We could have pulled the extra investment that we put in the business in wages out and we could have slowed down the development and the costs associated with our omni channel and we decided to take the guidance down rather than pull those two things out because we're conscious that we need to invest for the future. And although that was a difficult decision because it's always a bit of an embarrassment when you have to adjust your guidance, we think that we would do ourselves more damage by delaying omni channel and by not investing in customer service after we'd worked so hard to improve it, that it would have had longer-term significant impacts.
But in regard to more fully the cost base, you know we have taken all of the low hanging fruit out of the cost base, and the rest is about greater productivity, and the rest is about investing in new technology to reduce cost, and the rest is about factionalising the cost and one of the requirements of that is getting some top-line growth. And that top-line growth is not there at the moment due to a lot of macro factors. Yes, we've still got some opportunities to improve our business, our ranging, our prices, our promotion, but a lot of its to do with the macro factors that are influencing it so we're not getting any top-line growth and that would also give us a good opportunity to reduce cost. So that's a long answer but I think you understand the key message.
SB: I do. On that issue of top-line growth you've gradually evolved a kind of a new strategy and you've shifted from just opening new stores to opening fewer new stores and reducing the size of some of your stores to lift sales density. Firstly I assume that means you've had some rather difficult, awkward discussions with landlords, but secondly, is it possible in more stable conditions you can generate respectable top-line growth from a smaller number of smaller stores?
BB: Yeah, I think the stores that we've exited now, one in the ACT, that we've exited, at Tuggeranong and Forest Hill, and I think there will be one or two more over the next 12 months. That the stores we've exited now, we are able to transfer significant percentages of the customers to nearby local stores with our Myer One program. And as we're able to transit those customers it means that it becomes more efficient because you're not paying rent on two stores you're paying rent on one store. So going forward the top-line growth for us will be about firstly, optimising the portfolio by knocking out some of the bottom quartile stores, but also it's about the new stores, which give us a greater return.
I mean, the new stores are all giving us double the weighted average cost per capital return on funds employed, because the landlord contributes to the store, we fit it out, we pay an average of about eight per cent rent and what we end up with is a store that's got a higher percentage of Myer exclusive brands, a better margin and does $30 million and is earnings accretive for us. So for us that's sort of putting in the top of the funnel more highly lucrative new stores and taking out the bottom of the funnel the less lucrative stores from the bottom quartile, and new stores are lucrative because there's no cannibalisation because they're in places like Mackay and Townsville and going forward quite a few of them are in sort of land where we don't have nearby stores.
SB: One of the, to me, odd facts that came out of the presentation that you gave to analysts and shareholders was that only 10 per cent of the sales in your CBD stores come from the Myer exclusive brands, while they account for nearly a quarter of the regionals. Why is that?
BB: It's sort of a two-part answer. I think firstly we've got a lot more wholesale and concession brands in our CBD stores, because they're 35,000 square-metre stores on average, compared to an average store which is about 12-15 thousand, um, that's the place, for example we just dialled out American Apparel, and that's gone only into Melbourne and the CBD store and there'd be about another 50-100 wholesale and concession brands that are only in the CBD stores that aren't in other stores because they're so big, and the CBD stores represent 20 per cent. So Myer exclusive brand as a percentage largely reflects the bigger pie that's there of wholesale brands and what it does, there's a hell of a lot more SKUs, about 200, 000 SKUs in a CBD store compared to an average of about 50 or 60, 000 in a normal store, so MEBs is a lot more dominant in places like Dandenong and Castle Hill than it is in the CBD.
SB: You've still got something approaching 20 per cent, I think it's a bit over 18 per cent of your sales coming from brands that you either own outright or have exclusivity over, are those brands more profitable than the rest, and why is 20 per cent seen as kind of the ideal level for those brands?
BB: I think we continue to highlight that there's probably no premium now on the Myer exclusive brands. They are credible brands, they are Trent Nathan, they're sass & bide, they're Basque, they're Vue, they're Heritage, they're Jane Laverton, they're Wayne Cooper, and these are really credible brands, so the customer will decide how big brands become. If we continue on with this unique proposition, new brands, highly fashionable brands then the customers will continue to buy them and we don't see any reason why we can't have those brands up much higher than 20 per cent. If you look at Macys, Macys is now 43 per cent, according to Macys book, and if you look at Debenhams it's now over 50 per cent and you look at places like Sacks, which have just quickly gone to 10 per cent so it doesn't matter sort of as long as they're credible brands that are marketed, reinforced and encouraged at the department store level then the customer: firstly doesn't realise they're exclusive brands and secondly, if they provide a value proposition then they're going to be highly attractive for them.
SB: I assume that as you shift, as you grow the online channel that having exclusivity over those brands becomes really important because no one can undercut you if they don't have the brands?
BB: They're really important for the online strategy because you have the opportunity to sell those brands exclusively online and give a reason for a customer to come to your website. Whether it's one of our top ten brands we've listed in the presentation Vue, Heritage, Basque, you know they're big 30, 40, 50 million dollar brands, and those brands have got good brand recognition and the place to get them is either online or in store at Myer. The second thing they do is they do provide a great degree of leverage against both wholesale and concession brands,where it ensures that we've got an offer to make sure that those wholesale brands continue to market and push their product in our store to compete with the Myer Exclusive Brands. And the third part is we're controlling them, so we can decide which stores they go into, how we promote them, how we market them and how we sell them. Whereas we're at the whim as an on seller for some of the brands that we sell, that if they decide they want to withdraw them from a store of they decide they don't want to do this or change the price profile, that's out of our control.
SB: You talked quite a lot in the various presentations about the online business and at the moment its less than one per cent of sales, you think you've got a chance of getting up to eight and a half per cent or so over the next three to five years I think, but the best in class internationally is at least twice that level, and you've got Myer One with four million customers, isn't there an opportunity there to really grow that aggressively?
BB: There is and in fact I think we might be under promising on the basis of over delivery because if you look at John Lewis it's sort of 16 per cent and you look at Debenhams its sort of nearly 10 per cent and you look at what Macys are doing, for us, you know, that would be quite a minimum. Because we haven't transited it from catalogue shopping in Australia, because of the tyranny of distance there may be a few barriers that might not see it grow quite as much, but we're banking on it being you know 300 million would be 10 per cent of our business and we're banking on it continuing to grow from there. I mean the exponential rate of growth that's been achieved in Macys, Debenhams, Neiman Marcus, Bergdorf Goodman is quite sizeable and well ahead of what you're getting at bricks and mortar stores, so we see no reason that won't happen to us, but at the moment we set first benchmark, and it is the first one, as eight and a half, but getting it to 10,11, 12 because of Myer One and the exclusive nature of what we sell is certainly on the cards.
SB: In terms of your domestic peers, you're well ahead because you've got the various IT platforms and point of sale systems and the like to leverage off and Myer One as well. You've increased your SKUs online quite significantly, but there's still only I think 13,500. Overseas some of those retailers you mentioned they've got more than ten times those number of stock keeping units online, how fast can you get a competitive offering?
BB: We will too, and we've gone from sort of 6,000 to 13,000. The actual loading them on the website is as much about the current digital work that's underway between now and August and October to allow us to automatically load lines onto the site and that's the last of the development, so we've got all, as you rightly said, all the infrastructure and now it's a matter of moving towards developing just the interfaces that enable the automatic propagation onto the website so the product and the photo. That will happen between now and around about October.
The only thing we're not sure of it what is the optimum range because when we did our research customers want more product but they get cranky if there's too many of them so it's getting a balance between what the optimum amount in each category is and so we'll just continue to add product by product and research it and make sure we've got a consumer led sort of development of the site. But what's not a restriction now is the funds to do it and what's not a restriction now is the technology to do it. We've got all that it's just a matter of getting it finalised. You'll see the website, you'll see three phases on the website, the second phase without the majority is August to October this year and the third phase will be complete by about February/March next year. So it's not as if we're waiting a couple of years for this, this is all happening over the next six to seven months.
SB: You've said that online sales have lower gross profit margins that your physical stores but higher EBIT margins is that an argument for both aggressively pushing your online channel but also relatively diminishing your physical footprint?
BB: Um, the answer is certainly yes, I think for us we want to continue to push fast in online because once you get it to a critical mass of say 50 million and you've got your distribution centre it gives you the chance then to really benefit from the higher EBIT margin because of the low rents and the low wages and therefore that's one of the reasons that were fast tracking the future bottom portfolio of stores because were reviewing that bottom portfolio and knocking out the non-performing ones probably a little earlier than what we need to but we're doing it on the basis of making sure that we've optimised the store portfolio nice and early. The online offer today is key anyway in our business, both of those reports today, because we're seeing negative comp growth and so those stores that are in the bottom quartile become even more marginal, although they're profitable they become more marginal and also we're still getting a million people to the website today. It's also still there today but it's about moving faster to get ourself ready for the future.
SB: I suppose, Bernie, what I was trying to get to is whereas you're saying now that 75 stores is about the right size, could you see a future in a decade or two where 30 stores might be the right size?
BB: Oh I don't think it'd be as low as 30 because I think we've still got vast areas where there's no cannibalisation and no department store. And one of the advantages of having a big portfolio of stores is the ability to click and collect, and so let's say the internet becomes 20 per cent in 5-10 years' time they're still going to want somewhere to pick it up from and as we're seeing from overseas there's a hell of a lot of click-and-collect taking place as well as a lot of home deliveries so the store portfolio gives you a competitive advantages compared to a pure-play operator. And also remember Australia has two of the top 10 shopping malls in the world and that's because people like to shop.
You know, we've got a significant portfolio of stores and people historically love to have a day out shopping because our shopping centres are quite unique in the world. They've got two discount department stores, two department stores, a couple of hundred speciality, maybe a TAB a pub that goes with it, a child minding area, a cinema and that's something you don't see around the world; people love to shop. And I think also there is still significant market share to be gained in online both in Australia and overseas as we build that business as well.
SB: Thanks Bernie.
BB: Thanks Steve.
– He has never seen the retail environment as volatile as at present, and the equity market is a key driver of day-to-day sales.
– He doesn't think the federal government should provide further economic stimulus, but allow the market to work while avoiding barriers such as new taxes.
– Myer could have maintained its previous guidance through cost cutting in two areas, but chose not to because it was conscious of investing for the future.
– Maintaining exclusivity on some of Myer's top brands is critical to the success of the group's online strategy.
– While Myer aims for online sales growth to reach 8.5 per cent of total sales in the next three to five years, that figure could grow as high as 12 per cent.
– The potential for growth in online sales means there will be an opportunity to further reduce Myer's physical footprint.
Stephen Bartholomeusz: You referred today to the retail environment and you said it was difficult, unpredictable, uncharacteristic. You've been a retailer for a very long time, have you ever experienced retail conditions quite like this?
Bernie Brookes: No I certainly haven't. I mean we've had periods of time such as related back to the uncertainty associated with Y2K and certainly related back to the introduction of GST and what would be the implications there, and they're probably the only times where I think the front driving window for retailers was a little uncertain. And this is certainly a period where each day when we get our text to look at the sales you just do not know what's going to happen. It's a very, very unusual trading period where there's wild swings in people purchasing, today's equity market has an impact on tomorrow's sales and this is a highly reactionary environment and one that makes it very difficult to drive forward.
SB: I know you and others, including myself look to a whole range of different influences to explain why consumers are so defensive. If you had to point to the single biggest one what would it be?
BB: Oh I think the equity market fallout for me has a sizeable impact. The equity market is an A, B and C customer. The equity market has an impact on superannuation and I think you know although there's not a large percentage of Australians holding shares, there's a large percentage of Australians that see the value of the companies that they work in decreases as well. So the equity market I think has a sizeable impact. And I think the second thing is the uncertainty associated with both the cost of living – the uncertainty associated with the political environment the uncertainty associated with the macroeconomic environment – and when each consumer gets out of bed every morning they're faced with looking at the price of petrol, what's happened in the equity markets, looking at the price of oil and it's a cumulative effect.
So while I've answered your question with lots of things they all accumulate and it's like playing a game of 'Kaboom'. You just keep pumping up things more and more that make it a bigger balloon that eventually affects the customers. And there's always bad news, there's always bad news in regard to petrol bad news in regard to the mining tax, bad news in regard to people playing up in parliament, so it's all bad news on the front page of the paper or in the press. And despite the fact that unemployment's coming down, people are still frightened about their future job prospects, and despite the fact that they know they're getting compensated somewhat for the carbon tax they're still worried about the significant increases in the price of electricity.
SB: There's nothing much the government or any of us can do about equity markets, but should the government, and maybe the RBA do something out of the ordinary beyond the latest rate cut and the federal budget cash handouts?
BB: Oh, I'm not a fan of the government providing a stimulus to the economy because I always think at water finds its own level. And if this is the way the financial markets should be, then you might be able to stand in the way of them for a short period of time but you're not really going to control or colour what's happening in the economic environment. However I do think that the government are not doing retailers any favours with the imposition of taxes, the delay, or the decision now not to provide a reduction to the corporate tax rate. Certainly they don't help with not imposing GST on purchases from overseas websites. And you know it's not as if we ask them for incentives, nobody's due any handouts, but the government's providing barriers. And I think it's those barriers – whether it be the Medicare health levy or anything else – it seems as if they're giving with one hand and taking with another. But in doing that people only remember where they've taken things away rather than given things back.
SB: Moving more closely to Myer, in the past you've been able to protect your profitability against declines in sales by dialling down your costs, and you've done that really effectively through most of this period. Does the downgrade this week signal that you've run out of capacity to continue to do that?
BB: Oh, we could have actually reduced our costs: there are two costs we've got in the last quarter that we could have reduced and got our guidance, and this was a really difficult decision. We could have pulled the extra investment that we put in the business in wages out and we could have slowed down the development and the costs associated with our omni channel and we decided to take the guidance down rather than pull those two things out because we're conscious that we need to invest for the future. And although that was a difficult decision because it's always a bit of an embarrassment when you have to adjust your guidance, we think that we would do ourselves more damage by delaying omni channel and by not investing in customer service after we'd worked so hard to improve it, that it would have had longer-term significant impacts.
But in regard to more fully the cost base, you know we have taken all of the low hanging fruit out of the cost base, and the rest is about greater productivity, and the rest is about investing in new technology to reduce cost, and the rest is about factionalising the cost and one of the requirements of that is getting some top-line growth. And that top-line growth is not there at the moment due to a lot of macro factors. Yes, we've still got some opportunities to improve our business, our ranging, our prices, our promotion, but a lot of its to do with the macro factors that are influencing it so we're not getting any top-line growth and that would also give us a good opportunity to reduce cost. So that's a long answer but I think you understand the key message.
SB: I do. On that issue of top-line growth you've gradually evolved a kind of a new strategy and you've shifted from just opening new stores to opening fewer new stores and reducing the size of some of your stores to lift sales density. Firstly I assume that means you've had some rather difficult, awkward discussions with landlords, but secondly, is it possible in more stable conditions you can generate respectable top-line growth from a smaller number of smaller stores?
BB: Yeah, I think the stores that we've exited now, one in the ACT, that we've exited, at Tuggeranong and Forest Hill, and I think there will be one or two more over the next 12 months. That the stores we've exited now, we are able to transfer significant percentages of the customers to nearby local stores with our Myer One program. And as we're able to transit those customers it means that it becomes more efficient because you're not paying rent on two stores you're paying rent on one store. So going forward the top-line growth for us will be about firstly, optimising the portfolio by knocking out some of the bottom quartile stores, but also it's about the new stores, which give us a greater return.
I mean, the new stores are all giving us double the weighted average cost per capital return on funds employed, because the landlord contributes to the store, we fit it out, we pay an average of about eight per cent rent and what we end up with is a store that's got a higher percentage of Myer exclusive brands, a better margin and does $30 million and is earnings accretive for us. So for us that's sort of putting in the top of the funnel more highly lucrative new stores and taking out the bottom of the funnel the less lucrative stores from the bottom quartile, and new stores are lucrative because there's no cannibalisation because they're in places like Mackay and Townsville and going forward quite a few of them are in sort of land where we don't have nearby stores.
SB: One of the, to me, odd facts that came out of the presentation that you gave to analysts and shareholders was that only 10 per cent of the sales in your CBD stores come from the Myer exclusive brands, while they account for nearly a quarter of the regionals. Why is that?
BB: It's sort of a two-part answer. I think firstly we've got a lot more wholesale and concession brands in our CBD stores, because they're 35,000 square-metre stores on average, compared to an average store which is about 12-15 thousand, um, that's the place, for example we just dialled out American Apparel, and that's gone only into Melbourne and the CBD store and there'd be about another 50-100 wholesale and concession brands that are only in the CBD stores that aren't in other stores because they're so big, and the CBD stores represent 20 per cent. So Myer exclusive brand as a percentage largely reflects the bigger pie that's there of wholesale brands and what it does, there's a hell of a lot more SKUs, about 200, 000 SKUs in a CBD store compared to an average of about 50 or 60, 000 in a normal store, so MEBs is a lot more dominant in places like Dandenong and Castle Hill than it is in the CBD.
SB: You've still got something approaching 20 per cent, I think it's a bit over 18 per cent of your sales coming from brands that you either own outright or have exclusivity over, are those brands more profitable than the rest, and why is 20 per cent seen as kind of the ideal level for those brands?
BB: I think we continue to highlight that there's probably no premium now on the Myer exclusive brands. They are credible brands, they are Trent Nathan, they're sass & bide, they're Basque, they're Vue, they're Heritage, they're Jane Laverton, they're Wayne Cooper, and these are really credible brands, so the customer will decide how big brands become. If we continue on with this unique proposition, new brands, highly fashionable brands then the customers will continue to buy them and we don't see any reason why we can't have those brands up much higher than 20 per cent. If you look at Macys, Macys is now 43 per cent, according to Macys book, and if you look at Debenhams it's now over 50 per cent and you look at places like Sacks, which have just quickly gone to 10 per cent so it doesn't matter sort of as long as they're credible brands that are marketed, reinforced and encouraged at the department store level then the customer: firstly doesn't realise they're exclusive brands and secondly, if they provide a value proposition then they're going to be highly attractive for them.
SB: I assume that as you shift, as you grow the online channel that having exclusivity over those brands becomes really important because no one can undercut you if they don't have the brands?
BB: They're really important for the online strategy because you have the opportunity to sell those brands exclusively online and give a reason for a customer to come to your website. Whether it's one of our top ten brands we've listed in the presentation Vue, Heritage, Basque, you know they're big 30, 40, 50 million dollar brands, and those brands have got good brand recognition and the place to get them is either online or in store at Myer. The second thing they do is they do provide a great degree of leverage against both wholesale and concession brands,where it ensures that we've got an offer to make sure that those wholesale brands continue to market and push their product in our store to compete with the Myer Exclusive Brands. And the third part is we're controlling them, so we can decide which stores they go into, how we promote them, how we market them and how we sell them. Whereas we're at the whim as an on seller for some of the brands that we sell, that if they decide they want to withdraw them from a store of they decide they don't want to do this or change the price profile, that's out of our control.
SB: You talked quite a lot in the various presentations about the online business and at the moment its less than one per cent of sales, you think you've got a chance of getting up to eight and a half per cent or so over the next three to five years I think, but the best in class internationally is at least twice that level, and you've got Myer One with four million customers, isn't there an opportunity there to really grow that aggressively?
BB: There is and in fact I think we might be under promising on the basis of over delivery because if you look at John Lewis it's sort of 16 per cent and you look at Debenhams its sort of nearly 10 per cent and you look at what Macys are doing, for us, you know, that would be quite a minimum. Because we haven't transited it from catalogue shopping in Australia, because of the tyranny of distance there may be a few barriers that might not see it grow quite as much, but we're banking on it being you know 300 million would be 10 per cent of our business and we're banking on it continuing to grow from there. I mean the exponential rate of growth that's been achieved in Macys, Debenhams, Neiman Marcus, Bergdorf Goodman is quite sizeable and well ahead of what you're getting at bricks and mortar stores, so we see no reason that won't happen to us, but at the moment we set first benchmark, and it is the first one, as eight and a half, but getting it to 10,11, 12 because of Myer One and the exclusive nature of what we sell is certainly on the cards.
SB: In terms of your domestic peers, you're well ahead because you've got the various IT platforms and point of sale systems and the like to leverage off and Myer One as well. You've increased your SKUs online quite significantly, but there's still only I think 13,500. Overseas some of those retailers you mentioned they've got more than ten times those number of stock keeping units online, how fast can you get a competitive offering?
BB: We will too, and we've gone from sort of 6,000 to 13,000. The actual loading them on the website is as much about the current digital work that's underway between now and August and October to allow us to automatically load lines onto the site and that's the last of the development, so we've got all, as you rightly said, all the infrastructure and now it's a matter of moving towards developing just the interfaces that enable the automatic propagation onto the website so the product and the photo. That will happen between now and around about October.
The only thing we're not sure of it what is the optimum range because when we did our research customers want more product but they get cranky if there's too many of them so it's getting a balance between what the optimum amount in each category is and so we'll just continue to add product by product and research it and make sure we've got a consumer led sort of development of the site. But what's not a restriction now is the funds to do it and what's not a restriction now is the technology to do it. We've got all that it's just a matter of getting it finalised. You'll see the website, you'll see three phases on the website, the second phase without the majority is August to October this year and the third phase will be complete by about February/March next year. So it's not as if we're waiting a couple of years for this, this is all happening over the next six to seven months.
SB: You've said that online sales have lower gross profit margins that your physical stores but higher EBIT margins is that an argument for both aggressively pushing your online channel but also relatively diminishing your physical footprint?
BB: Um, the answer is certainly yes, I think for us we want to continue to push fast in online because once you get it to a critical mass of say 50 million and you've got your distribution centre it gives you the chance then to really benefit from the higher EBIT margin because of the low rents and the low wages and therefore that's one of the reasons that were fast tracking the future bottom portfolio of stores because were reviewing that bottom portfolio and knocking out the non-performing ones probably a little earlier than what we need to but we're doing it on the basis of making sure that we've optimised the store portfolio nice and early. The online offer today is key anyway in our business, both of those reports today, because we're seeing negative comp growth and so those stores that are in the bottom quartile become even more marginal, although they're profitable they become more marginal and also we're still getting a million people to the website today. It's also still there today but it's about moving faster to get ourself ready for the future.
SB: I suppose, Bernie, what I was trying to get to is whereas you're saying now that 75 stores is about the right size, could you see a future in a decade or two where 30 stores might be the right size?
BB: Oh I don't think it'd be as low as 30 because I think we've still got vast areas where there's no cannibalisation and no department store. And one of the advantages of having a big portfolio of stores is the ability to click and collect, and so let's say the internet becomes 20 per cent in 5-10 years' time they're still going to want somewhere to pick it up from and as we're seeing from overseas there's a hell of a lot of click-and-collect taking place as well as a lot of home deliveries so the store portfolio gives you a competitive advantages compared to a pure-play operator. And also remember Australia has two of the top 10 shopping malls in the world and that's because people like to shop.
You know, we've got a significant portfolio of stores and people historically love to have a day out shopping because our shopping centres are quite unique in the world. They've got two discount department stores, two department stores, a couple of hundred speciality, maybe a TAB a pub that goes with it, a child minding area, a cinema and that's something you don't see around the world; people love to shop. And I think also there is still significant market share to be gained in online both in Australia and overseas as we build that business as well.
SB: Thanks Bernie.
BB: Thanks Steve.
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