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Losses mount as ‘bigger is better’ mentality backfires

Adam Zuchetti
Adam Zuchetti
12 September 2018 2 minute readShare
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Myer’s staggering $486 million loss may be indicative of a growing problem among businesses, where a push for size and scale actually eats into profitability.

In a statement to the ASX, the department store chain revealed that its net profit after tax was $32.5 million before “implementation costs and individually significant items”, which slashed the bottom line to a net loss of almost half a billion dollars.

It came amidst a 3.2 per cent fall in sales, a 2.9 per cent drop in operating gross profit and a 1.5 per cent rise in costs.

As a result of the loss, Myer shareholders will miss out on a final dividend.

It is a sharp fall in fortunes, given that this time last year, Myer posted a net profit of $67.9 million.

“These results are obviously disappointing and shareholders deserve better,” the retailer’s new CEO and managing director, John King, said.

“Our plan is to put our customers first in everything we do. We are refocusing our efforts on marketing and our product offering. We know our customers want high-quality, on-trend products at the right price, supported by great customer service.”

At the time of last year’s results, Myer revealed plans to slash the size of its footprint in a bid to cut costs, close down unprofitable stores and better utilise its floor space in a desperate bid to reverse declining profits.

Yet Myer is not alone in this, with mounting evidence that a “bigger is better” mentality is actually counterproductive in business, as higher costs and stretched customer-facing resources weigh on business performance.

My Business has previously heard from Flower Power CEO John Sammut, who admitted that some of the smaller stores in his network were “cannibalising” sales in larger ones – leading him to close their doors to boost overall sales volumes.

Similarly, InStitchu co-founder Robin McGowan recently revealed that his approach has been to invest in onboarding new staff before planning to launch new stores, rather than focus first on store rollout and then “scrambling” to staff them, in a bid to protect the customer experience and service reputation of his brand.

Sydney accountant Kevin San recently said he has noticed smaller businesses suffering similar pressures.

According to Mr San, the push to make events and expos bigger each year is heavily squeezing the margins of those companies – usually SMEs – in attendance.

“All of my clients in hospitality and retail are suddenly saying this year is a disaster,” he told My Business’ sister publication Accountants Daily about his concerns of oversaturation in those sectors.

“There’s… a trend for quite a lot of food-based events this year – a lot of them seem to have run aground or are failing. The organisers are trying to grow them bigger, and in increasing the number of vendors, they’ve reduced the share for everybody.”

Mr San cited the Smooth FM Festival of Chocolate in early September as a case in point, where he said vendors took in a mere 10 to 15 per cent of the revenue they had enjoyed at the same event last year.

Losses mount as ‘bigger is better’ mentality backfires
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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