Analysis: Short-sellers deliver epitaph for Bernie Brookes' time at Myer

Myer's customers love a good sale, but not quite as much as Myer's investors who, for the past few years, have profited handsomely from betting on the shopping emporium's declining stock price.

With news of longstanding boss Bernie Brookes' departure this morning, they cleaned up again as Myer shares nosedived, retreating a further 12 per cent to $1.61.5.

Along with Brookes, chief financial officer Mark Ashby is also departing for an unspecified role offshore, a development that clearly spooked the market.

For the past few years, Myer has earned itself the unenviable distinction of being the most heavily "shorted" stock on the Australian Securities Exchange.

Short-selling is a high risk trading strategy employed by investors who believe a company's share price will fall.

It involves selling shares they do not own and hopefully profiting by buying in at a cheaper price down the track.

As of last Friday, more than 18.5 per cent of Myer's outstanding capital was short-sold.

While it has hardly been a ringing endorsement of Brookes' management, the burst of selling that greeted his departure this morning indicates investors hold little hope that his successor will deliver the goods.

Myer has been mired in controversy ever since it relisted on the bourse on Melbourne Cup day 2009.

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The shares, sold to punters in the float at $4.10 a piece, shed as much as 10 per cent on day one and have never been within daylight in the intervening years.

It is hardly fair to pin the blame entirely on Brookes, however.

Myer 'cut to the bone' during Brookes reign

The Myer float was overhyped - where model Jennifer Hawkins' vital statistics were far more prominent than earnings projections - during a brief burst of post financial crisis stock market optimism.

The former owner, US private equity group TPG, scarpered within hours of the listing, funnelling the $1.9 billion proceeds of the sale through a series of tax havens in the Caribbean and Europe.

Brookes cut Myer to the bone during its time in private equity ownership.

He sold off a huge part of the inventory, streamlined the supply chain, offloaded the real estate and controversially cut floor staff numbers.

It was a strategy that delivered fabulous profits to TPG and the private investors - which included the Myer family and himself - but left the retailer ill-prepared for the firestorm that was to engulf Australian retail.

The financial crisis devastated sales volumes as Australians eschewed credit and suddenly transformed themselves into savers.

That coincided with the rise of online distributors operating out of cheap warehouses offshore rather than high cost high street CBD shopping centres.

Just to add some fire to that lethal combination, the Australian dollar surged to record levels as the mining boom took hold, and Europe and the US engaged in an extended currency war.

Myer and its arch rival David Jones were blind-sided by the developments, and each struggled to belatedly hatch plans to cope with the new threat.

By late 2013, however, with Brookes signalling his departure, Myer believed the only option was to attempt a merger with David Jones where a vicious war between management and the board was being played out in public.

Brookes managed to renegotiate a new contract for himself, to lead the combined entity, that was far more generous than his previous package.

Base salary rose to $2 million from $1.8 million, with the potential to earn a further $3 million in bonuses.

But it all came to nought, at least for Myer shareholders.

South African-based Woolworths rode in with a far more generous offer, trumping Myer and leaving Brookes firmly in control.

After nine years at the helm, chairman Paul McClintock delivered the expected praise for the outgoing chief executive.

But he made no secret of emphasising the challenges now facing the company, that "to thrive in a modern retail environment, Myer must adapt more quickly and be closer to its customers".

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