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Myer (ASX:MYR): why do investors keep coming back?

Both institutional and individual investors have been doing their dough on Myer for more than 10 years now. Why? It’s a ‘value’ addiction the market just can’t shake.

Myer’s share price has now fallen for nearly 8.5 years straight. There has been occasional respite each time the company presented a new strategy, but generally it has been false hope. The stock has lost 91% of its value since listing.

It is and has been a classic value trap.

The traditional bricks-and-mortar retail industry is in structural decline, same as newspapers and television, caused by the massive disruption from online and mobile.

Department stores are the poster child for this decline. They were invented to showcase the wares of the world in one place at a time when travel was a rare treat and people marvelled at exotica from afar. Pretty sure this is not an issue today … one click and it’s in front of you, no need heading to the mall. Even if you do end up there pretty much everything on sale inside Myer is also available outside its doors in the stores of the individual brands (with perhaps some exceptions for own brands, but who needs those really in this day and age). There is not a hint of the niche required to take on the net yet the physical cost burden (mostly via long term leases) is not going away.

Even so-called industry insiders are not immune. Premier Investments has built an 11% stake in Myer in the name of forcing improvement …. Improvement which will never come whoever is in charge. It has cost their shareholders millions.

Premier itself is not immune from the structural decline. If it weren’t for the global rollout of Smiggle, and to a lesser extent Peter Alexander, the group comprises a bunch of mature retail brands which take turns improving and declining each year … but essentially running fast to stand still.

That’s not to say retail businesses cannot prosper in today’s environment. To do so rollout is essential, as is brand and some kind of immunity or firepower against the online juggernaut. Fighting with price is a lost cause.

Glennon has exposure to just one retail store operator – Vita Group (VTG.ASX), which has a large exposure to the telecommunications sector via its Telstra stores and good leverage on the demand for increased ICT (information and communications technology) functionality by individuals and small businesses (5G is just around the corner!). It is also pursuing growth in the non-invasive medical aesthetics market and will add to its recent acquisition with more acquisitions and organic store rollouts. The service nature of these businesses offer protection against the digital threat.

Glennon likes to think it can find an element of value in all of its investments. Value can be a cheap PER and a big yield, but it can also be the right entry price into a sustainably strong growth story that warrants a big PER.

There is an element of familiarity in investing which can breed laziness. Myer is a good example. Our history in the funds management game has witnessed many a manager continually return to their go-to stocks because it easier than learning new tricks. It tends to suit their formulaic methodology and rigid investment mandates. We’d rather overlay our investment processes with enough flexibility to move with the times, all the while maintaining a discipline that will avoid crazy stocks like Big Un and Getswift. Interesting concepts but that is all they were.

Value is not just cheap. And Myer has never offered good value despite constantly appearing cheap. Sometimes there are just better places to look.

Any information has been prepared for the purpose of providing general information only, without taking account of any particular investor's objectives., financial situation or needs, It is not an offer or invitation for subscription or purchase, or a recommendation of any financial product and it is not to be relied on by investors in making an investment decision. Past performance is not a reliable indicator of future performance. To the extent any general financial product advice is provided in this document, it is provided by Glennon Capital Pty Ltd ACN 137 219 866, AFSL No. 338 567. An investor, before acting on anything construed as advice, should consider the appropriateness of such construction and advice having regard to their objectives, financial situation or needs.

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