The future for retail giant David Jones
The concierge, marble steps and grand piano at David Jones’ iconic Elizabeth Street store in Sydney still whisper an age-old charm.
An immaculately groomed saleswoman with an ash-blonde bob chats idly with the pianist as his fingers dance over the ivories. Going up: womenswear. South Africa’s Woolworths Holdings, which bought David Jones for $2.15 billion two years ago, dots its own labels, such as RE: denim, among Australian fashion stalwarts. Two floors above, still in womenswear, the target market appears to leap 30 years. Further up, lingerie consumes an entire floor. Delicate lace underpinnings float against a fortress-like wall of skin-coloured compression briefs in an alarming range of sizes. And across the road in the bowels of David Jones’ Market Street menswear building, the food hall serves piles of ready-to-go ravioli alongside fruit so perfect it might as well be plastic.
This month David Jones sold that Market Street store for $360 million and laid out plans to move its head office from Sydney to Melbourne. Industry observers say that signals a willingness to break with tradition under CEO John Dixon, who joined from British retailer Marks & Spencer in January. But the old dame of Australian retail faces a tough task to reinvent herself for modern times.
Life hasn’t been easy for Australian department stores, not least David Jones. Its shares slumped following the global financial crisis, forcing it to entertain a merger proposal with rival Myer in 2014 before the South Africans stepped in with an offer. Indeed, the department store sector’s annual sales have fallen 0.4 per cent on average during the past five years and Deloitte forecasts sales growth averaging only 1.2 per cent per annum in the next five years.
“The department stores have been hit hardest of all,” said David White, national leader in the retail practice at Deloitte. “Firstly by the arrival of more international retailers, which have increased choice. And secondly, the rise of online shopping – with consumers’ ability to price check and compare brands before they go shopping – has shifted a lot of the power away from department stores to the consumer.”
David Jones seems to be gaining ground in the struggle. In March, Dixon characterised the retailer as sitting on “solid foundations” in the wake of the first good sales numbers in years. Sales rose 8.4 per cent in the 52 weeks to June 26 this year, a slight slowdown from the 11.2 per cent recorded in the first half of the fiscal year.
Meanwhile, David Jones is still adding stores at a time when Myer is closing them. David Jones has opened four new sites since the Woolworths Holdings takeover and has another four in the pipeline. Myer, which is almost 12 months into a five-year turnaround plan that is costing $600 million, has said it could reduce its selling space by up to a fifth.
But David Jones is still fighting a battle for customers on multiple fronts. There’s a shift towards specialty retail over the one-stop department stores of the past. David Jones has noted specialty retail sales are growing at 7 per cent a year compared with 2 per cent sales growth for department stores.
There is also the question of what type of customer its brand targets. Under former CEOs David Jones became more mass market, stepping more on Myer’s territory. Although David Jones has removed more than 150 fashion labels since the Woolworths takeover, some question whether it is still spreading itself too thin.
“Myer has had a larger store base than David Jones and as a result has been more mass market,” said Grant Saligari, retail analyst at Credit Suisse. “But as Myer’s store base consolidates that will give the business the opportunity to become more upscale and focus on a smaller set of premium brands. In contrast, David Jones seems to be doing some things that suggest it is looking to achieve broader appeal, like introducing a stronger base of entry-level brands.”
Woolworths has said it wants private labels to account for up to a fifth of David Jones’ sales compared with just 3.5 per cent two years ago.
But there are risks. In the 1990s David Jones embraced private labels so enthusiastically that at one point almost half its womenswear was the store’s own label. That set off a steady alienation of David Jones’ traditional customer base, which instead sought premium brands.
“David Jones has always been about brands,” said Russell Zimmerman, executive director of the Australian Retailers Association. “You went to David Jones because they had that Hugo Boss suit, for example. Now, we’re seeing Woolworths saying they are going to put in their own branded product, which has worked well in South Africa. It will be very interesting to watch.”
Meanwhile, more European and US retailers are coming to town. Thirty-nine of the top 250 global retailers – ranked by revenue from retail activities – operate in Australia, up from fewer than 17 a decade ago, according to Deloitte.
Their fast, affordable fashion is already making a dent in the department stores. Zara, which opened its first store in Australia in 2011, made $222 million in sales in the 12 months ended January 31 this year, while Sweden’s H&M reported 845 million krona ($132 million) in sales in the six months to the end of May.
Brian Walker, CEO and founder of consultancy Retail Doctor Group, believes the current department store model will look very different in five years’ time. “Even allowing for population growth, there is a finite cap on how much local retail will survive in the face of more and more international retailers coming to Australia,” he said. “We’re seeing the first wave of how the department stores are coping with this trend, investing in their omnichannel [internet sales] operations and, like David Jones, moving into newer categories such as fresh food.”
Indeed, food could offer the most promise, say David Jones supporters. Yet the retailer’s previous attempt to crack the market for premium food didn’t end well.
In the early 2000s David Jones opened large stores that sold high-end prepared meals, dry goods and liquor. But the big range of products and large store size resulted in complex overheads. Worse, David Jones didn’t always get the location right. Whereas a store in Melbourne’s Brighton prospered from day one, others, such as the one in Sydney’s Parramatta, perpetually struggled.
Peter Wilkinson, who ran Myer in the late 1980s and was CEO of David Jones between 1997 and 2004 when he resigned over mounting losses in the food business, said: “If we had stuck with a model of putting small stores in areas with the right demographics and rolling them out more slowly, it would have been a success. But Woolworths South Africa is seriously good in the food field and is most unlikely to make the same mistakes we made all those years ago.”
In John Dixon, David Jones may have a stronger playbook in food this time. Before Dixon ran Marks & Spencer’s troubled clothing business he was instrumental in the British retailer’s food business; the division makes more than half M&S’s sales. To prevent shoppers from going elsewhere for popular branded goods such as Nescafé coffee and Marmite, M&S started stocking a range of brands. But Dixon subsequently pushed back on the strategy and instead focused on creating more innovative products under the Marks & Spencer brand. His legacy lives on: just under one quarter of Marks & Spencer’s food range was new last year, a huge point of difference to rival supermarkets.
Wilkinson said that while transplanting a British food retail model in Australia wasn’t advisable, many of the key principles of what makes the business work were the same. “There’s no doubt the market for prepared and semi-prepared food in Australia is swelling rapidly,” he said. “The timing is as close to right as it’s ever been. I’d be surprised if food doesn’t become a substantial part of David Jones.”
Elsewhere, David Jones has ground to make up in the world of e-commerce. It closed its online store in the wake of the dotcom bust only to belatedly reinstate it in 2012. Dixon has previously said online sales typically account for about 5 per cent of retailers’ sales in Australia, compared with British retailers which on average make about 15 per cent of their sales over the internet. Country Road, also owned by Woolworths Holdings, bucks that trend with online sales already in the double digits.
Woolworths is pushing on all fronts to make its purchase work. Time will tell whether customers, too, will give David Jones the benefit of the doubt.
This article was first published in the print edition of The Saturday Paper on Aug 27, 2016 as "The future for David Jones". Subscribe here.