A taste of things to come at DJs
The initial surge in sales for David Jones under the stewardship of the listed South African retailer, Woolworths, has subsided and the department store now faces the challenge of redefining its brand and retail offer.
Woolworths acquired David Jones in June 2014 for $2.2 billion, ending overtures by Myer for a merger of the two chains in a bid to boost lagging sales and earnings and to strengthen defences against new international entrants to the market.
Woolworths bought Solomon Lew’s longheld minority stake in Country Road and its stablemate, Trenery, which the Johannesburg Stock Exchange-listed retailer already controlled as part of the deal to acquire David Jones.
A shareholding that Lew had begun building in David Jones shortly after the Wooloworths revealed its bid for the department store chain was also crucial to the takeover succeeding.
The initial sales and earnings results for David Jones under its new ownership were surprisingly strong, in part, underpinned by a retail strategy the department store group had implemented prior to the takeover, as well as consumer curiosity about what the new owners might change.
Clearing stock and reducing the number of suppliers and lines also kicked sales along in FY15 in which David Jones posted a 6.4 per cent increase in revenues, including a 3.7 per cent lift in like for like sales.
Total sales rose by 8.4 per cent in FY16 with a comparable sales increase of seven per cent, albeit the impetus of the ownership change and stock clearance activity slowed in the second half from an astounding 11.2 per cent revenue jump and comparable 9.7 per cent for the first six months of that year.
This month, Woolworths issued a trading update that revealed David Jones’ sales momentum has slowed markedly with full year revenues for FY17 up barely one per cent and like-for-like sales actually declining by 0.7 per cent.
The slower growth reflects the difficulty of David Jones cycling against such strong sales gains in the previous two financial years, as well as the fact that Woolworths management have arguably picked off the low hanging fruit in terms of sales generating initiatives.
Some analysts have suggested the loss of momentum in sales growth is due to Woolworths’ strategy of introducing private label ranges popular in its African stores and consumer reaction to the culling of ranges previously stocked in David Jones stores.
However, it is really too early to determine whether or not the strategy is working, given the cycling factor, which effectively has added nearly 16 per cent to David Jones revenues in three years, a feat not many other retailers have been able to manage.
In the trading update, Woolworths noted weak consumer confidence in Australia was considered to be a key factor in lower customer traffic in stores.
The collapse of the Dick Smith electronics concession stores in January last year also pruned back sales growth for David Jones stores by about 1 .0 per cent in the latest financial year.
The collapse of those concession outlets would have hit the comparable sales figure, which fell by 0.7 per cent in FY17
Woolworths claimed it had managed “relevant market share growth” in the past 12 months, despite encountering difficult trading conditions, especially in the second half.
Food, glorious food
Although some analysts are uncertain of the wisdom of the private label strategy, most, if not all, are enthusiastic about David Jones $100 million investment in a rollout of a gourmet food offer.
David Jones is culling its range of 14,500 food products back to around 8,500 of which 70 per cent are planned to be private label, compared to just 10 per cent currently.
The food offer aims to increase customer traffic in stores and to attract new customers who have not previously shopped at David Jones.
The $100 million investment in the next two financial years – upgrading food halls in David Jones stores and rolling out standalone outlets branded as David Jones Food – is potentially a much bigger risk than the private label program in apparel.
Apart from any other factor, it may just be that the celebrity cooking shows that have driven food experimentation by consumers appear to be starting to lose traction just as David Jones rolls out a retail offer aimed at those consumers.
While David Jones has certainly had a presence in specialty and premium food products, gourmet food retail concepts have had a chequered record and the customer demographics that are keen to buy gourmet products are also the most likely customers to shop online.
David Jones’ price points will reflect premium product and, along with convenience, they might well prove a vulnerability for the department store chain to online competitors, potentially including Amazon in the future.
However, John Dixon, David Jones CEO, is confident the premium in-store experience will outpoint online competitors and, of course, the retailer itself has an internet presence that could capture online shoppers who are store-shy.
David Jones has enlisted celebrity chef, Neil Perry, to create the new food offer for its food halls and the branded standalone outlets that will specialise in ready-to-eat meals.
In food retailing, ready-to-eat meals have been long on potential but short on delivering the forecast results, perhaps due to some extent in the high level of dining outside the home by the target customers who don’t want to, don’t have time to or don’t even know how to prepare meals themselves.
David Jones will launch its new food hall concept in the Bondi Junction store next month and expects to have the Melbourne Bourke Street store revamped with the gourmet food offer by Christmas.
Other department stores are also scheduled for the new food hall concept over the next two years.
Meanwhile at Myer
While David Jones is banking on boosting sales and earnings growth and expanding its customer base and market share with the food strategy, rival Myer remains focused on maintaining a strong brand portfolio.
Myer recently acquired Marcs and David Lawrence, which had been placed in the hands of administrators, and has been mooted as a potential stakeholder in the struggling Oroton chain.
Myer is also banking on the pulling power of the British department store brand, John Lewis, to attract customers, although the strategy has a potential risk to it in the future.
John Lewis has indicated it sees its 30 international partnerships as part of a bigger strategy to set up its own operations in other countries, effectively meaning the Myer venture could allow the brand to gain recognition before moving out as a competitor to Myer in the future.
The John Lewis ‘store within a store’ concept was initially earmarked for six premium Myer store locations and the British retailer is also keen to extend its own online sales platform in Australia.
The John Lewis outlets in Myer stores are offering bedding, bed linen, cushions, quilts and bed accessories, dinnerware, glassware, table linen and cutlery, bathroom accessories and home decorator items, including light shades.
In any event, Myer is hoping the John Lewis ‘store within a store’ concept proves to be more successful than Topshop/Topman’s, another UK brand now in the hands of administrators.
Myer held a 25 per cent stake in the Topshop/Topman franchise in Australia, partnering with Hilton Seskin, but diluted its stake to 20 per cent and began making provisions in its accounts against the shareholding earlier this year.
Myer has apparently stopped trading in 17 Topshop/Topman concessions in its stores after Ferrier Hodgson, acting as receiver managers to the Australian Topshop business, shut several standalone stores.
Seskin has blamed the collapse of the Topshop/Topman business locally on product decisions by the parent franchisor company.
While wanting to secure well regarded Australian and New Zealand brands in its portfolio, Myer is also wary of the pitfalls of the ownership of proprietary fashion labels and is attempting to run specialty stores after losing money on its Sass & Bide acquisition.
Interestingly, as Myer struggles to get Sass & Bide firing, David Jones has achieved a 5.1 per cent lift in FY17 sales for the Country Road Group that includes Trenery, Mimco, Witchery and Politix as well as the iconic Country Road.
The sales growth was impressive, but the Politix acquisition was a key factor in the 5.1 per cent gain in total sales for the financial year.
A more sobering figure for the Country Road Group was the 0.4 per cent decline in like-for-like sales for FY17.