DJs – The fallout

 

David JonesThe consequences of Woolworths’ takeover of David Jones, some definite and some possible, are significant.

The hemisphere

Woolworths wants to be one of the biggest retailers in the southern hemisphere.  This makes sense.  The fashion cycle in South Africa and Australia for example, is identical.  We both have ‘cold weather stores’ and ‘hot weather stores’.  We have a similar taste in merchandise. Do not be surprised if Woolworths is found to be looking at Brazil next.  They want scale and plenty of it.

The buyers

Woolworths does not have buyers in the usual sense of the word.  They have designers and they are backed up by highly skilled merchandise planners.  Remember that South Africa was the birth place of the world’s number one planning system, affectionately still known as Arthur.

Woolworths was not always used to this type of merchandise planning.  They learnt from the likes of Edgars and Foschini.  I have seen a buyer sit at her desk with a children’s t-shirt moving an emblem from the left side to the right side and then again to the left.  Then moving it 3mm upwards.  Then 2mm downwards.  This can take half an hour or longer until the buyer is 100 per cent satisfied.

The result of this is that it is conceivable (unlikely in my view) that some or most of the buying for DJs could move off shore to South Africa, especially if there is good merchandise planning in place.  The Woolworths buyer will simply tag an extra quantity onto their order resulting in better scale and better prices.  DJs buyers beware.

The merchandise planners

In the early 80s a couple of guys from Foschini developed what was to become Arthur.  They subsequently developed a similar product called Plan It and this was renamed Makoro – named after a type of canoe used in the Okavanga Delta in Botswana.

One result of this is that retailers in South Africa became astute at merchandise planning, certainly compared to Australia, and this resulted in the emergence of highly skilled merchandise planners.  In the late 80s, Geoff Whytcross, the number one recruiter of retailers of all persuasions in Australia, was asked to place an advertisement for a merchandise planner. He placed it not knowing what he was looking for and the applicants applied not knowing what they were applying for. At this time companies such as Edgars already had Arthur firmly entrenched.

Australia has caught up extremely well but it is conceivable but again unlikely, that merchandise planning could be handled in South Africa given much lower wages in global terms and the incredible technology available today. Merchandise planners beware.

The CEO

Paul Zahra has been asked to stay on as CEO – that is for the meantime.  Ian Moir , CEO of Woolworths and chairman of Country Road, is a bright guy. With an annual compensation of ZAR 18 million per annum and a total calculated compensation of ZAR 27 million, he doesn’t do too badly in anyone’s currency. Especially if one is spending some of it in South Africa.

Apart from his experience he has an MBA from the University of London and he played rugby.  He is a tough guy. Many retailers who have cut their teeth in South Africa are like Rottweilers.  Perhaps ruthless is too strong a word, however, it is not uncommon for a buyer or two to resign immediately after the usual six monthly merchandise reviews.

Many CEOs of retail companies in South Africa are intimately involved with the merchandise.  They know their fabrics and fashion.  Zahra will be retained for the transition but do not be surprised if a fledgling Rottweiler is in the wings.

Remember that Mark McInnes resigned in mid 2010 and 18 months later Zahra blamed McInnes for his woes just before blaming the Gillard government for the negative outlook, and remember that in August 2012 DJs posted their seventh consecutive quarter of reduced sales.  Ian Moir will not tolerate excuses and this kind of performance.

The competition

How Myer will respond is anyone’s guess.  Moir looked at Myer and wasn’t interested.  Myer looked at DJs and was interested but didn’t have the money. This in itself tells a story.  Myer will need to go into strategic mode right away or there will be tears.  Hopefully they are already in this mode using external strategists.

The landlords

Department stores are paying a couple of hundred dollars per square meter and have tens of thousands of square metres on 20 year leases and bearing in mind that spaces of a couple of thousand square metres can command say $7000 per square metre, landlords may be quite keen to see the back of some department stores.  While one shouldn’t write off department stores, they are no longer the anchors they used to be.  Do not be surprised if DJs closes a few stores and puts on hold the crazy plans that the department store chain previously had to open several more.

The suppliers

Others have already commented on the impact on David Jones’ suppliers.  With Woolworths getting their own buyer/designers (DJs or Woolworths) to develop brands, the brands that are of less importance to DJs will disappear.  Combine this with the point above and you may well see more brand shops emerging.

Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702

 

Comments

3 comments

  1. Avatar

    Paul Fetterplace posted on April 17, 2014

    Hi Stuart - nice history lesson on the evolution of the planning function in retail. Also, a thoughtful piece on the possible consequences of the Woolworths' acquisition. We're almost certain to witness a new era in department store retailing with plenty of fall out. Keep us posted. reply

  2. Avatar

    Stuart Bennie posted on April 17, 2014

    Many thanks Paul. Yes - we live in such an interesting era in retail. Regards, Stuart reply

  3. Avatar

    Michael Ratner posted on April 22, 2014

    Hi Stuart Very insightful comments. Seeing all the good things you mention were embraced by the Chairman of both Edgars and Woolworths (the same guy might I add), and with the same surname as mine ... yep we are first cousins, we are really talking of leviathans in the retailing industry. Don't anyone take their eyes off David Jones over the next few years. This is the most exciting development in retail in Australia for the last 20 years. no more place for Department Stores ... only place for exceptional retailers. Michael Ratner - COMPENDIUM reply

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