DJs, Myer try to lift their game
David Jones restructured its management team last May, abolishing John Dixon’s regional role overseeing both the department store chain and specialty retail portfolio, which includes Country Road, Witchery, Mimco, Trenery and Politix.
David Jones CEO David Thomas and Country Road Group CEO Scott Fyfe now report directly to Ian Moir, CEO of South Africa based Woolworths Holdings, which has owned the businesses since 2014.
The restructure at David Jones was somewhat surprising, but that was certainly not the case with Myer’s leadership change, after the venerable department store chain failed to stem declines in sales, earnings, market share and its share price.
John King was appointed managing director and CEO of Myer in April to attempt the turnaround that had eluded Richard Umbers, who departed from Myer two months earlier on February 14. King arguably faces a much tougher job restoring Myer back to health than Thomas faces at David Jones, in part, because Woolworths Holdings is backing its Australian management team with capital investment.
While Myer is expected to report another fall in annual sales for the 2018 financial year and to absorb substantial writedowns, David Jones’ latest results do indicate an improvement in trading after three lacklustre years. David Jones’ profit fell 50 per cent in FY18 to $64 million, reflecting cost pressures, weaker sales and capital commitments to the food hall strategy and store upgrades. Sales dropped by almost 1 per cent as total revenues, which include financial services income, fell by 3.8 per cent to $1.6 billion for the financial year.
Those numbers don’t look all that encouraging, but Moir noted that sales in the department stores had increased by 2.7 per cent in the second half and are currently up 3.7 per cent in the first seven weeks of the new financial year. The return to growth follows three years of declining sales and indicates that the company’s rebuild is gaining traction.
Moir has held his nerve on his $2.1 billion 2014 acquisition of David Jones and Country Road in a double play deal with Myer nemesis Solomon Lew and an on-market takeover offer. The early sales gains under Woolworths’ ownership were impressive but some issues with execution of merchandise strategies, the malaise of the market and competitive activity dragged results back to earth. Moir took a $712.5 million cut to the goodwill value of its Australian retail businesses, which was reported this January, effectively a one-third reduction on the book value of David Jones and the Country Road Group.
However, he appears to remain confident of future prospects, with a $76 million investment in the rollout of David Jones food concept and the upgrade of the Market Street and Elizabeth Street stores. This follows a $62 million upgrade for systems in the previous financial year that overhauled finance, merchandise, online platforms and customer relationship programs. The investment in systems and restructuring within the business has helped to trim around $25 million from the cost base of the Australian retail portfolio.
Moir said the sales growth evident in the past eight months is now starting to show the value of the investments in systems and in the
food concept, store enhancements and changes to merchandise ranges. Further store upgrades are under way with a $400 million refurbishment of the Elizabeth store, partly funded by contributions from concession retailers which will create new store-within-a-store concepts.
During the June half, Woolworths introduced a new private-label range for David Jones developed by The Country Road Group and launched a new e-commerce platform. While David Jones FY18 results were hardly a fillip to shareholders, Moir and his Australian management team have laid some solid foundations for future growth with a clear strategy that seeks to differentiate the department store group from its competitors and to maintain a focus on mid to upper market merchandise ranges.
Myer seeks direction
Myer on the other hand has suffered as a result of confusing strategies, including discount centres in prime stores, store closures and demands on concession retailers to lend greater support to the struggling department store chain.
Interestingly, Moir and Fyfe have opted to close the Country Road, Mimco and Politix concession stores in Myer and to exclusively sell
those brands through David Jones stores.
The Trenery and Witchery retail brands are already exclusively sold through David Jones stores.
Whether the move was simply a strategic decision in terms of brand alignment or a reaction to King’s demand for greater support from concession stores is unknown, but the loss of the retail brands creates yet another problem for King and Allan Winstanley, who was
appointed as Myer’s chief merchandise officer in May.
Analysts, shareholders and the wily Solomon Lew will all be looking for an indication of a more certain direction when King releases Myer’s results for FY18.
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