Struggling department stores are “wounded animals” approaching the 11th hour of survival and need to make consumers aware of the reasons why then need to patronise them, retail analysts say.
“If the chains, of Myer and David Jones, cannot explain the reason why we as consumers need them, then they will perish,” says Jordan Sim, director of product management at BigCommerce.
“They are wounded animals and their desperation to survive is evident among other retailers and consumers,” he said. BigCommerce, is a back-end technology platform that handles sales for fast-growing and established brands. It collects and analyses data from its users on retailing trends.
Mr Sim’s bleak outlook was reinforced by news during the week that Barneys, a nearly century-old icon of New York retail, has filed for Chapter 11 bankruptcy and put itself up for sale.
Barneys New York filing makes the luxury department store the latest victim of a retail upheaval that has seen shoppers flock online and buy from brands directly.
Closer to home, David Jones’ South African-based parent, Woolworths, recently took the knife to the Australian upmarket department store chain with an impairment charge of $437.4 million for the 2019 financial year.
The write-down reduces David Jones’ value on WHL’s books to about $985 million.
A company spokesman said the write-down reflected “sustained and unprecedented” economic pressures.
Overseas retailers are sneezing and Australia has caught the retail cold.
“The retail sector in Australia is currently in recession and the Australian economy has slowed to its weakest level since the global financial crisis in 2009,” Mr Sim said.
David Jones’ write down and Barneys’ failure in America were concrete evidence that the department store sector was “running out of time”.
“The current economic environment is such that the likes of David Jones and Myer really need to evolve with new services otherwise it will threaten their survival,” Mr Sim said.
“Its obvious they have been resting on their bricks and mortar laurels for too long and have not been nimble enough to react to the changing consumer sentiment and the arrival of the internet.”
One way to help address the slump was to re-engineer their business by way of new strategic partnerships with suppliers instead of being just a distribution centre for brands.
They were also undertaking store rationalisation by making them smaller or closing some down when the leases expire.
Analysts at investment bank UBS looked at which of Myer’s 58 leases expire by 2025 and have concluded about15 stores will expire up to 2025. Myer can potentially hand-back about 16 floors, equal to about 90,000 square metres, or 10 per cent of their total gross lettable area over the next three to four years, they say.
“In the majority of cases we expect the landlord to be able to backfill the space to improve foot traffic, sales productivity and ultimately income over time, despite short term loss of rent during remixing/fit out,” the analysts said.
David Jones has made a step in this direction by opening the Sephora store next to its Bourke Street Mall property.
The group said at the time the Sephora concept promises to complement David Jones’ existing premium beauty assortment with an outstanding list of new and exclusive brands.
“But is it all too little too late?” Mr Sim said.
“Part of the survival strategy for the chains is that they need operational efficiency and to keep relevance as a brand and that also means having a good relationship with their suppliers.”
“Otherwise all they are doing is emptying out the rowboat with a bucket.”
Or to use a boxing analogy, department stores need to get in a few good jabs with the competition and then try and land a body blow.
“I feel like Myer and David Jones are trying to accelerate growth but only getting so far,” Mr Sim said.
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