At today’s half-year profit reporting, David Jones posted a 19.6% fall in profit for the six months to January 28.
No quick turnaround is in sight. The high-end retailer expects a 35-40% fall in profits for the full year, and flat performance the year after that.
In a statement, the company said “challenging trading conditions and the cost of clearing excess inventory” contributed to the big profit downgrade.
But it is also partly due to David Jones’ strategy, which is a series of changes aimed at the long term.
The retailer is targeting a ten-fold increase in its online offering by Christmas. It plans to increase its stores from 36 to 42, and to invest more money in its technology and customer service. The company also plans to work with its suppliers to match global prices, and is investing in its staff and technology.
LeadingCompany asked retailing experts whether the strategy would be enough to turn around David Jones’ fortunes.
Steven Ogden-Barnes, a retail industry fellow at Deakin University, is encouraged by David Jones’ long-term focus.
He says meeting the global best practice costs companies in terms of consultancy and research – but “it’s a cost you have to bear”.
“It’s no longer adequate to be best Australian retailer – we’ve seen from productivity reports that doesn’t take you very far.
“Knee-jerk short-term fixes are the best evidence of a death-knell that you’re going to get.”
David Jones’ share price plunged 12.45% in the first 20 minutes of trade this morning, but Ogden-Barnes says shareholders may not be the best judges of the retailer’s future prospects.
“Shareholders don’t necessarily have a long-term view,” he says.
He adds that the key for David Jones is implementing its strategic plans. “It’s not just about rallying people under a clear vision… It’s about whether the message is matched [in actions].”
Ogden-Barnes says this has been part of the success of Wal-Mart in the United States, and Tesco in the United Kingdom.
“[But] there’s a lot of other cases where there’s a disjoint between words and actions.”
He also says David Jones is right to focus on its online offering.
“Any retailer who ignores an online approach is frankly delusional.”
Ben Le Brun, a market analyst with optionsXpress, said in a statement that David Jones’ online strategy needed to be addressed.
“They are perceived as being very behind the curb when it comes to online retailing. Their online sales are less than 1% of earnings.”
Brun said it is possible that online sales may grow dramatically in the future, with the percentage of retail devoted to online sales twice as high in the United States and United Kingdom.
“We can expect to follow that trend,” he said. “The high Australian dollar and tax breaks for goods under $1000 means that it can be more attractive for Australians to shop online via offshore websites.”
The managing director of Retail Doctor Group, Brian Walker, also picked out the online focus as a positive step for David Jones, saying it was “absolutely right” and having it reach 10% of sales would be a great achievement.
But he says the importance of the online strategy shouldn’t be overemphasised, as at best, it would match the sales in “one or two stores”.
“There is no one silver bullet,” he says.
“A successful strategy is going to include a range of things.
“They do have to reinvest in the business…. to improve and upgrade their fit-outs. They need to get back to having a piano in the store and focus on the absolute top end of the retail market.
“David Jones has some of the wealthiest customers in Australia on their loyalty cards – they need to get back to being a brilliant aspirational retailer.”
Walker says the David Jones brand has been blurred.
“What do they stand for in the minds of customers? Have customers changed their mind about David Jones?”
“Clearly they have, and they’re shopping elsewhere.”
Additional reporting by Kath Walters and Madeline Heffernan.
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
