Can Myer and DJs halt their slide into irrelevance?

Last year Myer chief Bernie Brookes said retail conditions were “as tough as I’ve seen them”. This has been a go-to reason given by Brookes and David Jones’ head Paul Zahra for their performance in recent years. To blame this for their troubles is fair, up to a point. After the GFC, consumer sentiment collapsed. Most customers held back on the non-essentials, and scoured the market for bargains.

But during this period of restraint Myer and David have opened dozens of stores. David Jones operates 36 stores, with another six in the pipeline, while Myer plans to have twice that number by 2016.

“My view is they expanded too quickly,” says Brian Walker, the CEO of retail consultancy Retail Doctor Group. “The Bourke Street Myer in Melbourne is a world-class destination. But it’s very hard to maintain that sort of standard in the suburbs. You and I could walk into a David Jones or Myer in the ‘burbs and be pretty underwhelmed.”

The point of putting a department store within reach of most Australian consumers is to make it their go-to destination for high-end, quality goods. But online retail offers the same goods, often at cheaper prices than Myer and David Jones.

The two companies were caught out by the rise of online shopping. David Jones opened an online store in 2000. After losing millions, it shut it down in 2003, when most of its online rivals were struck by the dotcom crash, which took down most of the early online retailers. Mistaking the skirmish for the war, David Jones didn’t reopen its online store until 2010. Myer was quicker, opening an online gift shop in 2007.

In response to their collapsing margins, David Jones and Myer cut staff numbers. This collapse in service led to a customer backlash. The two companies are now hiring more staff in a bid to boost customer service.

While the department stores opened and shut online stores, and fired then rehired sales staff, their rivals have grown. Recent years have seen the arrival of fast-fashion maestros Zara and Topshop, along with high-end brands such as Dior and Burberry opening Australian stores. We have more alternatives than ever when it comes to high fashion – once the domain of the department store.

These are the reasons David Jones and Myer are being squeezed. But are these problems universal or specific to Australian department stores? The answer depends on who you talk to.

Department stores are doing it tough all over

Walker sits on Myer’s Innovation Council. In recent years he’s also been a moderator at the World Department Store Forum. He says the concerns over the future of department stores are fairly common no matter what continent you’re on.

“All over the world there’s a general awareness that department stores to survive need to adapt to the times and lead through them,” he says.

But not all department stores are doing badly. Despite facing a notoriously difficult retail environment, Britain’s are doing alright.

The UK has three major department stores: Selfridges, Harrods and John Lewis.

“Selfridges is having a good time of it, and this is the best time in the history of John Lewis. They’re breaking their sales records every year,” says Mark Ritson, a professor of marketing at Melbourne Business School. Ritson is a consultant for many high-end brands sold in department stores.

Harrods – sold to Qatar Holdings in 2010 – posted a 15% rise in pre-tax profits last July. That comes on top of a 39% rise in profits the year before. In 2011 the company made record sales, surpassing the £1 billion mark.

A year later, Selfridges also broke through the £1 billion sales barrier for the first time in its history – a 5% jump in sales on the year before.

Employee-owned John Lewis, famous for its “Never knowingly undersold” slogan, enjoyed a profit rise of 20% in 2010, followed by an 8.7% fall in 2011 as it disastrously tried to match the prices of online rivals. However, 2012 saw it post a 60% profit rise.

Across the Atlantic ocean, American department stores suffered a dip in 2009 but some have since rebounded. Last Friday, Nordstrom posted its fifth consecutive quarter of double-digit year-on-year revenue growth. The Seattle-based store has managed to carve out a successful niche in online retail, opening its web store in 2000. New York’s Macy’s has also rebounded from a disastrous 2009.

Ritson says the reason many foreign department stores are in a far stronger position than Myer and David Jones is because they’re properly differentiated from each other – each possessing a different target shopper and enjoying different brand attributes. He says the fact that we always mull the future of David Jones and Myer in the same sentence is testament to the fact that in consumers’ minds, they’re utterly interchangeable.

In the Melbourne CBD, Myer and David Jones sit side by side in Bourke Street Mall. “Knock a door between the two, and people wouldn’t know which store they were in,” Ritson says. “The stores are identical! I think it’s quite an achievement that they both renovated and came up with such nice, utterly undifferentiated stores.”

Told of Kierath’s merger idea, Ritson laughs and says: “It wouldn’t be expensive.”

Some say David Jones and Myer are in trouble because they’ve lost their place in society. As Gilbert Rochecouste of Village Well puts it, department stores cannot survive if they are monuments only to consumption.

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