The department store sector has been under an intense amount of pressure during the past few years, with Myer and David Jones feeling the majority of it.
But yesterday’s move by David Jones provides some insight into the company’s strategy – and it may just be what the company needs to survive.
Chief executive Paul Zahra said yesterday the company had entered into an agreement with Dick Smith Electronics – recently sold to private equity group Anchorage by Woolworths – to operate the existing electronics business under the Dick Smith banner.
Specifically, the products will be branded under “David Jones Electronics Powered by Dick Smith”.
Under the terms of the agreement, Dick Smith will acquire all of David Jones’ electronics inventory, as well as fittings. Dick Smith will be responsible for fulfilling all orders.
“Dick Smith will…pay to David Jones on a monthly basis a fixed percentage of the sales generated by the David Jones Electronics Business,” the company said.
This gets rid of a lot of problems for David Jones. It no longer has to deal with a low-margin business and it can focus on what it does best in other categories. At the same time, it provides Dick Smith with a good way to start expanding after a recent downsize.
David Gordon, partner at Lowe Lippmann, told SmartCompany this morning that the move makes “complete sense”.
“To bring in a partner that has expertise in those categories is a good move,” he says. “Their position is that they’re turning around – and so they need to focus on what they’re good at.”
The David Jones-Dick Smith partnership is a great move at turning the department store’s fate around. But more than that – it’s just a great business move.
So here are five lessons smart businesses should take away from this deal – lessons they should implement in their own companies:
David Jones is traditionally good at a few things – selling fashion and high-end consumer goods.
Televisions and electronics equipment aren’t in this category. It doesn’t employ specialists who know all there is to know about every product, and worse than that, the stores don’t even stock a lot of inventory in these categories.
When consumers head to David Jones, they want to buy dresses, suits, cosmetics and higher-priced homewares goods. Focusing on those categories is a solid move.
Televisions and electronic equipment is a notoriously low-margin business. Earlier this year the company even said it would stop selling games, music and DVDs as a first step towards transforming its electronics category.
JB Hi-Fi may have delivered an 11% profit increase yesterday, but its chief executive Terry Smart will no doubt say televisions are a low-margin game. David Jones is already heavily invested in fashion, an industry which has suffered in recent years.
Losing a low-margin category is always a good decision.
David Jones has a solid brand – at first glance it seems partnering with Dick Smith is a combination that doesn’t quite gel.
But note the branding chosen under the deal – “David Jones Electronics Powered by Dick Smith”. This is an operation run by Dick Smith, but David Jones keeps its name square in the centre of that title.
Protecting your brand is paramount. David Jones’ insistence upon such a name indicates it realises just as much.
There is a key part of the David Jones-Dick Smith agreement which provides the department store with quite a bit of power:
“The Electronics business customer database will continue to be owned by David Jones and used by the Company for marketing purposes,” it says.
Data is king. By keeping control of its database, David Jones has allowed itself a significant amount of power. Clever businesses would ensure the same.
This isn’t the first time David Jones has partnered up. Recently the company launched a deal with online retailer Shoes of Prey to set up a booth inside the department stores. There customers can use tablets to customise shoes on the website.
When a partnership is a good fit from a branding perspective, there’s no reason not to explore or experiment. Clearly allowing different companies to set up shop in David Jones is a way the department store can hedge its losses – there are almost certainly more on the way.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
