In recent years, the original value proposition of the department store – everything under one roof – has been rendered obsolete by the infinite roof of the internet. The true disruptor in this space isn’t a competitor; it’s the shift in consumer behaviour. According to Australia Post, one in five households now shop online weekly. Experts largely agree that once online penetration hits 20 per cent, a department store must reduce its physical floor space to remain profitable. Last year,
st year, 22.9 per cent of Myer’s sales came from online, driven by a commitment to its loyalty programme, Myer One, with nearly 80 per cent of online sales ‘tagged’ to the scheme. David Jones’ online penetration lags slightly behind at 20 per cent; however, its AOV (average order value) is significantly higher.
These figures are often the smoking gun behind the closure of brick-and-mortar stores. Indeed, it has been reported that Myer is shuttering its Roselands store in the suburbs of Sydney.
In the US, this is playing out in a more dramatic fashion as Macy’s aggressively executes its “Bold New Chapter”, working its way through 150 store closures.
And then there’s Saks. The department store behemoth filed for bankruptcy in January following the merger of Saks Fifth Avenue and Neiman Marcus, which collapsed under the weight of $3.4 billion of debt and a disastrous breakdown in vendor relationships. Global giants like Chanel and Kering, the owner of Gucci, were revealed as major creditors, owed a combined $196 million.
In addition to signalling the impact of online sales on traditional department stores, the collapse shattered the long-standing myth that consolidation is a silver bullet for retailers.
David Jones and Myer would do well to take note. While a merger might look like an option for the two challenged department store brands, there is a much more powerful argument for keeping them as distinct entities.
With a lower population density than other markets, on the face of it, Australia could be seen as too small to sustain two massive footprints. I’d counter that there is plenty of room for both, provided they don’t try to be the same thing.
The Australian consumer is spoilt for choice and selective. By splitting the market, Myer and David Jones can create a sustainable duopoly.
To make that possible, the two brands need to stick to their knitting. David Jones must remain focused on luxury while Myer positions itself as aspirational for the masses.
Under the leadership of Executive Chair Olivia Wirth, Myer is aggressively pivoting towards a model of vertical integration. By acquiring the apparel brands portfolio of Premier Investments, including iconic labels like Just Jeans, Portmans and Dotti, Myer now owns the margin from factory to register on roughly 26 per cent of its sales.
To maximise efficiency, Myer is also dismantling its old brand-led management in favour of a streamlined state-based model, simplifying its operations to focus on sales rather than internal duplication. With Solomon Lew joining the board, Myer is on track to become a high-margin, vertical lifestyle hub that owns the products it sells.
In contrast, David Jones is doubling down on luxury and exclusivity, positioning itself as the house of prestige. For David Jones, the future must be a service-led gallery where the value is in white-glove treatment and premium customer experience.
This differentiation is key to their individual survival.
A similar category differentiation issue is playing out in the more accessible world of discount department stores. Kmart has been successful through its consistently pure ‘everyday low prices’ strategy and turning its private label, Anko, into a household name.
Meanwhile, its main competitor, BIG W, still struggles to differentiate. Likewise, Target suffered in an oversaturated middle market for some time with confusing product strategies and no clear market positioning. Now repositioned as the ‘elevated quality’ offering of the Kmart Group, it still struggles to bring its proposition to life for customers.
In the current retail landscape, being distinctly different is no longer just a marketing strategy; it is a survival requirement to avoid the pitfalls of the middle market, where retail brands go to die.
Australia simply isn’t large enough for two major department stores to compete for the middle market. The Saks failure proves that when luxury shoppers can buy anything online, the physical store must offer something they can’t get elsewhere.
It also shows us that trying to own the whole mall leads to owning nothing. To survive, our department store brands must forge unique paths. David Jones must become a hyper-curated global luxury offering, while Myer must finish its transition into a brand conglomerate.
Nicole Miranda is the managing director of advertising agency Spinach.
Further reading: Loyalty war: David Jones signs with Qantas after Myer move
