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David Jones’ parent books $437.4m impairment against department store

David Jones’ value has been slashed for the second time in the last two years, after parent company Woolworths Holdings booked an impairment of $437.4 million against the department store, reducing its valuation to around $965 million.

The impairment reflects the economic headwinds and structural changes currently affecting the Australian retail sector – as well as the general performance of the business, which Woolworths Holdings said has fallen short of expectations.

The South African retail group additionally said the Australian retail industry is currently “in recession”, and that the Australian economy has slowed to its weakest level since before the GFC.

David Jones has been undergoing a digital and online expansion, growing online sales 46.8 per cent during FY19, while focusing on reducing costs and store space, as well as launching its David Jones Rewards loyalty programme in an effort to remain relevant in the modern retail environment.

“These initiatives align us closely with the changing needs and preferences of our customers,” a Woolworths Holdings spokesperson said in a statement. 

However, it has continued to suffer falling traffic and sales. In July, the department store revealed it had seen total sales fall 0.8 per cent in FY19 compared to FY18, and comparable sales fall 0.1 per cent. 

Sales continue to be significantly impacted by the ongoing refurbishment of David Jones’ Elizabeth Street flagship store, which it expects to be completed by the third quarter of fiscal 2020. 

While Woolworths Holding’s comments echo those of NAB economists, the latest ABS retail trade figures show the broader industry is remaining fairly steady. Swinburne University lecturer of marketing Dr Jason Pallant told Inside Retail it’s hard to tell who has it right – though it’s clear department stores are finding it tough. 

“Department stores have particularly struggled being somewhat in the middle: not large enough to compete with online and international players, and not niche or targeted enough to compete with independent and specialist retailers,” Pallant said. 

“DJs competitors are in similar positions. Myer recently announced they will shrink stores to reduce costs and earlier in the year Big W announced store closures.

“Even the international department store Debenhams has announced they are leaving Australia. I think this is more of an indication of a shift in the way we are shopping, away from the department store, and towards a combination of niche brands with online.”

However, Pallant believes David Jones could be on the right track in the long-term, with a business-as-usual approach proving unsustainable.

“The idea of having a few flagships promoting the brand and range as showrooms fits well with current trends and the experience economy. The challenge then is going to be supporting those flagships with solid online fulfilment, or smaller stores for others who can’t get to those major locations,” Pallant said. 

“Personally, I think for DJs, and all department stores, it’s about finding a unique proposition for shoppers, which is easier said than done. 

“It is clear they won’t win on range, because range is essentially infinite online, so it comes down to creating unique or curated shopping experiences.”

Pallant posits an alternative use for department stores excess space – creating a more localised, experiential space for customers to shop more diverse options. 

“Does a department store really need a Country Road (or any other specific brand) if there is a dedicated Country Road store already in the centre?” Pallant asked.  

“That space might be better used as a local marketplace showcasing local designers, or an experiential zone – something unique that shoppers can’t get elsewhere, in centres or online.”

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