Inside Retail’s top 25 retailers

Doubts about the future of department stores have increased in the past year, as some of the most iconic international brands have culled their store networks amid declining sales and earnings.

These include Sears, Macy’s and JC Penney in the US as well as the House of Fraser and Debenhams in the UK.

Australia’s two major department store chains, David Jones and Myer, are faring no better than their international counterparts, with store-based sales and earnings falling, despite substantial investment in turnaround strategies.

Debate has raged for some years over the ability of department stores to survive in a period of rapid change in the retail industry, as the once-dominant retailers tinker with a business model beggared by high inbuilt costs, limited convenience and the lack of a compelling retail offer for today’s consumers.

David Jones, Myer and international department store groups have failed to reinvent themselves, relying for the most part on shuffling apparel brands and discount sales events.

The result has been the erosion of their customer base and a scramble to close or reduce floorspace in under-performing stores to reduce costs and improve productivity of remaining floorspace.

David Jones and Myer have both endured horror runs in the past two years that have seen profits tumble on the back of declining sales and internal ructions in management ranks.

There is speculation that the two chains may yet revisit a merger deal that was previously considered in late 2013 but rejected by David Jones, which instead accepted a takeover offer from South Africa’s Woolworths Holdings.

An examination of the history of the two companies realistically shows they have been struggling for decades in terms of their trading performance, a situation disguised to a large extent by their takeovers of other department store chains, such as Grace Bros, John Martins, McDonnell & East, Buckley & Nunn, Boans and Aherns.

Despite changes in management and turnaround strategies that include store upgrades and investment in online retail platforms, Myer and David Jones have both fallen down the rankings of our list of top 25 retailers for 2019.

Myer has fallen two places from 15th in 2018 to 17th this year as sales have continued to decline to just above $3.05 billion, while David Jones has dropped one place from 24th to 25th on the rankings, with revenue falling to around $1.52 billion.

The rise of supermarkets and pharmacy

As the two iconic department stores slip down the rankings, supermarkets and pharmacy groups are climbing.

Woolworths supermarkets retain the top spot on the top 25 retailers, with sales of around $37.84 billion calculated on a moving annual turnover basis that incorporates FY19 first-half growth.

The new Coles entity, demerged by Wesfarmers and listed on the Australian Securities Exchange in its own right, holds the number two position.

While the two supermarket goliaths are wrestling over percentage growth in revenues, Coles trails Woolworths by more than $6 billion. Both have been streamlining their businesses, with Woolworths close to finalising the divestment of its fuel and convenience chain and Coles looking at a deal on its own fuel and convenience chain.

The focus of both chains is on defending their market share and future profitability against international competitors, Aldi, Costco and a new entrant to Australia, Kaufland.

Aldi, the German discount chain, has been steadily climbing the rankings of Australian retail chains through new store rollouts and product range expansion. It commands around 11 per cent of the grocery market and is estimated to have current annual revenues of around $11.5 billion.

Costco has 10 hypermarket stores around Australia, with two more planned in the near future and a longerterm target of around 20 stores.

Costco has estimated sales on the moving annual turnover basis of around $1.95 billion and is currently in 24th position on 2019 rankings. The Aldi and Costco challenge – combined with the independent supermarket retailers supported by Metcash – represents a genuine

threat to the market share and sales and earnings growth of Woolworths and Coles.

However, the competitive challenge is about to get even tougher with the development of online grocery platforms and the entry of Kaufland, which has secured at least five sites for

its large-format stores in Victoria and South Australia.

Bunnings Warehouse, which Wesfarmers has retained along with discount department store chains Kmart and Target, maintains third place, with sales of around $12.89 billion.

Despite the failure of the Bunnings foray into the UK with the Homebase acquisition, the Australia and New Zealand business remains robust with increasing sales, albeit with percentage growth likely to have peaked and started to taper off.

While Bunnings was forced to abandon its UK venture after heavy losses, there are a handful of Australian retailers that have been more successful in their global expansion outside Australasia.

Harvey Norman, which is the sixth-largest retail brand in Australia, with annual sales of around $7.7 billion, has a store network in Europe and Asia.

Domino’s Pizza may have encountered some difficult issues in its Australian franchise outlets, but it continues to increase domestic revenues, while building sales in its international store networks in Europe and Japan.

Domino’s Pizza retained the 19th position on the top 25 list, with annual sales of around $2.8 billion. Other retailers that have succeeded with overseas expansion are the Cotton On Group (ranked 21st), which generates more than half its annual revenues of around $2.3 billion from outside Australia, and Chemist Warehouse, which has ventured into the challenging but promising Chinese market.

Joining the overseas push this year is Reece, the plumbing and hardware group, which jumped four places to 14th in the rankings after a US acquisition lifted annual revenue to around $3.82 billion.

With annual sales of around $5.25 billion, Chemist Warehouse has climbed from 12th position on the list to 10th this year.

Terry White Chemmart also moved up one spot in the rankings this year to 20th with sales of around $2.34 billion, while Priceline Pharmacy increased sales but fell one place to 23rd after being leapfrogged by the Wesfarmers’ Officeworks chain.

Chemist Warehouse and Cotton On are the only two Australianowned private companies on Inside Retail’s top 25 list this year, although the German-owned Aldi is also a private company.

Coles has uncoupled its liquor sales from its supermarket revenues since joining the ASX, and Coles Liquor’s sales are around $4.25 billion. Coles Liquor (ranked 13th) has a little

over half as much sales revenue as Woolworths Endeavour Drinks (ranked 5th) with sales of around $8.35 billion.

Former stablemates of Coles Liquor, Kmart and Target, as well as Big W are all under pressure if first-half FY19 sales are any indication.

Kmart has been performing strongly for a number of years and is ranked in 8th spot, just behind JB Hi-Fi. JB Hi-Fi and Bunnings qualify as the best performing retailers of the past decade. 

Kmart’s sales growth may have plateaued or been hampered by the focus on trying to turn around the ailing Target (ranking 18th), which has posted a sales increase on the list but is still well below its glory days. 

Similarly, Woolworths’ Big W continues to struggle and is expected to close stores after a fall in its revenues to around $3.52 billion which translated to a one-spot fall on the latest retailer rankings to 15th.

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