Troubled department store David Jones has announced plans to reduce its footprint nationally after the hit of another bad financial result.
The retail sector — which has succumb to sustained and unprecedented economic pressures and structural changes — remains the toughest in the nation, with profits, trading conditions and employment intentions weakening again in July.
David Jones now seems poised to react to the softening conditions with plans to “aggressively close stores” across its 47 Australian stores portfolio, after revealing its results last Friday.
David Jones, whose South African owner Woolworths Holdings (WHL) recently declared Australia was in a “retail recession” as it wrote down the value of the chain by $437 million, has pinned its hopes on growing food revenue and online sales.
The write-down means Woolworths has slashed $1.1 billion from its David Jones valuation in the last two years, after buying the upmarket department store for $2.1 billion in 2014.
This isn't the first time Woolworths has written down the value of David Jones.
In January 2018, David Jones was listed on Woolworths' books for $2.4 billion. At this time, Woolworths wrote down the value of the department store by $712 million, blaming the impairment charge on tough market conditions.
David Jones' performance for the 2019 financial year fell short of expectations, the company said, with WHL's board saying the new valuation is “reflective of its prospects”.
David Jones reported an adjusted operating profit of $37 million for the year to June 2019, compared to $64 million in the previous financial year. Revenue sunk 0.8 per cent to $2.2 billion.
Adjusted earnings before income, tax, depreciation and amortisation were $103 million, an 18.9 per cent fall on the $127 million of earnings posted in the previous financial year.
David Jones pointed to the current economic environment — which has been poor for retailers, structural change in the market and disruption from the refurbishment of David Jones' flagship Elizabeth Street store for the poor outcome.
This Elizabeth Street store is partway through a $400 million refurbishment, set to finish by March 2020. The company said the refurbishment had hurt sales by 3 per cent in the second half of the 2019 financial year.
The store redevelopment is opening in several stages, with the ground floor cosmetics hall and accessories to open before the end of 2019. The menswear, home and food departments will all relaunch in 2020.
David Jones also sold its menswear store at 77 Market Street to Scentre and Cbus Property, and will move the famous food court in the basement, over the road to the Elizabeth Street store.
The company is now looking to pivot to online sales and experience based retail offerings — after a recent tie-up with oil and gas giant BP to bring its food hall experience to service stations across the country — and close unprofitable existing stores when leases run out.
Over the next six months, ten service stations in Melbourne and Sydney will exclusively stock over 350 products from David Jones Food, including free-range rotisserie chickens and long-life groceries.
A 20 per cent reduction in floor space by 2026, according to chief executive Ian Moir, was the immediate aim for David Jones, with “an absolute focus on the upper-middle to top end of the market —luxury and trend conscious customers”. Country Road Group, which it also owns, will also cut its space.
“We’ve got to exit marginal or undesirable leases on expiry or earlier through more aggressive negotiation,” Moir said.
Woolworths declined to specify the exact number of stores it would look to close or reduce.
Other major retail landlords are also under pressure as Myer aims to close about 20 per cent of its space and Big W is seeking to close 30 stores, or 16 per cent of its network.