Struggling department store chain David Jones’s value has been slashed by $437 million as its parent company declares Australia’s retail sector is in recession.
The food and clothing group Woolworths Holdings bought the prestigious network of stores in 2014 for $2.1 billion as part of chief executive Ion Moir’s plan to turn the company into a leading southern hemisphere retailer.
But the value of the beleaguered department store chain has shrunk to $965 million.
The writedown, the second since 2018, frames a bleak picture for department store operators around the world as shoppers opt for broader product ranges from global online players such as Amazon.
In response to the changing trends, David Jones beefed up its online offering, cut costs and store space and refurbished its Elizabeth Street flagship store in Sydney that will introduce exclusive brands in clothing, footwear and lingerie.
But the cost-cutting endeavours have been hampered by a slowing Australian economy as property prices fell and consumer spending stalled.
Woolworths Holdings said it would book an impairment of $437.4 million against David Jones, reducing the valuation of the department chain to about $965 million.
“This writedown reflects sustained and unprecedented economic pressures and structural changes in the Australian market,” a Woolworths spokeswoman said.
“The retail sector in Australia is currently in recession, and the Australian economy has slowed to its weakest level since the global financial crisis in 2009.”
The retailer said a strategic review of the David Jones store portfolio also identified stores with onerous leases, resulting in an additional provision of $22.4 million.
In 2018, Woolworths booked a non-cash impairment charge of $712.5 million against the value of David Jones due to the same reasons.
David Jones is downsizing its Sydney flagship store from two sites spread over 17 floors into one store with 11 floors and a foodie mezzanine, closing its Market Street branching and squeezing into the one Elizabeth Street premises.
Natural light will stream in from huge windows on to an area the company has dubbed “shoe heaven”. Above the shoes, in an area that was once offices for execs, will be a mezzanine with a champagne bar boasting commanding views over Hyde Park.
But this transformation is costing David Jones.
“Operationally, our strategic initiatives position David Jones for the retail environment of the future,” a Woolworths spokeswoman said.
Much like the smaller convenience-store style that Woolworths and Coles have been opening, David Jones has focused on smaller floor space in its new stores to modernise the shopping experience.
The miniature department store at Sydney’s Barangaroo, opened in late 2016, was the first of this fleet, with the South African-owned chain preferencing a layout of 1400 square metres over two floors — one-10th the size of the chain’s average department store.
This model allows both David Jones and Myer to offer a more curated range of products to suit a local demographic rather than trying to meet the needs of a broader market, Queensland University of Technology retail expert Gary Mortimer told news.com.au.
DGC Advisory retail analyst Geoff Dart said earlier this year downsizing and modifying the brands in store to increase profit margins wouldn’t work because younger consumers didn’t see any relevance in the brand.
“Which is why profits have been declining every year for 15 or 16 years. Revenue is not growing and that can only get worse,” he said.
“It’s a brand issue, it’s like Coca-Cola trying to say they’re healthy.”
— with wires
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