David Jones flags cuts as profit plunges in ‘weak’ conditions
Australian retailer David Jones will close and shrink stores as part of a new ‘‘aggressive’’ relationship with its landlords in response to a consumer spending slump that has almost halved the department store chain’s profit.
Its operating profit dropped from A$64 million (NZ$68.2m) to A$37m for the last financial year, according to figures released on Thursday night, with earnings before interest, tax, depreciation and amortisation also declining 18.9 per cent.
Comparable sales were down 0.1 per cent and overall revenue for the segment dropped 0.8 per cent to A$2.2 billion.
Woolworths Holdings slashed the value of David Jones by A$430m earlier this month.
The chain has 47 Australian stores and one New Zealand store, in Lambton Quay in Wellington.
It is expected to open a store in Auckland’s revamped Newmarket mall by Christmas.
Woolworths Holdings chief executive Ian Moir said the goal for David Jones was to reduce floor space by 20 per cent by 2026.
‘‘We have got to get fewer stores and less space in the lower demographic areas; we have got to exit any marginal or undesirable leases.’’ Initially the company had indicated it would exit those leases on expiry but Moir said on Thursday he was planning to do it earlier by getting ‘‘more aggressive’’ with landlords. ‘‘You have to create partnerships with some landlords and take a more aggressive stance with other landlords but we are absolutely focused on getting our space down,’’ he said.
David Jones’ biggest landlords include large listed property players such as Vicinity Centres and Scentre Group.
Moir would not say which stores would close, nor how many, though he said regional locations was a ‘‘reasonable assumption’’. He noted a reduction in space also meant shrinking existing stores by cutting the number of floors they occupied.
‘‘That means less of some categories but more of others, different brands, taking some brands out, and introducing different brands.’’
‘‘In some of those big stores, we have got a lot of space we don’t really need because the model has changed. So we can have a much more profitable offer on much less space,’’ Moir said. The company also flagged an additional A$13m in cost savings in the business, which Moir said was from cuts across ‘‘every single area’’ of the business, including marketing and travel.
Conditions were marginally better at Woolworths Holdings’ Country Road Group, which manages the Country Road, Mimco, Trenery, Witchery and Politix brands. Operating profit dropped 2.9 per cent to A$100m, though comparable sales were up 0.6 per cent.
However, Moir said he was also looking to exit undesirable leases at stores in the Country Road Group.
He said the company would look to negotiate more turnover related leases rather than ones with fixed price increases.
Online continued to be a bright spot for both David Jones and Country Road, growing across both and contributing to 20.3 per cent of total sales at Country Road.
David Jones’ online penetration currently sits at 8 per cent. Moir is hoping to grow that to 20 per cent in five years, with the online operations ‘‘much more’’ profitable than its physical locations.
He dismissed the possibility of the brand being online only, however, saying high-end customers who spend ‘‘big bucks’’ would always want to see the product.
Woolworths predicted Australian sales for the group would grow off the back of improved consumer spending, though comparable sales growth in the first seven weeks of the current financial year had dropped 1 per cent at David Jones. Moir said Australian trading conditions were the weakest since 2009 but predicted conditions would likely improve, pointing to the stabilising housing market and tax cuts as potential drivers of a recovery. – Sydney Morning Herald