It has taken just eight years for iconic Australian retailer David Jones to go from being worth $2.1 billion to now being sold for as little as $100 million.
DJs’ South African owner Woolworths Holdings (no relation to Australia’s Woolworths Group) confirmed on Monday the department store would be sold to Sydney based private equity firm Anchorage Capital.
It’s a stunning drop in value for the 184-year-old retailer which, by some metrics, is now worth around 95 per cent less than what it was when Woolworths Holdings (WHL) bought it.
Online the seemingly woeful sale price has been described as “pitiful” and “daylight robbery”.
So little is DJs now worth, that its Melbourne CBD store building – valued at as much $250 million and not included in the sale – is now worth twice the amount of the rest of the chain.
A retail expert has said a combination of consumers going cold on department stores, too many branches and a revolving door of executives has humbled David Jones.
And yet, despite the sad sale price, things many not be as gloomy as they might seem for DJs. Say it quietly, but the department store grand dame could even be on the up.
In November, WHL said turnover and concession sales at DJs had risen more than 55 per cent in the past six months.
CBD stores, which had been bereft of customers during much of the pandemic were now “performing well ahead of expectations”.
Online sales now made up around 16 per cent of overall sales and physical store space has been reduced by 5 per cent.
After a torrid few years for department stores, David Jones is not the only one celebrating. Arch rival Myer has seen sales rise 12.5 per cent in six months including its strongest second half profit in almost 10 years.
DJs sale announced
On Monday, WHL announced it had agreed to sell David Jones in its entirety to Anchorage which sates it “invests in businesses operating below their full potential”.
WHL will maintain ownership of the Bourke Street, Melbourne, store and lease it back to the new owners.
“Notwithstanding the commendable progress made in the turnaround of David Jones over the past two years, which has resulted in a significant improvement in the underlying operational and financial health of the business, WHL concluded that the David Jones business was no longer aligned to the strategic objectives of the Group,” the company said in a statement.
The purchase is expected to be completed in March.
It did not disclose the sale price but its thought to be as little as $100 million.
David Jones’ challenges
Already the owner of a stack of fashion brands in Australia – such as Country Road – Cape Town-based WHL bought the chain in 2014.
It hoped David Jones would be complementary to Country Road and its upscale Woolworths fashion and food chain which has stores across southern Africa.
This didn’t happen.
“The strategic rationale at the time of the acquisition did not materialise to the extent originally envisaged,” WHL’s CEO Roy Bagattini said on Monday.
In October, Mr Bagattini added that while WHL’s African operations and David Jones seemed like a good match – they weren’t. Woolworths in South Africa was primarily an own label retailer while DJs has always been about fancy brands.
Country Road, which Woolworths plans to hold onto, was a far better fit for the firm.
Indeed, it’s been something of a turbulent ride since the WHL takeover.
“Retail experts have long pointed to both external and internal challenges facing, not just David Jones, but the modern department store sector,” QUT professor of marketing Gary Mortimer told news.com.au.
The general waning in popularity of department stores, competition from Myer, and the high cost of store space had weighed down the retailer, he said.
The rise of online rivals has impacted legacy retailers. But the very fact a good chunk of DJs’ own sales are now digital has presented other challenges.
“David Jones’ level of online revenue puts in question whether they need 44 stores,” said Prof Mortimer.
Since the takeover WHL has tried multiple times to set DJs in new directions.
It experimented with smaller format department stores but ended up closing the only two that opened.
A foray into New Zealand was only partially successful with the shuttering of the Wellington store.
David Jones opened stand-alone food halls in ritzy suburbs and even fancy convenience stores at BP petrol stations – strategies that had worked in South Africa. But the smaller food halls and service station shops are all gone.
And of course Covid-19 went through retailers like a wrecking ball.
Between 2018 and 2019, Woolworths wrote down the value of David Jones by more than $1 billion.
Prof Mortimer said there was another factor – a seemingly constant changeover of CEOs.
“David Jones is now on their fifth CEO in less than six years.”
But current head honcho Scott Fyfe, who used to run Country Road, has been doing his best to continue the effort to turn the ship around.
What David Jones has been doing right
DJs has in recent years focused on higher end brands to differentiate it from Myer. Subsequently it has closed stores either in areas that can’t support this model or if another DJs was close by. It has also reduced floor space in some branches – for instance by consolidating its Melbourne and Sydney CBD stores into one building.
The firm invested $200 million in a high specification and well received revamp of its remaining Sydney’s CBD store to turn it into a luxury fashion destination.
It has also been busy pocketing cash by selling off its stores and leasing them back.
The still-trading Sydney CBD store was sold for $510 million. It has also sold the former men’s store in Sydney for $360 million and the men’s store in Melbourne for $121 million.
David Jones was no longer reliant on cash injections from its parent company. With sales on the up and a desire to focus on Africa, Woolworths was keen to sell.
Sale price not quite as dire as it seems
The potential $100 million asking price for David Jones is low indeed – but it may not be as dire as it first seems.
For instance, it doesn’t include the Melbourne Bourke Street store which is valued at $250 million. The exclusion of the Bourke St flagship store and the sale of various other properties is one factor in DJs’ much reduced valuation between 2014 and now.
But that reasoning only goes so far. There’s no sugar coating that DJs, along with many other department stores, are now worth far less than they were.
Anchorage is happy with the general direction of DJs and will keep on CEO Scott Fyfe and peruse his strategy of store revamps, some reductions in floor space, higher end products and an increased focus on online.
But the company is also likely to cut back office costs too.
With more modern stores, more customers and online thriving, DJs might just be in the best shape it’s been for some time.
But Prof Mortimer said in the end something else may have to give to assure David Jones of its future in Australia.
“Ultimately, the target market of middle-to-high income consumers, may only be viable to sustain one flagship department store, located in each major CBD.”