David Jones and Myer fight to survive as shoppers turn to ‘category killers’

David Jones and Myer are fighting for their lives, and only one is likely to survive.

David Jones and Myer are fighting for their lives, and only one is likely to survive. Photo: AAP & Getty

Australia’s department store sector is in the midst of a mass extinction, and only one of the two major players is expected to survive – albeit in a drastically revamped format.

Retail turnover eked up 0.4 per cent in June, with five of the Australian Bureau of Statistics’ (ABS) six retail categories all notching up mild improvements, growing between 0.2 per cent and 2 per cent each.

However, the sixth category – department stores – bucked the overall trend with a 0.6 per cent fall, something that retail and consumer behaviour researcher, Associate Professor Gary Mortimer, told The New Daily is yet another nail in sector’s coffin.

“There’s been a change in the way we shop,” he said.

“It used to be that you would go to department stores to get everything, but now people are more likely to shop at ‘category killers’ like Rebel for sporting goods, Freedom for furniture, or JB Hi-Fi for consumer electronics.

Department stores, he said, “are no longer relevant”.

The ABS data comes as David Jones’ parent company, South Africa-based Woolworths Holdings (no relation to the Australian supermarket chain), announced it had written off $437 million from the brand’s valuation.

David Jones is now valued at $965 million; less than half the $2.2 billion Woolworths Holdings paid in 2014 to buy the iconic retailer, and it’s not a viable long term-plan for the business either, Associate Professor Mortimer said.

“You can’t continue to write down the value of a business so significantly without losing the confidence of investors and the market,” he said.

There can be only one

Both David Jones and Myer have been slow to adapt to the rapidly evolving retail space, and Associate Professor Mortimer predicts only one of them will survive the squeezing of their market share.

“Think about Grace Brothers in Sydney, McDonnell and East in Brisbane, Boans in Perth – these bastions of retail have fallen or been gobbled up by competitors,” he said.

“We’re going to see a rationalisation of full-line department stores; only one of them is going to survive and it will probably have to reduce itself to three or four flagship stores in major cities.”

Exactly when that will happen, or which of the two is likely to disappear, is more difficult to predict, Associate Professor Mortimer said.

But in the past two years alone the process appears to have accelerated and the demise of one of the two iconic outlets could occur sooner than anyone expects.

Online shopping factor

Speaking to The New Daily, BIS Oxford Economics chief economist Dr Sarah Hunter said department stores are “certainly one of the more vulnerable sectors” within retail and the rise on online shopping is taking a toll.

“Online shopping’s share of total spending has ticked up – it was at 6.1 per cent in June, up from 5.7 per cent in June last year, and that’s a big jump,” Dr Hunter said.

“It’s not surprising that we’re seeing department stores be one of the under-performers within the retail sector.”

The rate at which online shopping grows its share of the overall market is likely to slow over time, but Dr Hunter said it will still steal customers away from ailing department stores.

“If we look at other countries, online share of retail spending is much much higher than 6 per cent, so it really does suggest that there’s a lot of space for that market to expand in Australia,” she said.

“That’s something they’ll definitely be seeing and feeling within their own stores, but also as a whole sector.”

Topics: Myer
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