The cuts keep coming for Australia’s once-dominant major department stores.
David Jones owners Woolworths South Africa plan to reduce floor space at their Australian stores by 36,000sqm and close another three stores by mid-2024, according to a financial presentation the company made to investors this month.
Over at arch-rival Myer, chief executive John King confirmed cuts to floor space, or what he calls “rationalisation”, will continue. Since 2018, Myer has cut 11.1 per cent of its floor space.
“It’s more about floors, not stores. We don’t need four floors any more,” Mr. King told analysts. “We might need one floor or two floors or three floors, depending on the market size.”
Both Myer and David Jones have six stores each in Perth, Myer with 58 stores nationwide and David Jones has 44. DJs’ 2017 plans for stores at Innaloo and Whitford City Westfields have sunk without a trace.
Retail experts believe both the two major retailers have too many stores for the current retail environment, and the days of new store openings are over. Other sources suggested David Jones needed about 30 stores and Myer needed 40.
More closures appear inevitable given the share of spending at department stores is drying up.
In the first seven months of this year, West Australians spent a record $26.1 billion in the retail sector — but department stores accounted for just 5.3 per cent of it.
In the same period a decade ago, department store spending was 7 per cent of $17.9b and when records began in 1982, they counted for 13 per cent of $2.2b.
Woolworths South Africa did not respond to questions from The West Australian this week about whether its planned floor space reduction would be achieved solely through store closures or if existing store floor space would be cut.
“The floor space in (Australia’s) department store network reflects the ’80s and ’90s, not the current day environment,” Grant Thornton retail analyst Luke Ritchie said. “When department stores became the trend, it was a very different world to what we have now.”
Industry analysts say the trickle of store closures will continue as long leases re-signed in 2014 — in some cases for as many as 20 years — come to an end. Myer has announced the closure of two stores this year, in outer Melbourne and Sydney, while David Jones has spent the past two years rationalizing its flagship Melbourne and Sydney stores into one building.
“We have had strategic discussions with the big landlords around what they’re trying to do with their assets in the future and what is the right-sized Myer for that asset — or, actually, should Myer be in that center?” Mr King said, adding Myer had not been aggressive in closing stores because “we don’t want to waste shareholders’ cash”.
Myer shareholders have been through a rough ride in recent years, but the share price spent six days this month above 60¢ for the first time in a year — just the second rally above that point in two years. Myer’s share price hasn’t been above $1 since May 2017.
“For the conditions … and against the headwinds, I think they’re making a good fist of it,” Brian Walker, chief executive of consultancy The Retail Group, said. “Its balance sheet is getting better, but it was pretty ugly for a while.”
While the shift in consumer habits to online has been gathering pace over several years, Myer reported nearly one-quarter of its sales over the year to July 30 were online. Mr Walker said further online sales growth, combined with the strong Myer One loyalty program, would help bridge the gap into the future — when artificial intelligence and predictive learning would feature strongly in retail.
He said Myer One had so much data about its customers that it would eventually be able to predict what customers would buy — if Myer was able to build further into the technology of the future.
The challenge until then, he said, was how both competed in, and with, the current situation and how they remained relevant into the future. Forward-thinking executives, rather than merely present-thinking ones, were vital.
Mr Ritchie said broader economic conditions next year would prove challenging, particularly for Myer.
“John King has stopped the thing from imploding. He’s done a pretty good job, focused on optimizing and cost-cutting and now some revenue growth, but the long-term trend is not favorable,” he said.
The continued success of both giants is linked to their well-known heritage, according to Mr Walker.
“They are very big brands, known as big brands and are part of the heritage of this country,” he said.
Mr Walker added that while each had distinct differences and sections of the market they did well in — David Jones as “a house of brands” and mid-level own brands for Myer — the rest was up for grabs and needed to be unique.
“They need to appeal to millennial and Gen Z shoppers,” he said.
“Where they still dominate is in the 45-plus category. If you looked at their database, and they would argue differently, the age skew of their loyalty program would be up in that older section for sure.”
Mr Ritchie said despite the structural challenges, Myer and David Jones remained key anchor destinations in shopping malls — and centers where they chose to exit would struggle to maintain foot traffic.
Top-tier centers would be based more around experiences, and the retailers would need to follow suit.
Mr Ritchie said in the US and the UK, major department stores have announced deals with major online retailers — a move Australian chains would need to replicate.
“How brands do that color, movement and fun to get people in will heighten, but it will not happen in all of these centers,” he said.
“It can only be in the big flagships — the trendy locations, the top 10 per cent. As Myer and DJs close, it becomes tough for a middling centre.”