David Jones could be sold by parent company Woolworths Holdings

One of Australia’s best known retailers is facing being offloaded, but one expert has warned there may not be room for both the likes of David Jones and Myer.

Up-market department store David Jones could be sold off by its parent company just eight years after it was snapped up for $2.1 billion.

Its owner South Africa’s Woolworths Holdings, which is not linked to the Australian supermarket chain, has haemorrhaged billions of dollars since taking on the department store.

It is now in talks with investment banks to offload David Jones, according to sources who spoke to The Australian.

The department store has churned through five CEOs in six years and in 2021 it took steps to downsize its food business, including ending its partnership with fuel retailer BP which had seen 35 petrol stations in Sydney and Melbourne kitted out as mini David Jones food halls.

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David Jones was hard hit by the pandemic as stores were forced to close. Picture: NCA NewsWire / Gaye Gerard

A Woolworths Holdings spokesman refused to address the media or market speculation.

“If there were any developments that warranted communication to the market, it would be done as and when required,” he told The Australian.

However, insiders at the 184-year-old department stores headquarters in Melbourne and at Woolworths Holdings in South Africa told the newspaper that details around sale options were being openly discussed.

While Woolworths Holdings have said they don’t intend to exit the Australian market noted Queensland University of Technology retail expert Dr Gary Mortimer, he said traditional department stores face challenges.

“Certainly over the last decade David Jones has begun reducing its fleet of stores, as have Myer, and they are up against significant growth in online shopping and that has been accelerated as a result of the pandemic,” he told news.com.au.

“The last annual report of David Jones indicated about 20 per cent of revenue is coming from their online division which suggests maybe more stores would need to close in order for it to be profitable

“Their last half results indicated an almost 10 per cent decline in revenue and 30 per cent decline in profit and its obviously been impacted as a result of lockdowns, particularly across Sydney and Melbourne’s CBD stores.”

However, Myer’s most recents half yearly results reported in March showed a strong performance, with net profit after tax hitting $32.3 million – an increase of 55 per cent.

Myer’s total group sales were up at 8.5 per cent to $1.52 billion, while group online sales grew 47.5 per cent to $424.1 million contributing to 27 per cent of total sales

People are seen outside David Jones Elizabeth Street store during Boxing Day Sales in 2020. Picture: NCA NewsWire / Jenny Evans

Dr Mortimer said it was hard to say if a buyer would be found but warned there may not be room in the Australian market for two department store giants like David Jones and Myer.

“I think the traditional department store businesses Myer and David Jones have probably struggled in the last couple of decades as the market has shifted.

“Many years ago I raised the question if Australia is big enough to house two big main traditional department stores and potentially we may see one iconic Australian department store remain,” he predicted.

He added that a private equity group could be interested in purchasing David Jones but it would mean more changes for the business.

“I imagine what they would continue to do is right-size their fleet, in other words close those stores that are not profitable, invest more heavily in exclusive brands and their online platform and continue to redevelop and refurbish their flagship stores and make them become the iconic CBD destination a bit like Selfridges or Harrods in the UK,” he said.

“I think the days of big department stores in outer lying suburbs in Australia may be over.”

The biggest shopping day of the year, the David Jones Clearance will officially open at 6am at the David Jones. Picture: Tony Gough

After Woolworth Holdings purchased David Jones, operating profits more than halved within four years and then it crashed to a $33 million loss in 2020.

But David Jones recently posted its first bottom line net profit and reported a net cash position of $347 million in March, with reports Woolworths Holdings believes now is the time to sell. However, it’s understood that it’s highly unlikely to get close to what it paid for the department store.

South African investors have been calling for the sale for some time. Picture: NCA NewsWire / Gaye Gerard

To bring it back to profitability, David Jones slashed floor space as much as 7 per cent and sold its Elizabeth St Sydney CBD building for $510 million, as well as its Bourke St site in the Melbourne CBD for $121 million.

The company reported that online sales for the first half of the financial year jumped by 44.2 per cent.

Woolworths has continuously faced pressure from South African investors to sell David Jones, after it failed to make the ambitious growth targets that were flagged at the time of the takeover.

Originally published as David Jones could be sold by parent company Woolworths Holdings