David Jones to slash footprints, focus on flagship stores following profit drop

The struggling department store giant has revealed a huge drop in profit – but a plan involving slashing stores could reverse its fortunes.

It’s no secret department store behemoth David Jones has been struggling for years.

But executives are pinning their hopes on a bold new plan to reverse the icon’s fortunes – and it involves slashing store footprints and potentially focusing on “top tier” outlets.

Last week, David Jones revealed its half-year profit had tumbled more than 50 per cent, down $27 million, in yet another blow for the once mighty retailer.

The company will now push ahead with its previously-announced plans to reduce store footprint and negotiate with landlords to slash 31,000sq m of floor space by 2022. The ongoing closures are part of a previously announced strategy of removing 20 per cent of its physical business – from 486,000sq m to 390,000sq m – by 2025, although it has not been confirmed how many store closures could be involved.

According to The New Daily, part of that plan could involve focusing on the network’s “top tier” stores and shifting away from smaller, less profitable stores in suburban areas.

While David Jones has not confirmed or commented on the publication’s claims, reporter Rod Myer speculated they could potentially include the Elizabeth St, Barangaroo, Parramatta, Bondi Junction and Chatswood Chase stores in Sydney as well as the Newcastle branch in regional NSW, Bourke St, Chadstone, Highpoint and Doncaster in Melbourne, Adelaide in South Australia, Hay St in Perth, Canberra and Auckland in New Zealand.

Queensland University of Technology retail expert Dr Gary Mortimer told news.com.au while he didn’t know which particular stores would survive or shut down, he believed the future of traditional department stores like David Jones was in “big flagship stores in the CBD”.

“I think in future traditional department stores will continue to shrink and right-size their fleet, but we will see the continuation of those flagship CBD stores in Brisbane, Melbourne and in Sydney, particularly the Elizabeth St store,” he said.

More David Jones closures are on the cards. Picture: iStock

“Those types of flagship stores in Australia will emulate the likes of Selfridges and Harrods and Galleries Lafayette in Paris with incredibly luxurious brands and experiences.

“It’s not unreasonable to think there could be champagne bars on one or two floors and embedded hair salons and services and those types of offers as well as clothes.”

Dr Mortimer predicted smaller, “outlying” suburban stores would “right-size” by removing floors or disappearing altogether if they aren’t profitable or “don’t add value to the overall network”.

“This strategy is no different to one Myer has followed for several years now – simply closing those stores that are either loss-making or don’t offer any value overall to the chain,” he said.

“We will continue to see closures, and when stores can’t exit entirely, there may be closures of floors or parts of floors with Officeworks or discount department stores like Big W or Kmart opening.”

But he said one of the challenges of right-sizing was “category management”.

“Because they are being restricted in the footprint of stores with reduced floorspace, they may also consider the removal of categories,” he said.

“They don’t want to do customers a disservice by saying they have a luggage category, for example, when they now only have half a range because the store is too small.”

Dr Mortimer said he expected David Jones’ online offering and online sales to continue to grow.

Last week, acting David Jones chief executive Ian Moir said the “sad and difficult” recent few months in Australia caused by bushfires was compounded by the country’s financial struggles.

Delivering Woolworths Holdings’ half-year earnings report from South Africa, he said the Aussie “economy remains depressed”, pointing at poor wage growth, record-low interest rates and weak consumer spending.

“(These are the) toughest conditions I’ve ever seen,” Mr Moir said.

David Jones’ operating profit fell 57 per cent to $20 million in the 26 weeks to December 29 with competitive retail conditions, low spending and ongoing renovations continuing to weigh on the chain.

News.com.au contacted David Jones for comment.

Originally published as David Jones to slash footprints, focus on flagship stores following profit drop