Troubled retailer David Jones will close some of its 48 stores and sell property to reduce its $464 million debt pile following a plunge in sales during the coronavirus shutdown.
In a trading update on Wednesday afternoon, David Jones' South African-based parent company Woolworths Holdings told investors it had kicked off a number of strategic initiatives to strengthen the business in the pandemic and revitalise its struggling Australian brands.
David Jones will fast-track store closures in Australia as the coronavirus caused a 35 per cent drop in sales.Credit: Wayne Taylor
The company has appointed investment bank UBS to review the capital structure and property portfolio of its Australian entities David Jones and the Country Road Group (CRG), which owns Country Road, Witchery, Trenery, Mimco, and Politix.
UBS will look at restructuring borrowings and review the property holdings to find ways to pay off the nearly $500 million in debt owed by David Jones and CRG, it said.
As a first step in that strategy, the South African parent company said it has found a buyer for David Jones' menswear store in Melbourne's Bourke Street, with the sale to be completed before the end of July and the final price in line with the property's estimated $500 million valuation.
UBS will also look at sale options for the David Jones' flagship stores in Bourke Street and in Elizabeth Street in Sydney.
Discussions are also underway with local landlords over an "accelerated restructure" of David Jones' store network and floor space, which will see the retailer close some stores and shut floors at some of its larger locations, Woolworths said.
The company has previously indicated plans to axe 20 per cent of floor space by 2025, a process which has now been expedited.
David Jones operates 48 stores across Australia, the majority of which have continued to trade throughout the pandemic even as main rival Myer shut all its locations. Despite trading through the crisis, sales at its department stores across March and April plunged 35.8 per cent.
Stablemate CRG saw a 50.4 per cent decline over the same period as all of its stores were shut.
Online sales across both companies have managed to only soften some of the blow, even though they have doubled since the start of the year for David Jones and grown 20 per cent for CRG.
To help David Jones through the downturn, Woolworths Holdings will give the department store chain a $75 million lifeline, with an additional $25 million loan to be provided if needed, and seek to get Australian banks to suspend conditions on their loans.
The $75 million loan will not be used as cashflow for operations, The Age and The Sydney Morning Herald understand, but will act as an assurance for local lenders to provide covenant suspension. Woolworths expects it may come close to breaching some of the conditions attached to its loans throughout the second half of the year.
Newly-appointed Woolworths Holdings chief Roy Bagattini said Wednesday's trading update reflected the "tough and unprecedented" conditions hurting global retailers, and the changes were key to ensure the company's long-term growth.
"Notwithstanding the significant challenges we currently face as a business, we are well placed to respond rapidly and effectively to changing customer dynamics and capture the market opportunities that arise," he said.
Closures across the David Jones store network will come as a further blow to Australia's ailing retail sector, which saw sales plunge a record 17.9 per cent in April as social distancing measures forced shoppers to stay home.
On Friday, Wesfarmers announced it would shut or convert 167 of its Target discount department stores, with chief executive Rob Scott saying the rise of international competitors had made it increasingly difficult to operate a department store in Australia.