Brand turning its fortune around
SPARE a thought for department stores.
The last few years have been a very difficult time.
At Myer, everything has been going wrong. They had to get rid of their star young CEO after it was revealed the company was still going backwards. Journalists have been calling the end. And they are facing a lawsuit from shareholders furious the company was not forthcoming about making big losses.
David Jones - which was recently bought by a large South African company called Woolworths (yes, we now have two retail conglomerates named Woolworths operating in Australia) - wrote down the value of its business by $713 million.
But department stores have been around for over 100 years. They still have a few tricks.
They're survivors. And in the latest retail sales data we see signs these behemoths of shopping are not giving up the ghost. When the chips are down they are fighting back.
This next graph shows that after a rough Christmas, checkouts at department stores have been busier than anyone had expected. Sales have grown steadily in 2018.
The recent performance has been rewarded with a reversal of what looked like a terminal decline in the share price of Myer. As the next graph shows the share price halved between February and April, but since then it has steadied and even recently popped to back over 50 cents.
David Jones has also found some hope among the gloom, reporting a 0.6 per cent improvement in comparable sales in the last six weeks of its most recent reporting period.
Department store sales are not at record highs, as the next chart will show. But compared to the last eight years, sales are higher than in 2010, higher than the last two years and higher than the average over the period. Given that Amazon was supposed to crack department stores open and feast on what it found inside, this latest bounce is especially impressive.
It is important to remember that the department store sales number is not just Myer and David Jones. It includes Kmart, Target, Big W, etc. Kmart in particular has been going very well, with sales of their cheap and cheerful items soaring. Australia is mad for their $4.25 t-shirts and 12-piece dining sets for $7.
This, to my eye, is the true problem that Myer and David Jones face. It is not that Australians suddenly hate department stores. It's that they love cheap things. Australia has become completely Aldi-fied.
We were always a frugal people, but with household budgets increasingly dedicated to energy bills and housing costs, the trend has only intensified. Who will buy $90 casual shirts at Myer when you can get something nice for half the price?
In researching this story I went to Myer, David Jones, Uniqlo and H&M. I visited every floor of each store and my observation revealed Uniqlo was busiest, H&M was next, then Myer, with David Jones last. My sense is that lines up with how cheap each store is perceived to be - Uniqlo cheapest and DJs most pricey.
PROBLEMS ARE NOT OVER
One problem Myer and David Jones have is their stores are so enormous. While the ground floors of their Bourke Street stores in central Melbourne are both bustling, each level you ascend is quieter and quieter.
Eeriest of them all was the top floor at David Jones men's store. I was there around lunchtime on a weekday, and this cavernous space filled with expensive items for sale - a mix of luggage and laptops - was peaceful in the exact way a city-centre retailer shouldn't be.
Eventually I did see another customer, looking at suitcases. There was another man who may have been a customer sitting on a couch. Some time later one more person came up the escalator. But mostly being up there felt like stumbling on a lost civilisation.
Prime real estate is not free and neither are the lonely-looking staff who patrol it. If these department stores have whole floors that are barely contributing, it drags down the whole enterprise.
SPEAKING OF STAFF
Myer has long been criticised for having too few staff to help customers, but on my journey through its many levels this week, I saw plenty of them. Some helping customers, some standing around. Most looked ready to help although quite a few were chatting and one guy was very busy texting.
Perhaps all these staff are an initiative of the new CEO, John King. He has been slashing head office staff, and it makes sense to spend savings in the part of the business that matters most.
"We have to put the customer first - in every decision we make and every action we take," he said when he joined the company. He also pledged to spend two days every week in stores, "serving our customers, hearing their views, and those of our team members."
King comes from a UK retailer called The House Of Fraser. He ran it quite successfully until 2015, when it was taken over by a Chinese buyer. Incidentally, the headlines now say the House of Fraser is just days away from running out of money and collapsing.
Will a similar fate meet Myer and David Jones? It is too soon to tell. But if the recent trends continue, the worst times might be behind them.
- Jason Murphy is an economist. He runs the blog Thomas the Think Engine