David Jones flags possible store closures

The impact of Covid-19 has exacerbated retail struggles. Photo / File

Up to 10 David Jones branches could be on the chopping block as the struggles faced by department stores are exacerbated by the ravages of COVID-19.

The company hasn't confirmed which stores could be axed but retail watchers have said regional branches, those close to another David Jones as well as its newer format stores could be having the ruler run over them. But with the pandemic cutting a swath through spending, all bets are off.

"I don't think many store locations are 'safe' right now," said Dr Jason Pallant, a marketing lecturer at Swinburne University.

David Jones has confirmed it is planning on cutting 20 per cent of its floor space "including closing stores where this makes sense". It told news.com.au no closures were "imminent". Even if a store closed, the company said jobs would not be lost.

The Herald is awaiting a response from David Jones on whether any Kiwi stores are affected by the moves.

David Jones opened its first of two local stores in Auckland in November 2019.

Last week, David Jones' owner, South Africa's Woolworths Holdings (no relation to Australia's Woolworths), said the Melbourne based department store has slumped from a profit of $37 million in 2019 to a $33 million loss in 2020, a good chunk of that due to the pandemic. Online sales have doubled since the pandemic and now account for 14 per cent of sales.

Talking to the Sydney Morning Herald last week, Woolworths Holdings' Chief Executive Officer Roy Bagattini said David Jones was "overstored" and needed to shed a few.

Shoppers queue outside David Jones ahead of its Auckland opening. Photo / Supplied

"There's no doubt we have too many stores for what I think our business purpose is in Australia.

"It is overstored (sic) … I would expect to see a level of reduction coming through."

FIRST STORE FLAGGED TO SHUT

The firm had flagged a reduction in store numbers by 2025 but those plans could now be accelerated.

David Jones currently has 47 locations around Australia and New Zealand. A 20 per cent reduction in footprint would be around 10 stores. But fewer stores may close if some of that reduced footprint can be achieved by slimming down existing stores. David Jones in Marion, Adelaide; The Glen, Melbourne; and Carindale, Brisbane have recently been cut down to size.

"David Jones will continue to optimise our store network and formats over time and this will take in a variety of options including right-sizing our existing stores, re-purposing floor space … and in some instances closing stores where this makes sense," a company spokesman said.

The first store that it's known will shut is one its two branches on Bourke St in Melbourne's CBD. Referred to as the "men's store," David Jones sold the smaller Bourke St store in July for $121 million and will move menswear and its food hall over the road into its larger premises. It will lease back the men's store for a time.

The company has last announced it is undertaking "comprehensive review" of its David Jones Food business. This includes its famous food halls as well as its first stand-alone David Jones Food store in South Yarra, close to Melbourne's CBD. That has raised speculation that it will be an easy branch to banish.

In contrast, BP David Jones petrol stations – which sell a selection of ritzy ready meals, biscuits, pasta and more alongside the usual fuel and confectionary – are doing a roaring trade. There are already around 12 open in Sydney and Melbourne with an aim for 30 by year's end.

BRANCHES AT RISK

QUT Marketing Professor Gary Mortimer told news.com.au forecasting which stores might fall by the wayside was an "educated guess". But there were likely to be a number of variables in deciding whether to shutter stores including how difficult it was to wriggle out of leases; if a store has been recently refurbished and whether foot traffic is likely to be sustained.

"Regional stores are more exposed to closure than CBD stores … so stores located in holiday and tourism zones, where visitation tends to ebb and flow, may be less desirable to maintain. These include stores in Mandurah (south of Perth) or Wollongong."

But, Prof Mortimer said the relatively new Sunshine Coast store might be a keeper because of the wealthier shoppers around Coolum and Noosa.

David Jones could cut one of its two Gold Coast stores that are close to one another, he said, with Robina just 6 km from the more recently refurbished Pacific Fair branch.

David Jones' store in Toowong, in inner Brisbane, has other branches just 4kms either side of it.

"Experimental smaller format stores like Barangaroo, may be on the list too as their small format James St store in Brisbane closed earlier this year."

Long lease agreements make it difficult for retailers to exit even some underperforming sites.

"Stores with only a few years left on a lease may be at the top if the list for closure," said Prof Mortimer.

"But ultimately, David Jones may simply cut their losses, and payout remaining leases, ultimately saving other costs associated with running the store."

"NO STORE IS SAFE"

Swinburne's Dr Pallant said the pre-COVID logic had been that CBD stores were better placed than their regional and suburban counterparts due to high spending city workers and tourists. But COVID had turned that assumption on its head.

"With the shift to work-from-home due to the pandemic there is now a real consideration of whether large stores in CBD or major shopping centres will be sustainable.

"These locations attract high rental fees so depending on how big the shift away from CBD work is, I wouldn't be surprised to see some brands re-look at their major locations," he said.

Earlier this month, arch-rival Myer said its sales slump in CBD stores was more than three times that in the suburbs.

Nonetheless, David Jones has said its Sydney CBD store is doing remarkably well considering the chaos caused by the pandemic. After a $220 million makeover it opened in the middle of the national lockdown but now, the firm said, its sales are higher than last year despite fewer CBD workers and no tourists.

Dr Pallant said the reality was there would be question marks over many David Jones branches.

"Overall I don't think many store locations are 'safe' right now, as some of the long term impacts of the pandemic and associated lockdowns are only just beginning."

A David Jones spokesman said the aim was to align its offer with the "changed needs and preferences" of its shoppers.

"We are working methodically and constructively with all our landlords, suppliers and other stakeholders to approach our store space in different ways that increase productivity, ensure relevance and enhance experience.

"This includes further investment in our stores and the development of new offerings such as our Carindale beauty offering in Brisbane," he said.

"Simultaneously, we are investing in our omnichannel and online offering so that our customers have a seamless, elevated experience however they choose to shop with us."

- News.com.au