The boss of one of Australia's largest department store chains says department stores are getting smaller and 20,000sq m outlets no longer work for consumers or retailers.
David Jones, which in recent months has been struggling with plunging sales across the Tasman and has seen its profit halve in the last financial year, earlier in the year announced it would close a number of its stores, and drastically shrink others, in Australia.
Operating profit at David Jones dropped from $A64 million ($68.2m) to $A37m in the last financial year. Its earnings before interest, tax, depreciation and amortisation declined by 18.9 per cent.
READ MORE: • Watch: Inside David Jones' first Auckland store
The South African parent company of the upmarket department store, Woolworths Holdings, in August slashed the value of David Jones by A$430m - to $985m.
The company bought the upmarket retailer for A$2.2 billion in 2014.
But David Jones is confident in growth to be had in the New Zealand market.
The department store chain today opened its first Auckland store in ASX-listed Scentre Group's $790 million Westfield Newmarket development after first entering the New Zealand market in 2016.
• David Jones to open Auckland Newmarket store in November
• Mega-mall Westfield Newmarket opens doors after 18 months under construction
• Scentre Group opens highly-anticipated rooftop dining terrace at Westfield Newmarket
• David Jones opens new Wellington store
The 7000sq m store - the biggest the retailer is prepared to open in the market - will house more than 400 international, Kiwi and Australian high-end brands including Carla Zampatti, La Mer, Grown Alchemist, Kenzo and emerging New Zealand brands Wynn Hamlyn and Harris Tapper.
Key features of the store include personal shopping and VIP suites, by-appointment beauty treatment rooms and Gucci's first beauty kiosk.
Ian Moir, chief executive of David Jones, said the retailer had invested "tens of millions of dollars" in the store, though nothing close to the A$200m it spent on its Elizabeth St store in Sydney.
Moir said he believed the Auckland store would "do incredibly well", particularly in the beauty category.
The Auckland department store has been more than three years in the making. It had originally planned to enter the market in Auckland but due to real estate available first launched in Wellington.
The Wellington site, which once housed the Kirkcaldie & Stains department store, is slightly bigger than the Auckland store, though Moir said he expected the Auckland store to "trade better" than the Wellington location.
Moir said David Jones had no plans to open further stores in New Zealand, but was open to the idea - depending on how the Auckland store was received. "New Zealand will be an important market for us, I think this [store] will really work.
"It makes such a big difference having scale - it makes it more cost-effective, distribution is easy, all sorts of economic benefits as soon as you go to scale so we're excited we're opening this, on top of Wellington, and let's see how successful this is and then on the back of that we'll think after that."
Moir said 7000sq m was about "the right size" for department stores in 2019. The chain is moving to reduce its footprint of existing stores in Australia by 20 per cent by 2026.
"It's [now] about a much more luxe offering, a more edited offering and more appealing, engaging and enjoyable experiences in stores, where you don't feel overwhelmed by massive space and volumes," Moir told the Herald.
He said David Jones would keep a number of larger "flagship" stores, but would shrink most of its outlets from two floors to one in coming years.
"If you look at what we've done in Elizabeth St [in Sydney], we've come out of Market St and gone into Elizabeth St, we've effectively halved the size of the store ... we're doing the same in Bourke St [in Melbourne].
"The days of a 20,000sq m store that doesn't offer experience, I think those days are gone."
The future for department stores were service-based, he said, and why the company had invested in VIP personal shopping and beauty services.
First Retail Group managing director Chris Wilkinson said department stores could no longer replicate what was already available in the market.
"With the big department stores' owning other retail brands within their 'families' it's only logical that they will want to consolidate these within their offer as one way of reducing footprint and associated costs," Wilkinson said.
"It also concentrates their proposition - creating more reasons to visit their bigger stores - strengthening customer experience and delivering greater convenience."
Wilkinson said David Jones had "successfully experimented" with smaller department store formats, such as its recent Barangaroo store in Australia.
"Their Australian foray into convenience food and partnerships with fuel companies mirrors similar successes that Marks and Spencer have achieved in the UK as they too have looked at alternative models to large format, traditional department stores," he said.
"Even the new Elizabeth Street store in Sydney is more compact - creating greater efficiencies and better customer experiences.
"It's natural they will want to continue this trend across their wider portfolio in order to remain competitive and drive profitability."
David Jones' online business is growing about 70 per cent each month and makes up about 11 per cent of total sales.
Moir said online was fast becoming David Jones' "biggest store".
"Over time we will come out of about close to 20 per cent of our space over the next five or so years. It's about downsizing and upgrading."
David Jones has not yet launched its online business in New Zealand.
It operates more than 40 stores in Australasia.