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What does the future hold for our traditional department stores?

The fact is there may only be room for one full-service department store in Australia. AAP

Years of buy-outs, takeovers, mergers and rebranding have whittled a once plentiful landscape of department store competitors down to two major players, Myer and David Jones.

Now, despite David Jones confirming it refused a potential A$3 billion merger proposal approach from its arch-competitor in October 2013, we must face the distinct possibility of there only being room for one, full line, up-market department store in Australia.

Dwindling profits

I have written before how the big two department stores have been fighting a losing battle against new competitors, a changing consumer - and themselves. Department stores have failed to respond quickly enough to changes in shopper behaviour, emerging category killers and the growth of online shopping.

Myer’s 2013 sales increased by less than 1% and earnings before interest and tax (EBIT) declined by -6.6%. David Jones’ position was worse, reporting a sales decline of -1.2% and EBIT of -3.5%, a trend present since 2010.

Myer has said the proposal, which was rejected by David Jones, would have helped increase sales, reduce costs and limit duplication, although it would certainly have come with significant competition issues. David Jones’ share price has risen after the news of its rejection was made public. Media reports have also revived controversial share dealing by two David Jones non-executive directors.

Changing tastes

Where visiting a department store used to be an event involving tea and scones at the Myer Emporium, we now demand sushi, pad-thai or Vietnamese spring rolls from international food courts. Instead of hovering assistants, we want to scan and pack our own purchases, or shop from our lounge rooms. Suburban sprawl and growth of shopping centres - where we can get our car washed, watch a movie, do our groceries and buy a handbag - has stopped us coming into the city. We want entertainment, one-stop shopping and the biggest range of choice. Something department stores cannot offer today.

‘Category killers’

Where once we would buy dress yarn, furniture, white goods, school shoes, electronics, even automotive accessories (remember Myer had an auto department) at the big department stores, now we head to IKEA and Super A-Mart for furniture; Anaconda and Rebel for outdoor and sport products; Bunnings and Masters for home improvement and hardware, while JB Hi-Fi and Harvey Norman dominate the consumer electronics market. It is a market lost.

Missing the target

The biggest question is who are the department stores targeting. When Myer is selling Miss Shop printed t-shirts at A$24.95 while upstairs, a A$299 Wayne Cooper blouse, you have to question why it is trying to be all things, to all people. In contrast, fast-fashion chain Zara is clearly targeting cashed-up, fashion conscious twenty-somethings. The entrance of new global fashion retailers will continue to pull fashion conscious shoppers away from Myer and DJs.

Desperate discounting strategies also suggests department stores have lost sight of their core customer. Traditional department store shoppers don’t want “cheap”, they want “value”. Ultimately, deep discount price promotions should be left to “discount” department stores.

While Chanel, Cartier, Hugo Boss and others continue to open their own store fronts around major capital cities, shoppers will continue to question the need to walk through the doors of Myer or DJs to buy these brands.

Online strategy

Both department stores are certainly trying to catch up on their online strategies, but may have left their run a bit late. More recently, we have seen a move to replicate their half yearly, stock-take sales events online, although Myer’s December sale was an IT disaster. While the online clearance sales may seem like a good initiative, one needs to be cautious of not simply cannibalising in-store sales. And why would anyone shop online at Myer or David Jones to buy brands that have their own online stores?

Will history repeat itself?

I am sure readers will recall the closure of Gowings Department Store in Sydney in 2006 after nearly 140 years; Myer’s acquisitions of Grace Bros in NSW and Boans in Perth; South Australia’s John Martin & Co being sold to David Jones and the closure of Waltons Stores in 1987.

Mergers, acquisitions and closures are all too common. As external market pressures continue to grow, consumer behaviour shifts and innovative online retail channels emerge, expect to see a reshaping of the Australian retail landscape down to one dominant department store.

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