David Jones has identified 250 international brands that overcharge in Australia and is negotiating to cut prices in store, says CEO Paul Zahra.
Photo: Michel O’Sullivan
When David Jones announced its half-yearly profit results on March 20, it included a few early clues about the success of its new online store.
The numbers sound impressive – online sales for the quarter ended January 26 were 288 per cent higher year on year and visitor numbers to the retailer’s web store doubled to 5.4 million in the quarter.
Yet a deeper look reveals that it’s still more sizzle than substance at this stage. When it comes to its digital strategy, David Jones management may be saying and even doing all the right things, but it’s too early to tell how successful they will be.
The numbers that were reported are about relative growth – but a year ago, the web store was limited, and 288 per cent of not much is still not much. David Jones chief executive Paul Zahra concedes as much.
“It’s off a low base but it’s a significant increase,” Zahra told journalists at the financial results press conference. “We don’t do store-by-store numbers, but it’s the annual sales from the old website doubled. [The old site] was very limited - the system was old and it couldn’t cope with more than 10,000 SKUs [stock keeping units] and we’re now at 90,000.”
David Jones launched its omni-channel retail strategy, including a new web store, a mobile store, and a shoppable iPad app, on November 6 last year, accompanied by a consumer advertising campaign. The company reported that the e-commerce platform held up “robustly” throughout Christmas and the clearance season, and tablet and mobile sites accounted for more than a third of traffic. The average order size online was three times the typical in-store transaction, according to the half-yearly results.
David Jones has not revealed its exact spend on the online store, however a spokeswoman said for the past couple of years, technology-related spending has made up about 25 per cent of annual capital expenditure of about $80 million. The platform was an investment alongside technology partner IBM and various third-party software suppliers.
The capital spending is part of the reason David Jones’ profit-after tax dropped 13.5 per cent year on year to $73.5 million for the six months ended January 26, even though sales only dipped by 0.7 per cent and the gross profit margin increased.
Likes and email promotion
The department store has built up its profile on social media, particularly on Facebook where it has more than 218,000 ‘likes’ to date compared with nearly 175,000 for its competitor Myer.
David Jones is turning its attention to email marketing. In February, it appointed Exact Target to handle this. The retailer is aggressively capturing email addresses, through website orders and downloads of the iPad app and in store. This includes harvesting email addresses through its point-of-sale system, which gives customers the option to get receipts by email, and by rolling out free Wi-Fi in stores and capturing email addresses at log in.
The retailer aims to build up its existing base of 200,000 email addresses to 2 million over time.
Over the next 12 months, David Jones plans to add new functionality to the web store including “click & collect” (to let shoppers order online and pick up goods in store), same-day delivery, social commerce, customer ratings and reviews, shoppable videos and online sales from the gift registry.
“What we’ve launched is the platform and what we’ve got is pretty outstanding, but we haven’t hit world best practice yet,” Zahra says.
Online stores like The Iconic are reporting 20 per cent growth month on month and Zahra says David Jones will beat that.
“I think we’ll get bigger and better growth,” he says. “The beauty of multi-channel is that you let the customer choose how to engage with you – they can shop with confidence and know that if they get the size wrong or there’s a defect, they can walk into a store and deal with it. [In the US] the top 25 online retailers are traditional department stores.
“Online remains our biggest opportunity and the international department stores do about 10 per cent of their sales online.
“If that were to translate to David Jones, and it will over time, we’re talking about $200 million of revenue. Nordstrom do about $1 billion, which is 10 per cent of their sales and 25 per cent of EBIT comes from online because, there’s a lower operating cost.
“David Jones thinks a significant differential [with our competitor] is that we only have 37 stores, so if we overlay the omni-channel experience, we’re very well placed for the future.”
The founder of retail consultancy Retail Oasis, Stephen Kulmar, says both Myer and David Jones are in “serious catch-up mode” and, while DJs came to the party later, its current website is better.
Overseas, Nordstrom in the United States and John Lewis in Britain are the most advanced in omni-channel retailing while Macy’s in the US is the most advanced in using technology to enhance the in-store experience.
“David Jones is coming from even further back [than Myer] but its e-commerce site is clearly superior to Myer’s from a user experience point of view,” Kulmar says.
“But if it was only e-commerce then they both lose as we, the consumer, have already started buying offshore for range and price and the delivery is not too slow. So DJs must focus on their advantage – the in-store experience – and integrate it fully into their IT platform,” he says.
To that end, David Jones was keen to report its investments in the bricks-and-mortar store network: the company has upgraded its point-of-sales system to speed up transactions and boosted sales staff numbers on the shop floor, including introducing “style advisers”. As a result, it reported customer service complaints dropped by 17 per cent, service compliments rose by 12 per cent, and the retailer’s latest mystery shopper results were its best ever.
Earlier in March, David Jones opened a “next generation store” in Melbourne’s Highpoint mall, offering customer benefits such as Wi-Fi, phone charging stations and customer seating. This is planned as a model as the company refurbishes its stores and opens new ones.
Playing catch up
Despite all this, CMC Markets chief market strategist Michael McCarthy says it is not nearly enough. He believes the market has already re-rated David Jones for its change in strategic direction and while some re-rating is warranted, the market had “run well ahead of any potential gains”. McCarthy is sceptical that Zahra can deliver on his promises for growth.
“I’d suggest they need a disruptive strategy to overhaul the momentum that groups like The Iconic and other online retailers have but at the moment. Theirs is a very middle of the road internet offering,” McCarthy says.
“This is a catch-up, not a get-ahead strategy, and given the lateness of their arrival at this point they need to do a lot more.”
Morningstar analyst Tim Montague-Jones is also cautious, because the local retail market is buffeted by strong international competition.
“We continue to view the Australian department store market as becoming increasingly marginalised as established international designers utilise the internet to increasingly market direct to domestic consumers,” Montague-Jones wrote in a briefing note.
“The internet now takes the domestic department stores, which have serviced a population of 22.6 million, onto the international stage, but competing with relatively small sales volumes, less brand presence and with inflated operating costs due to comparatively higher labour, utilities and shop lease expenses,” he wrote.
Zahra is well aware that David Jones is competing globally. This is why “cost price harmonisation” is another focus. David Jones has identified 250 international brands that overcharge in Australia and is negotiating to cut prices in store. “They’ll ultimately have to respond, because consumers will vote with their feet and brands that don’t harmonise prices could face deletion,” Zahra warns.
JPMorgan has increasing confidence that David Jones’ management can implement its digital strategy. “Progress is being made on future strategic direction and while execution risk remains, it is moderating,” JP Morgan analysts Shaun Cousins and Uma Joshi wrote in an analyst note last week.
David Jones’ digital offering should only improve as features are added. Whether it will be enough to regain ground remains to be seen, but Zahra won’t go down without a fight.