What Myer and David Jones are doing wrong

Christmas 2017 is going to make or break. If it goes wrong, department stores, you might find its slow decline becomes a downward spiral.

Australian spending is soft in all the categories, but of the main categories of the ABS reports on is one of the department stores that are doing worse. This next chart shows that since 2009, sales have moved backwards, not keeping up with economic growth, inflation or population growth.

The great old business model that gave to the world names such as Harrods, as well as our Myer and David Jones — that might not fit with the modern world.

The BLEEDING

David Jones ‘ preliminary results-audited for the past year were a litany of bad news for people who like department stores. The gain is drastically reduced as the income was the other way around. But David Jones seems to have a plan.

David Jones department stores throughout included “dining rooms.” Food is an area where Australians are spending more money, so that David Jones is investing in boutique stores, convenience stores that will sell meals prepared for posh people. To the extent that it means that you are leaving to be a department store, you could still save them.

The David Jones Bondi Junction fancy new Food Hall. Photo: Damian Shaw

Myer results came out today. We knew already that it’s going to be a scene of a murder, and they delivered, with revenue falling 2.7 percent and the profit goes to the shareholders by 80 percent.

Myer had already sheepishly admitted to investors that its results would not be as good as expected. It was announced in July that its investment in Topshop was a billionaire from writing, and his trademark Sass and Bide, that it was not worth as much as before.

The Myer share price is half of its recent peak as investors prepare for the worst.

WHY NOW?

Myer and David Jones are being undermined by two trends.

In the first place, consumers are less confident, and that means that we’re crazy about cheap. With the shit wage growth and high underemployment, we want to discount more than anything, and that is not what Myer ad DJs are selling.

(A departmental store of killing in Australia: Kmart. I was shopping for a new dog bed the other day and had one at half the price of Aldi. Are crazy cheap.)

But that is only about the bad times. Bad times come and go. When they eventually go, the internet may have changed the game of department stores can’t survive. The internet is the second big trend that is eroding the department stores.

In the united states, where Amazon is well established, some of the biggest department store names such as macy’s and Sears are closing stores around the country. The impact has been so great that it has dragged out to the shopping centers that housed large department stores. America, land of the alameda, is finally out of the concept.

Amazon is rumored to launch in Australia within 60 days. I’m not sure I believe that. The PR risk of launching too soon and have delivery problems that ruin Christmas is huge. While there could be a partial opening, I’d expect Amazon to do a full launch after Christmas and give a year to build up little by little the frenzy of the gifts of the season.

That could make the Christmas of 2017 crucial — a kind of last stand for Myer and David Jones. If you can’t make a good year this year, in a couple of years Myer’s famous Christmas windows could be no more.

Jason Murphy is an economist. Published by the blog of Thomas of Thinkengine. Follow Jason on Twitter @Jasemurphy