David Jones warns of 40% profit slump, unveils plan to make 10% of sales online

Shares in the upmarket department store David Jones slumped more than 12% in early trade after it flagged a slump in full profit of up to 40% and detailed a three-point plan to combat the “worst conditions for department stores in 20 years.”

Noting the headwinds of growing online sales coupled with flat retail sales and rising costs, DJs says it wants to become a pre-eminent “omni-channel retailer”, with sales from its website, mobile apps and social commerce site accounting for 10% of overall sales.

And in a dramatic escalation of its online sales targets, DJs says it aims to increase online sales from 9000 units now to 90,000 over time. This is more than the units sold by famed US department store Macy’s.

Chief executive officer Paul Zahra said while the transformation to an omni-channel retailer would take time, given online retailing in Australia in 2011 accounted for 4.9% of total retail sales, DJs was confident it would succeed.

He noted the success of overseas rivals Nordstrom and John Lewis and that 17 of the top 25 online retailers in the US are domestic ‘bricks and clicks’ businesses.

Beyond the flagship webstore, DJs plans to also launch a mobile web store, mobile app and social commerce store.

Brian Walker, managing director of Retail Doctor Group, says the omni-channel strategy is “absolutely right” and 10% would be a great achievement.

But Walker says the question remains whether David Jones has lost its way over the past few years.

Noting that David Jones would have some of the wealthiest Australians on its client list and was once known for its in-store pianist, Walker says it has been caught unawares by Myer and improved discount department stores, while also combating the broader problems faced by department stores around the world.

“I think the brand, the point of difference, the name has been blurred,” Walker says.

“What do they stand for in the minds of consumers? Have consumers changed their mind about David Jones?

“Clearly they have, and they’re shopping elsewhere.”

Beyond the ‘razzle dazzle’ element, Walker says DJs has also dropped the ball on basics such as staffing.

“You see department stores around the world changing their formats, their merchandise, their advertising, their loyalty programs.

“They need to drive value per customer, rather than take a transactional approach.”

In a highly awaited announcement, DJs this morning said that its first-half profit after tax had slid 19.6% to $85 million, at the lower end of guidance, and its dividend had dropped 19% to 10.5 cents.

“Department store industry sales have experienced the worst two-year period in more than 20 years,” the company said.

“This recent experience has created a most cautious short-term outlook, taking account of the strong $A, deflation, high levels of household savings and increased net outbound tourism.”

“Overlying this is an environment of increasing costs for Australian retailers in areas such as labour, utilities, rent and financing.”

DJs also drew attention to a weakening of its financial services arm.

In response, DJs said it would open six new stores and several smaller format stores, as well as focus on customer service, dealing with suppliers, and technology and management.

“The ‘transformation’ component of the company’s future strategic direction will require significant investment over the next 18 months,” David Jones said in a statement.

“This investment will have short-term financial implications for the company in 2H12 [second half of 2012] and 1H13 [first half of 2013].”