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David Jones and the death of the department store? · What the Flux

• 0:05
  Speaker 1: This is What The Flux Unpacked, where we go deeper
• 0:07
  Speaker 1: into one of the juiciest business stories of the week.
• 0:10
  Speaker 1: I'm Brett.
• 0:11
  Speaker 2: And I'm Larissa, and today we're unpacking David Jones and
• 0:14
  Speaker 2: the potential death of the department store. But first, here
• 0:17
  Speaker 2: are the top stories for Friday the 30th of October.
• 0:21
  Speaker 2: Inflation jumped to 4.3% in September with petrol and holiday
• 0:25
  Speaker 2: spending helping drive it up. Market expectations for a cash
• 0:29
  Speaker 2: rate rise next week surged 80% following the update. In
• 0:32
  Speaker 2: other news, NAB is spending more than $ 300 million a
• 0:35
  Speaker 2: year building its Indian workforce. with senior leaders being encouraged
• 0:39
  Speaker 2: to hire offshore as NAB restructures thousands of local jobs.
• 0:43
  Speaker 2: And lastly, Aussies are set to spend $ 510 million on
• 0:48
  Speaker 2: Halloween this year, despite fewer people celebrating the holiday and
• 0:52
  Speaker 2: cost of living pressures. Roy Morgan's spooky spending research shows
• 0:56
  Speaker 2: 18 to 24 year olds plan to spend the most
• 0:59
  Speaker 2: this year. Okay, Brett, how often would you say you
• 1:02
  Speaker 2: go shopping in person?
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  Speaker 1: I would say very rarely these days. Really?
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  Speaker 2: I think that I might be a bit of an anomaly.
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  Speaker 2: I love an in-person shopping trip and I think it
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  Speaker 2: probably comes down to me being too impatient to just
• 1:15
  Speaker 2: wait for a package to arrive.
• 1:17
  Speaker 1: I get the impatient side of things. I just don't
• 1:18
  Speaker 1: love the in-person experience these days that much.
• 1:21
  Speaker 2: Yeah, it can be a little bit chaotic. But when
• 1:23
  Speaker 2: you think about shopping here in Australia, you probably think
• 1:27
  Speaker 2: of one iconic brand, David Jones.
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  Speaker 1: Yep, I instantly picture those black and white patent bags
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  Speaker 1: in my mind. But why are we talking about DJs today?
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  Speaker 2: Well, David Jones has had it pretty rough recently and
• 1:38
  Speaker 2: just squeezed a $ 10 million loan from lenders to help
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  Speaker 2: stock up for Christmas. And all of that comes amid
• 1:45
  Speaker 2: some insolvency rumors.
• 1:46
  Speaker 1: Ooh, sounds like a lot to unpack here. Can you
• 1:48
  Speaker 1: give us a bit of a rundown on David Jones
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  Speaker 1: in general first? Of course.
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  Speaker 2: So David Jones is Australia's oldest department store and it's
• 1:56
  Speaker 2: been around for 188 years. It survived two world wars,
• 2:01
  Speaker 2: the Great Depression and multiple recessions.
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  Speaker 1: And DJ's really has seen it all, hasn't it? If
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  Speaker 1: I remember correctly, the very first David Jones opened... I
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  Speaker 1: think it was a fabric shop in Sydney before it
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  Speaker 1: transformed into what we know now as a department store.
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  Speaker 1: And that was in the 1870s or 1880s, around then. Yeah,
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  Speaker 1: that's right.
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  Speaker 2: And David Jones is actually not only Australia's oldest department store,
• 2:23
  Speaker 2: but the oldest operating department store in the world, still
• 2:27
  Speaker 2: trading under its original name.
• 2:29
  Speaker 1: Not Selfridges in London or Saks in New York.
• 2:31
  Speaker 2: No, David Jones beats them all. And in its heyday,
• 2:34
  Speaker 2: DJ's flagship store in Sydney was literally fit for royalty.
• 2:38
  Speaker 1: Yep, Queen Elizabeth II visited that Elizabeth Street store back
• 2:43
  Speaker 1: in 1954 for a state dinner.
• 2:45
  Speaker 2: And a trip to DJ's became a bit of a
• 2:47
  Speaker 2: rite of passage for regular Australians too.
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  Speaker 1: I do remember being dragged there for my very first
• 2:52
  Speaker 1: college shirt.
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  Speaker 2: Yeah, I remember going for a few trips there with
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  Speaker 2: my mum and it would always end in coffee and
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  Speaker 2: cake in the cafeteria.
• 2:59
  Speaker 1: So David Jones has a very rich history here in Australia,
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  Speaker 1: but that hasn't exactly kept it rich, has it?
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  Speaker 2: It hasn't. David Jones has been sadly struggling a lot recently.
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  Speaker 1: All right, run me through it.
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  Speaker 2: DJ's has been bleeding cash for years. They lost around
• 3:12
  Speaker 2: $ 95 million in the last financial year, and that's just
• 3:15
  Speaker 2: added to losses of around $ 75 million in the year before.
• 3:19
  Speaker 1: That's a lot of cash to lose.
• 3:20
  Speaker 2: It is. And DJ's has also faced scrutiny for late
• 3:23
  Speaker 2: payments to suppliers. Just last month, core luxury brands like
• 3:27
  Speaker 2: Gucci and Dior walked away from handbag and shoe supplier
• 3:30
  Speaker 2: deals because David Jones was taking too long to pay them.
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  Speaker 2: And David Jones is desperately trying to make up the
• 3:37
  Speaker 2: cash and are now looking at closing more than half
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  Speaker 2: of their 38 stores.
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  Speaker 1: And it's not a problem that's unique to David Jones.
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  Speaker 1: The entire retail sector as a whole has been struggling recently, right? Yeah,
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  Speaker 1: it has.
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  Speaker 2: Department stores all around the world have been trying to
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  Speaker 2: stay relevant as shopping habits change. Get this, in the
• 3:52
  Speaker 2: US and UK alone, Sears, Barneys New York, Debenhams and
• 3:56
  Speaker 2: British Home stores have all closed their doors.
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  Speaker 1: So David Jones has a strong history, but the question is,
• 4:02
  Speaker 1: does it have a future?
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  Speaker 2: Well, that brings us to this week's headlines. As I
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  Speaker 2: mentioned earlier, David Jones has had to scramble for a
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  Speaker 2: $ 10 million loan just to fill stores ahead of the
• 4:12
  Speaker 2: pre-Christmas rush.
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  Speaker 1: Christmas is obviously a critical time for retailers to cash
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  Speaker 1: in on gift sales.
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  Speaker 2: Yeah, and for David Jones, this time of year isn't
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  Speaker 2: just about Christmas sales, it's about Black Friday sales too.
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  Speaker 1: Massive time for shops like DJ. So why did they
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  Speaker 1: need to take on such a big loan right now?
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  Speaker 2: Well, there have been talks going on for weeks about
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  Speaker 2: David Jones' stock levels coming into this busy period. Basically,
• 4:35
  Speaker 2: they didn't think they had enough and there were also
• 4:37
  Speaker 2: concerns about David Jones going insolvent.
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  Speaker 1: Insolvent, that's when a company just can't pay its debts
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  Speaker 1: that are due.
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  Speaker 2: Yeah, and it doesn't help that just last week David
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  Speaker 2: Jones missed payments to concession brands, the brands with shop
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  Speaker 2: fronts inside the stores like Country Road and Louis Vuitton.
• 4:53
  Speaker 1: Yep, those brands have apparently now been paid, but it
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  Speaker 1: still leaves David Jones in a not-so-great position.
• 4:58
  Speaker 2: Which is where Hilco Capital comes in, a company that
• 5:00
  Speaker 2: basically lends money to struggling businesses. It handed DJs the
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  Speaker 2: extra cash for stock, which buys them time to cut
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  Speaker 2: deals with landlords.
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  Speaker 1: Sounds like death by a thousand cuts to balance the book.
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  Speaker 1: So what is the key learning in all of this?
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  Speaker 2: While legacy brands might have a strong history, that doesn't
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  Speaker 2: always mean they have a strong future. Yep.
• 5:19
  Speaker 1: Larissa, you can't necessarily sell what is not on the shelves.
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  Speaker 1: And David Jones has had to take out that $ 10
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  Speaker 1: million loan just to stock the shelves.
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  Speaker 2: So if they can't sell enough to make that back,
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  Speaker 2: you don't have to be a mathematician to know that
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  Speaker 2: puts DJs in a pretty rough position. Yep.
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  Speaker 1: And that's before paying back suppliers that it already owes,
• 5:35
  Speaker 1: plus rent and its existing other debts.
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  Speaker 2: So David Jones is digging itself a pretty deep hole
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  Speaker 2: and we've seen it before with department stores overseas like
• 5:44
  Speaker 2: Debenhams and Barneys.
• 5:45
  Speaker 1: Yep, they had to close physical stores because of online
• 5:48
  Speaker 1: shopping and the rise of discount stores, changing consumer behaviour and,
• 5:51
  Speaker 1: of course, cost of living crunches squeezing them from all sides.
• 5:54
  Speaker 2: It's rough for department stores. David Jones has survived huge
• 5:58
  Speaker 2: world events over the past century and created core memories
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  Speaker 2: for its shoppers.
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  Speaker 1: That's true, but memories don't mean habits. Think about it.
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  Speaker 1: When was the last time you visited DJs because you
• 6:07
  Speaker 1: needed something only they had in stock?
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  Speaker 2: I honestly could not tell you.
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  Speaker 1: Exactly. Because while everyone knows David Jones, it doesn't mean
• 6:13
  Speaker 1: they're spending their money there.
• 6:14
  Speaker 2: But brick and mortar can survive with brands like Mecca
• 6:17
  Speaker 2: proving that crafting unique in-store experiences can help those brands
• 6:22
  Speaker 2: to stand out.
• 6:22
  Speaker 1: Yeah, get this, Mecca's new flagship store pulled in 70,000
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  Speaker 1: people a week when it opened.
• 6:27
  Speaker 2: And that helped its profits grow to nearly $ 126 million
• 6:31
  Speaker 2: last year.
• 6:32
  Speaker 1: On the other hand, David Jones wants to try to
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  Speaker 1: revitalize its brand too, saying they're focused on a little
• 6:38
  Speaker 1: refresh and modernization.
• 6:39
  Speaker 2: But you've got to be able to balance the books
• 6:42
  Speaker 2: to be able to do that.
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  Speaker 1: So, Larissa, to sum it all up, you can be
• 6:45
  Speaker 1: a household name and still be strapped for cash.
• 6:47
  Speaker 2: Yeah, because being iconic doesn't always mean being liquid.
• 6:51
  Speaker 1: And for David Jones, it sounds like it needs a
• 6:53
  Speaker 1: real Christmas miracle to get the cash flowing again.
• 6:56
  Speaker 2: Flux fam, thanks so much for listening to this episode
• 6:58
  Speaker 2: of What The Flux Unpacked. We'll be back in your
• 7:01
  Speaker 2: ears next Wednesday to fill you in on the RBA's
• 7:04
  Speaker 2: second-to-last cash rate decision of the year.
• 7:06
  Speaker 1: Have a spooky weekend and see you on Wednesday.