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The Death of the Department Store · What the Flux

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  Speaker 1: This is what the flux. I'm Larissa and it's Friday,
• 0:07
  Speaker 1: the tenth of July. Here are our three biggest news
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  Speaker 1: stories for today. For our first story, Talstra could be
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  Speaker 1: Australia's largest rice grower, is scaling back production at two
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  Speaker 1: of its processing mills, putting the jobs of hundreds of
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  Speaker 1: Meta is testing new AI glasses to record everything aware
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  Speaker 1: it does. The prototype would reportedly let someone wearing the
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  Speaker 1: glasses recall what they'd seen and heard throughout the day
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  Speaker 1: using AI, and its sparking debate around the privacy of
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  Speaker 1: people being recorded without knowing. In this series Going Deep,
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  Speaker 1: we'll be doing bite sized explorations into the most interesting industries,
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  Speaker 1: businesses and economic events and at and around the world.
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  Speaker 1: For today's episode, we're looking at the decline of Australian
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  Speaker 1: retail over the past decade. We've seen David Jones struggle,
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  Speaker 1: mosaic brands collapse, and Meyer worth a fraction of its
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  Speaker 1: previous value. In this episode, we'll explore how cheap imports,
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  Speaker 1: online shopping and consumer preferences have shifted and what this
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  Speaker 1: means for Ossie Retail into the future. Over to you,
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  Speaker 1: Britt and Justin.
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  Speaker 2: Then man, cast your mind back to being a kid
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  Speaker 2: in a department store. Yet the perfume counters, the toy section,
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  Speaker 2: the escalators that never really worked.
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  Speaker 3: Properly, and the food hall. If you were lucky, that
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  Speaker 3: was the dream. So Johsi boit. Clearly the Australian department
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  Speaker 3: store is most certainly not a new idea now.
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  Speaker 2: David Jones opened its doors in Sydney in eighteen thirty eight.
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  Speaker 2: In fact, it's actually the oldest department store in the
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  Speaker 2: world still operating under its original name.
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  Speaker 3: That means David Jones predates electricity and Australia as a
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  Speaker 3: nation and then man.
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  Speaker 2: For most of the twentieth century, department stores were Australian retail.
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  Speaker 3: You wanted bed sheets, or school shoes or a toaster
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  Speaker 3: all at once, you went to the department store.
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  Speaker 2: Departments are basically the og Amazon, except instead of an
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  Speaker 2: algorithm recommending products. It was a guy in men's wear
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  Speaker 2: insisting to get heaps of wear out of this blazer.
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  Speaker 3: And for decades the model worked very nicely.
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  Speaker 2: The department stores like Maya and David Jones had a
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  Speaker 2: very loyal customer base that kept those businesses powering ahead
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  Speaker 2: for decades.
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  Speaker 3: But over the past decade, Juzzy boy, the entire model
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  Speaker 3: has started to break down.
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  Speaker 2: Yeah, it's not just department stores though, it's also those
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  Speaker 2: mid market fashion chains like Mosaic Brands, Harris scaff and
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  Speaker 2: many more.
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  Speaker 3: These are businesses with massive inventories, huge rent bills, and
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  Speaker 3: enormous staffing.
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  Speaker 2: Costs and margins that are now thinner than the towels
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  Speaker 2: in a hotel barthroot alrighty, so where are we at today? Well,
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  Speaker 2: the numbers are pretty grim. Mosaic, the company that owned
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  Speaker 2: eleven brands like noney Bee, Rivers, Millers, Rockman's and more,
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  Speaker 2: inted voluntary administration in October twenty twenty four.
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  Speaker 3: By April twenty twenty five, the company was gone entirely,
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  Speaker 3: all seven hundred and fifteen stores, eleven brands dissolved done.
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  Speaker 2: What about Harrows Scarff, Well, they were put into administration
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  Speaker 2: before a rescue buy out.
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  Speaker 3: By the Spotlight Group and then, of course David Jones,
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  Speaker 3: the one hundred and eighty eight year old brand, which
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  Speaker 3: was sold by South African retailer will Worth Holding in
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  Speaker 3: twenty twenty three, approximately one hundred million.
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  Speaker 2: Bucks down from the two point one billion dollars that
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  Speaker 2: they paid for David Jones back in twenty fourteen. The
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  Speaker 2: buyer was a private equity firm called Anchorage Capital Partners
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  Speaker 2: and even they're not having an easy time na. David
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  Speaker 2: Jones lost seventy four point four million dollars in the
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  Speaker 2: twenty twenty four financial year. Maya, the other great survivor,
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  Speaker 2: is doing what it does best, surviving. Yeah, its share
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  Speaker 2: price is falling ninety three percent from its IPO price
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  Speaker 2: in two thousand and nine, and.
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  Speaker 3: In February last year, it acquired Apparel Brands, the company
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  Speaker 3: that owns dust Jens, JJ's, Portman's, Dotty and Jackie from
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  Speaker 3: Premier Investments and.
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  Speaker 2: Be Man and also are a little confused and the
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  Speaker 2: bit concerned that Maya's just bolted on another seven hundred
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  Speaker 2: and eighty stores of mid tier.
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  Speaker 3: Fashion, exactly the format that's already dying.
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  Speaker 2: Meanwhile, k Maat's thriving Findings is thriving, Big W is
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  Speaker 2: holding up yep, and luxury retail is surviving in pockets.
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  Speaker 2: But the middle it's kind of been smashed.
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  Speaker 3: But it's not just the increasing costs that have impacted
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  Speaker 3: this business model. It's competition. Yeah.
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  Speaker 2: And the simplest way to understand this is by thinking
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  Speaker 2: that the range of different options available for the people
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  Speaker 2: who used to shop at Meyra and David Jones.
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  Speaker 3: And the people that never shopped at Meira David Jones.
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  Speaker 3: The customers want cheap, it's came out of BIGW. If
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  Speaker 3: they want convenience, I low Amazon.
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  Speaker 2: If they want to dope mein hit from buying fourteen
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  Speaker 2: household items they absolutely do not need for eleven dollars, yes,
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  Speaker 2: it's Team.
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  Speaker 3: And if they want status, it's some of the luxury
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  Speaker 3: brand houses.
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  Speaker 2: And these cheap, convenient don't mean hit businesses are exploding.
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  Speaker 3: Amazon now has eight point eight million Australian shopping on
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  Speaker 3: it annually and now makes up around ten percent of
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  Speaker 3: all online retail spending in this country.
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  Speaker 2: Then you got Teamur, which had five million Australian shoppers
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  Speaker 2: in twenty twenty five, up seventeen percent in one year.
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  Speaker 3: Third place, You've Got she In, which had two point
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  Speaker 3: nine million Australian shoppers growing at twenty eight percent a year, and.
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  Speaker 2: Together with Amazon, these three now have around thirty six
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  Speaker 2: percent of Australia's online market spending.
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  Speaker 3: Now, Joseph Boid, that is absolutely massive in terms of
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  Speaker 3: shifts in consumer behavior. But the man.
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  Speaker 2: The other thing that's killing bricks and mortar stores are
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  Speaker 2: the fixed costs.
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  Speaker 3: Bricks and mortar stores pride themselves on their prime real estate,
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  Speaker 3: their large headcount, their endless inventory.
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  Speaker 2: And this business model is struggling to stack up in
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  Speaker 2: the world of retail.
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  Speaker 3: So the unresolved question what actually happens when a one
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  Speaker 3: hundred and eighty eight year old brand runs out of
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  Speaker 3: a runway.
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  Speaker 2: Well, there is a bit of an uncomfortable truth for
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  Speaker 2: the future of Australian bricks and mortar retail. Go on,
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  Speaker 2: mister retail, Well, the squeeze for them may not be over.
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  Speaker 2: Salesforce found that in store purchases are expected to fall
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  Speaker 2: from forty five percent of all sales in twenty twenty
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  Speaker 2: four to forty one percent by twenty twenty six.
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  Speaker 3: That's not a giant collapse, but it is a directional
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  Speaker 3: arrow that's pointing pretty clearly one way. Yeah to the man,
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  Speaker 3: who are the winners? Then, well, it's pretty clear. On
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  Speaker 3: the one hand, you've got scale discounters, ukmats, you'd be
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  Speaker 3: W's even your costcods, And you've got experience led specialty retailers.
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  Speaker 2: The mechas who actually provide a unique instore experience.
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  Speaker 3: And of course then there's the online first brands.
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  Speaker 2: Amazon's Tea Mochi ins.
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  Speaker 3: The losers are anyone really stuck in the middle, the
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  Speaker 3: ones with a big footprint with a very blurry value proposition.
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  Speaker 2: But David Jones, the most likely path is more store rationalization.
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  Speaker 3: It's already down to thirty eight locations. But the question is.
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  Speaker 2: Whether the brand survives as genuinely premium or it slowly
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  Speaker 2: follows meers model to try to be everything to everyone.
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  Speaker 3: So Josie, wait, let's just zoom out for a moment
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  Speaker 3: or Over one hundred years, the department store was essentially
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  Speaker 3: solved the unique problem for shoppers.
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  Speaker 2: They put a wide range of goods in front of
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  Speaker 2: customers who didn't have a better option.
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  Speaker 3: They were the algorithm before the Internet enabled actual algorithms.
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  Speaker 2: And suddenly the physical store has to be something more
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  Speaker 2: than just a place you go to buy things.
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  Speaker 3: It had to be an experience, and most of them
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  Speaker 3: never worked out what that experience really was.
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  Speaker 2: So then, man, if we take a step back and
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  Speaker 2: we look at the optimistic version of what retail looks
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  Speaker 2: like in the future, the Australian retail industry could reinvent
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  Speaker 2: itself well. Department stores could get smaller, it could become
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  Speaker 2: more curative, they could become more experiential. They started trying
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  Speaker 2: to sell your toaster and start trying to make you
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  Speaker 2: feel something.
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  Speaker 3: Pessimistic version is that Amazon and the other online retailers
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  Speaker 3: just keep growing team.
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  Speaker 2: Who keeps improving, and the mid tier hollows out until
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  Speaker 2: there's nothing left but a discount end and a luxury
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  Speaker 2: end with an enormous gap in between.
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  Speaker 3: Both versions are probably partially right.
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  Speaker 2: Yeah, the middle isn't disappearing entirely, but it is looking
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  Speaker 2: like it's going to be a lot smaller.
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  Speaker 3: And jazib wait, maybe that's the right ending for a
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  Speaker 3: business model built in eighteen thirty eight.
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  Speaker 2: Flux Sam, we hope you enjoyed our deep dive looking
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  Speaker 2: at the decline of Australian retail over the past decade
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  Speaker 2: and what is ahead. We are very excited for next Wednesday,
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  Speaker 2: where we're going to be speaking in conversation with Janie Martine,
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  Speaker 2: who SEEO of Kick, the company that's evolved from a
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  Speaker 2: fitness app into a full wellness ecosystem, and also co
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  Speaker 2: founder of mindfulness app Smiling Mind. Really looking forward to
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  Speaker 2: our conversation next week. Thanks for listening, and we'll see
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  Speaker 2: you on Wednesday.