The name should survive, but suppliers may struggle. Former Ralph Lauren and Bonds executive Kylie Cumming on the David Jones collapse.
When House of Fraser, Barneys, Debenhams and Saks went through administration or bankruptcy, the pattern for the brands supplying them was remarkably consistent. The name survived. The store network and the suppliers rarely came out whole.
That pattern is already playing out. This week, the receivers confirmed that 19 of David Jones’ 38 stores will close, expected by the end of the year. Half of the network is going, and the overseas examples suggest the story is far from over, with buyers’ expressions of interest due by the end of this week.
Over the years I have negotiated many brands into David Jones and department stores around the world, so I have a lot of sympathy for the brands now sitting with stock on the floor and invoices outstanding. What should have been a growth milestone has turned into a very challenging period.
With the first creditors’ meeting on Tuesday 17 November, here is what those overseas collapses tell us, and what brands should do now and next.
Lessons from overseas
When House of Fraser collapsed in 2018, Sports Direct bought it for £90 million within hours, with no obligation to pay suppliers what they were owed. At Barneys in 2019, vendor recoveries were estimated at two or three cents in the dollar, and the smaller designers who relied on it most were hit hardest.
Debenhams, Hudson’s Bay and Lord & Taylor followed a similar path. The stores closed, and the names were sold. The brand lived on, but for suppliers the wholesale account did not.
Saks Global is the most useful example. When it filed for bankruptcy in January, owing around US$1.7 billion to unsecured creditors, critical vendors and concession and consignment partners received catch-up payments, while most other unsecured claims are being cancelled.
What brands should do now?
Know exactly how you trade. Wholesale, consignment and concession are treated very differently. If you sold on wholesale terms, that stock almost certainly belongs to David Jones, and you are an unsecured creditor. If you trade on consignment or concession, you may still own the stock, but it depends on how the arrangement works in practice: who owns the goods, who sets the price, who takes the money and who carries the risk.
Check your retention-of-title position today. Under the Personal Property Securities Act (PPSA), a retention-of-title clause or consignment generally only protects you if it is properly registered on the Personal Property Securities Register (PPSR), against the right entity, before the goods were delivered. If it is not registered, that stock may now belong to the business, and stock can be sold in days.
Do not just pull your stock. Several luxury houses have reportedly removed product, but taking goods from a company in administration without the administrators’ consent can land you in trouble. Put your claim in writing to McGrathNicol and FTI Consulting, ask that your stock be preserved, and agree to any removal in writing.
Plan for the closing stores. If you trade in any of the 19 closing stores, agree with the receivers now what happens to your stock. Closing stores mean clearance sales, and wholesale stock that is not moved to other stores is sold off at heavy discounts, which can damage your pricing well beyond David Jones. Concession brands should agree a sell-down or return plan in writing, and look after their people on the floor, who will be feeling this most.
Lodge your proof of debt by Monday, November 16. Make sure it is against the correct entity, with your invoices and delivery records attached. And be realistic: the secured lender and employees are paid before you.
Decide whether to keep supplying, and on what terms. The receivers have said post-appointment invoices will be paid, and suppliers can open new accounts with them. If you continue, get the terms in writing, keep order sizes tight and watch every payment date. And keep driving your own business within David Jones’ four walls to make sure your stock sells!
Get proper legal advice. Every agreement is different. If you are a smaller brand without that support, start with the administrators’ circular and ASIC’s free guides for creditors, and talk to your accountant.
The landlord problem
For more than a decade, I have viewed department stores as little more than landlords. The brand pays for the floor space through margin, then often supplies sales or VM support, manages the replenishment, funds the marketing and carries much of the markdown risk.
Unless you drove your own business within those four walls, it was very difficult to achieve the sell-thru required to make it work. I saw this first-hand at Ralph Lauren, where we had regional teams of visual merchandisers across department stores in the UK and Europe, who also trained floor staff on product and selling. That was the difference between success and not securing a second or third season.
So, was it worth it? For brands that ran it properly, often yes, and the exposure and credibility for smaller brands are significant. But many never did the full maths. Once you add the cost of staff, the stock you fund, marketing contributions and markdown support, the margin can be thin. For some it was negative. And after a bad season, stock was often returned or heavily marked down, with margin support requested on top.
There is also a cost that does not show up in the numbers. Customer service at David Jones dropped off significantly over the years and no longer matched its premium positioning. When a store stops investing in its own service, your brand is judged by the experience around it, and the account costs you more than margin.
Negotiating from here
If you stay with a restructured David Jones or look to Myer, know your leverage. Established brands with strong sell-thru will have real negotiating power. Smaller brands will have less, but a leaner store still needs newness and point of difference.
I would be pushing for:
- Shorter payment terms, such as fortnightly settlement on concession takings, at least for an initial period.
- Properly registered security on any consignment or concession stock, and an agreement that clearly says who owns the goods.
- Clear rules on markdowns, returns and marketing contributions, agreed up front rather than invoiced after the fact.
- Fewer, better doors. Ask for space in the stores that actually perform.
In return, a leaner department store will ask more of you. Expect pressure to move from wholesale to concession, so the stock risk sits with you, and requests for your own staff and more marketing support. Do not expect much data in return, particularly as a smaller brand. Track your own weekly sell-thru by store, know your true margin on the account, and be prepared to walk away if it does not stack up.
The longer view
I believe someone will buy David Jones. The brand is exceptionally strong, and it still has a place in Australian retail.
But the brands that come through this best will be the ones that stop treating a department store account as a measure of success. Spread your risk across wholesale, your own stores and online. Know your customer and your numbers.
And watch for the warning signs on every account. At David Jones, stretched payment terms and insurers refusing to cover stock came well before the collapse.
I remain optimistic that retail can thrive again. I am a stickler for retailers being merchants. Understand your customer, provide the experience and stay relevant across every area of your business, and you have the foundations to succeed. That goes for David Jones, and for every brand in its stores.
Kylie Cumming is a retail advisor with 25+ years’ experience leading omnichannel retail and brand growth across Australia, the US, the UK and Europe.