Is the department store model dying? That is the question on everybody’s lips in 2026.
This comes as David Jones navigates supplier payment delays, with data from commercial credit agency CreditorWatch showing the department store is paying suppliers an average 16 days overdue compared to the industry average of seven days overdue. A David Jones spokesperson says the retailer is streamlining its operational and financial processes.
Reports also show that David Jones is finalising a $150 million refinancing deal.
Meanwhile, as Myer’s actual half year sales and profits surge thanks to the inclusion of Apparel Brands – Just Jeans, Jay Jays, Jacqui E, Dotti and Portmans – Myer’s pro-forma results (excluding the expected fluctuations) are a little more blunt.
Pro forma total sales grew 2.1 per cent in the first half of FY26, with pro-forma operating profit nudging up by just 0.1 per cent.
At the bottom line, Myer’s statutory net profit after tax (NPAT) was $40.3 million for the first half, which is up 32.8 per cent in actual terms (including Apparel Brands), but is down 20.3 per cent on a pro forma basis. The pro forma calculation here includes $11.4 million in significant items, including $5.6 million in restructuring and redundancy costs and $4.8 million in transition and integration costs.
The challenges are not just isolated to Australia either. Saks in the United States recently collapsed into bankruptcy. Debenhams in the United Kingdom wound up its entire store portfolio and now only sells online. And in New Zealand, Smith & Caughey’s shut its doors completely last year after 145 years in business.
All this comes amid a whirl of headwinds shaking up the retail market overall. 6one5 Retail Consulting director Bill Rooney tells Ragtrader that the online space surged in Australia during and post-COVID, while the likes of Amazon, Shein, Temu and others continue to take up a decent chunk of market space. He also points out leadership complacency and talent abandoning what they see as a “dying category” as further contributions to the demise of the department store model.
“Department stores have been in decline for over 25 years, so no real surprise,” Rooney says.
But not all hope is lost here. In fact, the former bosses of Myer and David Jones think the department store model is still viable, but needs to adapt to the new retail order.
Bernie Brookes – former CEO of Myer between 2006 to 2015 – says with the growth of direct to customer options, marketplaces and the optionality now available to customers, the model must be modified.
“Retail is very much about differentiation and customer focus,” Brookes says. “The successful department stores modus operandi will create a differential range, differentiated value offering and a differential service and entertain customers.
“As more concessions are utilised, then more control of brand and customer is lost. As better private labels and unique offerings are developed and marketed, the more bullet proof a department store can be.”
He believes the strategic errors made by department stores globally in recent years are the removal of theatre in stores, as well as service and entertainment.
Meanwhile, Paul Zahra, former CEO and MD of David Jones in the early 2010s, tells Ragtrader that the department store sector is going through a necessary transformation, adding that some of the turbulence we're seeing globally reflects just how significant that shift is.
“The model that served retailers so well for decades – vast ranges, prime real estate, broad appeal – is being tested by a retail environment that has fundamentally changed,” he says.
“E-commerce has raised the bar on convenience and range, customers are more informed and more discerning than ever, and the cost of doing business has never been higher. These are real pressures, and the industry isn't shying away from them.”
Zahra says the department stores that are leaning into change – such as investing in experience, sharpening their curation, and creating environments that people actually want to spend time in – are showing that the model absolutely has a future.
“Physical retail has something e-commerce can never fully replicate: human connection, discovery, and the joy of a great in-store experience. The opportunity is enormous for those willing to evolve,” Zahra says.
“The model for department stores right now needs to be a significant investment in digital, the leveraging of AI and a strategic reduction in their physical footprints.
"I think we'll look back on this period as the moment the best retailers separated themselves from the rest – and that's an exciting prospect for the industry.”
Brookes is just as hopeful but a little more blunt. He says we will see less department stores across Australia, with the focus shifted to flagship locations.
He also expects to see a greater, more competitive online presence, with a keen focus on products that are controlled and owned.
“In Australia alone there is nearly $5 billion in turnover in premium department stores each year. That is a great model to build upon rather than suffer death by a thousand cuts,” Brookes says.
A report by IBISWorld dated March 2025 shows that the department stores market in Australia had an annual revenue of $22.1 billion in 2024-2025. This includes other department stores such as Kmart, Target, Big W and others. Overall, this has fallen by around 0.8 per cent since 2020, with the compound annual growth rate expected to continue declining by 2.3 per cent to 2030.
The report shares that the market is suffering from reduced foot traffic and the growing threat from online-only retailers. Wavering consumer sentiment and shifts in discretionary income are also causing consumers to pivot their spending towards lower-priced online sellers.
“Rising internet connectivity and consumer reliance on smartphones have propelled online shopping activity and industry competition,” the report adds. “Yet, these headwinds have yielded some positive results, like a push to revise legacy systems and strategies and become more digitally driven retailers.
The industry is highly concentrated, with the four heavyweights – Wesfarmers (Kmart, Target), Woolworths (Big W), Myer and David Jones – accounting for the bulk of industry demand, which means internal competition is intense.
“This factor has prompted price wars and aggressive discounting strategies, especially among low- to mid market department stores like Kmart, to win over customers,” the IBISWorld report notes.
“Speciality retailers in sectors like apparel, homewares, electronics and cosmetics deal with their own demand woes, spurring reformation in their sales strategies, for example by expanding their digital and customer service capabilities. In doing so, these retailers increasingly steal market share from department stores.
“Mounting competition has encouraged department store chains to rationalise their networks, which is why establishments trend downwards and profitability trends upwards.”
IBISWorld projects that the department stores industry is set to shrink at a faster rate through 2029-30, as the results of rationalising strategies and a heavier focus on digital transformation come into effect.
“Online only sellers, like Amazon, will continue expanding their offerings and after-sale services, raising competitive pressures. Improving consumer sentiment and rising discretionary income are set to offer some reprieve in demand for up-market department stores, but gains will be cut short by commonplace bargain-hunting habits.
“In turn, more department stores will focus on shrinking floor space, rationalising merchandise and enhancing online operations to maintain low prices favoured by consumers.”
But it’s not all doom and gloom. Rooney from 6one5 Retail Consulting says department stores’ survival boils down to one thing: adopting artificial intelligence.
“I have just spent three weeks in Asia implementing AI with the executive team and store managers in a diverse retail group with Department Stores, Fashion and Hypermarkets and as I look out at several hundred back office employees, I shed a tear because in a few years that number of employees will halve.
“You don’t have to look further than Stuart Machin at Marks and Spencer and their financial performance to see AI will drive future growth. Australia is lagging well behind global best practice in leveraging AI.”
In the next five years, Rooney believes the revenue split will be 50-65 per cent online and 50-35 per cent physical. He adds that while the physical footprint shrinks dramatically, the physical revenue per square metre increases.
“The in-store experience will focus on sensory retail, theatre and discovery; in other words experiences as a destination backed by human expertise at scale,” Rooney predicts.
“Finally, the store will act as a micro-fulfilment hub – same-day or 2-hour delivery within a 10-15 kilometre radius to compete with Amazon's last-mile advantage.”
Rooney says the best practise is Williams-Sonoma, a specialist department store in the homewares space. He says the store has a 66 per cent e-commerce and 34 per cent physical split. There’s also John Lewis, where 60 per cent of its revenue comes from e-commerce.