David Jones has offloaded its embattled electronics portfolio in an extraordinary Australian department store first.
David Jones has entered into an agreement with Dick Smith Electronics, the first of its kind in the Australian department store category and set to come into affect as of October 1, 2013.
The agreement will see Dick Smith acquire a majority of inventory, fittings and front-line staff in the David Jones electronics portfolio.
The company will operate the existing David Jones electronics business under the banner “David Jones Electronics Powered by Dick Smith”.
Dick Smith will also be responsible for fulfilling all electronics orders placed on the David Jones online store.
Products covered by the agreement include televisions, computers, tablets, home office, audiovisual and other digital products.
Whitegoods and small appliances are not covered in the deal and will continue to be operated by David Jones.
The initial term of the agreement is three years, with three subsequent 12 month options to renew.
Dick Smith will pay David Jones on a monthly basis a fixed percentage of the sales generated by the David Jones electronics business.
This payment has been underwritten by Dick Smith to ensure that David Jones will throughout the term of the arrangement receive a minimum payment each year regardless of sales volumes.
David Jones CEO Paul Zahra said the venture will strengthen buying power and offer more competitive prices for consumers.
“For some time we have reported on the challenges that our electronics business has faced, including deflation and aggressive discounting. This category has adversely impacted our sales and profit for a number of years now.
"In effect we have transformed what was an under performing category in our business into a profit contributor."
A number of one-off costs will be incurred by David Jones as a result of the agreement, but it is expected to deliver a positive return on investment in 12 months.
UPDATE: David Jones expects these one-off costs to be in the order of $5 million - $10 million.