What does Ragtrader founder Fraser McEwing, who has reported on the sector for over four decades, make of recent developments at David Jones and Myer?
The $2.15 billion takeover of David Jones by South African Woolworths has all the intrigues of a good whodunit.
Did Myer know that Woolworths was going to swoop and therefore try to tie up the buyout deal before that could happen?
Will Bernie Brookes again board the retiree tram as Myer CEO now that he won’t head up a department store kingdom?
While the unravelling plot is of passing interest, the real question is whether department stores in their current configuration are viable in Australia, no matter who owns them.
Apart from cosmetics, where gallons of goop and a plethora of brands on one floor attract those of unsatisfactory appearance, what do they offer that is not better served by specialty stores?
When you think about it, a shopping centre is what a department store used to be – and even shopping centres are under threat from on-line shopping.
If Myer had succeeded in a family embrace with David Jones we would be presented with simply more of the same fundamental problems.
The only way forward for our department stores is tied to exclusivity.
For instance, Myer has exclusive distribution of Jane Lamerton sleepwear. If you want to sleep with Jane you have to go to Myer.
This type of arrangement also protects the profit margin that can be earned because prices can’t be compared with those being offered by other retailers on the same merchandise.
Over recent years, we’ve witnessed many skirmishes between David Jones and Myer as they try to shut out brands from one another, while still allowing those brands to be retailed outside the department store circuit.
That’s not going to be strong enough to bring prosperity in the future.
But now the elephant is about to enter the room.
Woolworths South Africa could cut a new channel for department store retailing in Australia. It has earned its stripes with a spectacular turnaround of Country Road and already owns Witchery and Mimco.
Woolworths CEO Ian Moir is making noises that are straight out of the how-to-fix-it manual. He’s talking exclusivity and house brands.
Yes, we’ve heard that before, replete with the house brand stumbling block of in-house design and logistics letting the side down.
However, Woolworths may have an answer of which Harry Potter would be proud.
Perhaps somebody was pulling my leg, but I have been told that Woolworths has a fashion prediction device that really works: an algorithm, no less, that nuts out what the consumer wants before she knows it herself. Abracadabra!
There are several other wins, too, in more understandable territory.
Woolworths is driven by the ambition to become a giant in international retailing.
Australia is a good growth bet.
By investing in David Jones it gets chunks of prime Australian real estate in return for the rapidly declining rand, makes David Jones shareholders happy, gingers up department store retailing and hopefully cements Paul Zahra into the CEO chair where he belongs.