Davey Jones’ parrot

Michael Baker
March 28, 2012
The Age

The parroting ploy … will copying American department stores work for DJs?

In Joseph Conrad’s 1904 novel “Nostromo” is a parrot that, whenever it overheard a word spoken by a human that corresponded to one in its own tiny vocabulary, it felt moved to shriek it at top decibel.

Some of Australia’s largest retailers are getting to be like Conrad’s parrot, only in this instance they are mimicking the growth strategies of retailers half the world away.

David Jones is the latest example, shrieking lines directly from the playbook of large upscale US department store chains that are shifting resources to e-commerce, upgrading service and opening some smaller stores.

DJs’ gambit has met with scorching criticism in some quarters, but it raises some huge questions for the retail industry in Australia.

First, should Australian retailers and other businesses necessarily be following the lead of role models in international markets?

Second, if DJs’ critics are right and the parroting of American retailers doesn’t work, will there still be room for two department store chains in Australia?

And third, if the answer to the second question is “no,” what is going to happen to all the anchor retail space that gets freed up as the two existing chains consolidate?

Let’s take the questions in order. The answer to the first question is a qualified “yes” – domestic retailers have to take guidance from the growth strategies of their counterparts overseas, particularly in the US. The reason is that the American market is big, diverse and culturally disposed to risk-taking, which means ideas will emerge and be tested first there. Others can then learn from both the successes and the failures.

But in copying the successful ideas you have to understand which parts of the package to take and which to leave alone. And then consider whether the ones you need to leave alone are crucial to the success of the whole.

DJs is an excellent case in point. DJs is upping its investment in e-commerce and few would argue against that. Outcomes for US department stores in that area have generally been excellent.

Opening smaller stores – another increasingly prevalent strategy of US retailers – is also an essential component of the package because department stores cannot continue to float out 20,000 sq.m ocean liners in every market they enter. Smaller boxes give a department store the opportunity to have a physical presence in more markets and to edit its brand assortment to suit each one.

The third plank – the service component – is also essential because DJs is supposed to be an upscale retailer with a strong service model.

The problem is in the two critical components of its US counterparts’ growth strategies that DJs has had to leave behind. The first is international expansion and the second is the creation of a factory outlet format.

International expansion is probably out because DJs (and Myer for that matter) have little to offer an international market that is already crawling with US, European and Asian department stores with much bigger pedigrees. And for Australian brands wanting access to foreign markets, there is no strong reason to want to piggyback on DJs and Myer when the risks of going it alone or with a local partner are now relatively low.

Another important component of the US department store growth plan has been their factory outlet network. With hundreds of high-quality outlet centres to go into they have access to an important expansion vehicle that doesn’t exist in Australia.

The bottom line is that David Jones’ strategy is missing two vital legs of a five-legged stool. It’s a moth-eaten strategy that will use e-commerce and a few openings and remodels to stanch market share attrition for a while. But it may not do enough to rejuvenate the longer-term fortunes of the retailer.

The answer to the second question then, is that probably there’s not enough room for two department stores in the Australian market. Just as US department store giant Federated bought out its major rival May Department Stores in 2005, Myer and David Jones may ultimately have to merge to cut operating expenses and eliminate duplicative retail space.

This will be messy and take a lot of time because of long anchor store retail leases, but eventually shopping centre operators will find that there are superior options for their centres than an incredible shrinking department store business.

And so to the third question: “what happens to the freed-up retail space?” That opens the way for all kinds of solutions, including non-retail uses, specialty retailer flagships, junior anchor “condominiums” and even a revival of independent retail.

Michael Baker is principal of Baker Consulting and can be reached at michael@mbaker-retail.com and www.mbaker-retail.com.

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