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Myer, David Jones in Hot Water as Shoppers Move Online
According IBISWorld’s latest report, Australian department store revenue is expected to drop this year, with luxury mainstays Myer and David Jones set to cop the brunt of it.
Department store revenue is expected to fall by an annualised 0.2 percent over the five years through 2018-19 to $18.8 billion, IBISWorld says. The research firm claims this is because of uncertain economic conditions such as the cooling housing market, low wage growth and the rapid increase in online competition.
In a statement to the media on Thursday morning, IBISWorld said the Australian department store sector is highly concentrated, with the top four players accounting for close to 95 percent of the industry’s revenue. Competition, while steep, tends to be limited to brands operating with similar market positioning. For instance, Myer competes with David Jones and mid-market and discount department stores such as Target, Kmart and Big W are often in competition. According to IBISWorld, as these brands are busy competing with one another to gain market share, consumers have instead been looking to online channels to fulfil their shopping needs.
“Both have been trying to reshape their businesses over the past five years, as they have fallen out of favour with shoppers. Consumers have increasingly shifted to online shopping, where there is unprecedented choice and lower prices. Department stores have also had to compete with specialty stores and international fast-fashion giants such as Zara and Uniqlo,” said IBISWorld Senior Industry Analyst, Kim Do.
Myer reportedly holds 16.1 percent of Australia’s department store share, while David Jones is trailing behind with a share of 11.7 percent. Despite a reduced share, however, David Jones has been tracking better than its counterpart in terms of revenue growth over the past five years.
According to IBISWorld’s latest predictions, department stores will need to focus on private-label brands if they want to survive the ‘doom and gloom’ of the industry’s feared retail apocalypse. This is a move than online marketplaces have already adopted, with US giants, Amazon and Walmart investing heavily in private-label goods over the past few years.
“In 2014, after its takeover by Woolworths Holdings, David Jones launched its strategy to lift private-label sales, moving away from its “House of Brands” strategy. Despite some mishaps, which dampened profit performance, the department store is expected to continue pursuing this strategy,” Do said.
“Over the next five years, Woolworths plans to continue boosting sales of private-label and exclusive brands to differentiate David Jones from Myer. This includes Woolworths’ Country Road Group brands.”
Do believes Myer will also follow a similar strategy after the company announced its plans to move away from unprofitable product categories like furniture and bedding, to instead focus on apparel, beauty and private-label collections.
“Myer’s 2019 half-year results saw sales of Myer Exclusive Brands (MEBs) rise by 3.7 percent to $292.2 million, which also assisted the company’s profit margins. On the other hand, concession store sales fell by 5.7 percent. As a result, the company is planning to extend its private-label range to include footwear and accessories to complement its clothing range,” Do said.
By focusing on private-label goods, Do believes Myer and David Jones will be better positioned to avoid the fate of other legacy brands that have fallen into administration and closed up shop, such as Marcs and David Lawrence.
“Focusing on private and exclusive labels is likely to help Myer and David Jones differentiate themselves from online stores, as consumers will only be able to purchase certain brands from one store. This is likely to minimise the risk of excess inventory for retailers. Having exclusive and well-designed private-label brands reduces the need to discount products. It also helps drive foot traffic, which can boost cross-sales,” she said.