Why I have no faith in the $2billion David Jones takeover

Not since my very first attempts at wearing anything related to the colour family yellow have I had such unbridled enthusiasm quashed within an unduly short space of time. I am referring, of course, to the Financial Review Sunday – for which I made an effort to watch; getting up early, coffee and papers ready; in hope of good news –  regarding the $2.2 billion South African owned Woolworths’ buyout of Australian department store David Jones.

Known as ‘The house of brands’, David Jones was established in 1838 by a Welsh merchant, with a mission (and I quote), to sell ‘the best and most exclusive goods’. It is Australia’s oldest department store, but also the oldest department store in the world still trading under its original name.

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One would be forgiven in thinking that a billion dollar buyout in 2014 would signal the expansion of a successful global economy, but seemingly, it isn’t so.

Woolworths’ plans are not to extend the international range of highly sought brands with accessible price points and good quality. Their plan is to extend the range of Country Road, and other such mediocre brands into Homewares and Children’s. So, more of the same, it would appear. Possibly a great return for the department store in the short term but highly disappointing from a  global perspective – especially when department stores worldwide are not in a position of profit, nor seeking much relevance in a lifestyle-led market.

We’re in an age of travel and instant coverage. People know what value is, and more to the point, they know how to get it. The majority of Australian consumers that fit the target market for a David Jones shopper, are well heeled – and well travelled. They won’t accept a downsize of this magnitude.

This decision reads archaic in terms of actual growth, and I don’t even want to go there on what it might mean for shareholder’s….who you will currently find watching the market like a dog on a bone.

Woolworths will reportedly meet in the next few weeks with David Jones’ suppliers to discuss which brands will go and which will stay under its private label strategy. Chief executive Ian Moir has tried to quash concerns that David Jones, known for its range of international, national and designer brands, will become more like a Marks & Spencer or even Target after Woolworths’ $2.2 billion takeover.

He’s said, “Everybody seems to be getting quite scared about what we’re going to do about private labels. You need to understand that we won’t do anything that isn’t driven by our customer, it’s what made us a successful business in Country Road and a successful business in Woolworths. However, there are a lot of brands that don’t really resonate with the customer and don’t perform for us.

Mr Moir said Woolworths remained committed to the house of brands strategy originally introduced by former David Jones chief executive Peter Wilkinson almost 14 years ago and perpetuated under Mark McInnes and Paul Zahra, who stepped down last week.

Woolworths will bring in private labels which have done well in South Africa such as denim brand RE,  JT One and young leisure and lingerie brands.

Unfortunately I don’t believe new, unheard of labels will resonate with an Australian market who are responding well to the international likes of H&M, Zara and Topshop, who have all recently opened stores in Sydney and Melbourne.

The silver lining here might be in the lesson learned from the impending burn. Where DJs are making decisions setting the Australian market back, there are other entrepreneurial Aussies who are rubbing their hands together with glee in the knowledge that they will benefit from this disaster. I know who they are and I am watching them closely. I haven’t lost faith. I’ve just started to enquire about, and follow the right minds down the right rabbit warrens….needless to say…watch this space.

 

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