David Jones, which was bought by the high-end retailer for more than
R20bn four years ago, said on Thursday it had dismissed its MD for clothing and
general merchandise, David Collins, just a month after Woolworths axed its CEO
in that country, John Dixon.
David Jones said it had also cut another 15 jobs at its head office, in
a bid to cut costs and stabilise the business.
Amid a weakening department store market, David Jones has struggled
since Woolworths bought it. And with online players Amazon and eBay wading into
the Australian market, analysts say traditional retailers face an increasingly
difficult trading environment.
Woolworths recently wrote down the value of David Jones by A$713m
(R7.2bn). In May, it dismissed Dixon, a former Marks & Spencer executive
who was the group’s regional head for less than a year.
Woolworths’s share price has halved from the highs reached in late 2015.
The stock closed nearly 1% up for the day at R53.93 on Thursday.
Strategic cost review
David Jones said on Thursday that following a strategic cost review, it
would consolidate its management and head office teams “to provide a
flatter, more customer-focused structure”.
With Collins gone, the merchandise leadership team would now report
directly to David Jones CEO David Thomas.
Although Woolworths has impaired the value of David Jones, it is still
making a number of strategic investments there. For instance, David Jones is
adding food halls to its stores, and is spending almost A$200m on refurbishing
its flagship store in Sydney, using funds from the sale of another outlet.
“In our view, department stores are a dying breed that have largely
been replaced by exciting shopping malls and online retailing, so we were
sceptical of Woolworths’s bold targets [for David Jones] from the start,”
said Bjorn Samuels, an equity analyst at Argon Asset Management. Samuels said
the loss of skilled staff and the extent of management changes would make the
business more difficult to manage.
“From our viewpoint, the original turnaround strategy has started
to mutate and the many changes in key decision makers has confounded our
visibility of David Jones being able to deliver.”
Samuels said if Woolworths believed it could revive the department store
chain, it should “throw more capital at the problem” rather than cut
costs. But if Woolworths conceded that the department store format was dying,
it could manage the decline by cutting costs.
Argon said it believed Woolworths shares were not priced attractively
enough to compensate for these risks.
However, despite the company’s woes in Australia, HSBC analyst Jeanine
Womersley upgraded the recommendation on Woolworths to buy from hold this week,
according to Bloomberg data.