If you still have a David Jones gift card, now might be a good time to cash it in before the retailer’s board meets this evening and turns your voucher into the equivalent of a losing Melbourne Cup ticket.
The board meeting is expected to perform last rites on what is left of the failing 188-year-old department store operator and put the company into voluntary administration.
David Jones has run out of options and will need the protection of corporate undertakers to keep landlords and lenders at bay. But it won’t last long.
Its major lender, Hilco Capital, will then appoint its own receiver to restructure and sell the business, and try to recoup its money.
That will involve drastic surgery to reduce the storied department store chain to a more modest store footprint – with lower rents – so that it just might remain viable.
No one needs reminding how tough a job this will be. And not just based on the Reserve Bank’s latest interest rate rise this week.
When the retailer’s payment troubles extended to its landlords last month, the writing was on the wall.
Department stores globally have been under major pressure from online shopping, smaller and more nimble physical rivals and diminishing foot traffic as more people work from home. The headwinds have led to financial troubles, closures and bankruptcies across the globe, including at iconic Saks Fifth Avenue in New York.
The worst cost-of-living crisis in decades may just be the final straw.
Research from MST Marquee published this week flagged a dozen store closures for David Jones, which would cost thousands of staff their jobs in the lead-up to Christmas.
The temptation would be to blame Anchorage Capital, the private equity firm that took the keys to the famous Australian department store more than three years ago.
Who can forget the role Anchorage played in selling electronics group Dick Smith to the Australian public in 2013 at a massive profit, just a year after acquiring the business from Woolworths? Dick Smith collapsed in 2016.
The fact that Anchorage paid just $100 million for David Jones in 2023 says plenty about how thin the veneer of viability was already by that stage.
Woolworths South Africa had spent $2.1 billion acquiring the struggling retailer in 2014, but its ownership was marred by quick CEO turnover and massive writedowns of a business clearly in decline.
More significantly, Woolworths sold off David Jones’s property assets worth hundreds of millions of dollars to help ease the financial pain. This included the flagship Sydney and Melbourne stores.
What Anchorage acquired for $100 million was a brand name, a turnaround plan and massive lease liabilities for stores that David Jones no longer owned.
“The business is positioned as a premium and luxury offering with complementary services across fashion and beauty,” Anchorage said when it sealed the deal in 2023.
David Jones was already implementing plans to spend $250 million on revamping its stores, its loyalty program, digital presence and customer relationship systems to boost sales and better compete with online retailers and luxury brands going direct to consumers.
That revamp was completed late last year, but it was not enough to turn the tide.
Suppliers have been ending exclusive deals with David Jones and defecting to rival Myer.
And the group hit a cash crunch.
By January, suppliers started complaining of delayed payment terms. In March, David Jones was late paying some suppliers and was pushing them all towards 60-day payment terms. In effect, it was using suppliers as a de facto bank, using proceeds from the sale of their goods for extended amounts of time before paying its bills.
“We note that recent media commentary is best characterised as misinformed – like many businesses, David Jones is adjusting some operational processes to best position the business for sustainable, long-term growth,” a spokesperson for Anchorage said at the time.
When the retailer’s payment troubles extended to its landlords last month, the writing was on the wall for its continued survival.
There was no way a shrewd operator like Westfield-owner Scentre was going to agree to hand over tens of millions of dollars worth of bank guarantees – designed to protect it from rent default – for shares in the failing department store operator.
These shares will be worthless when Anchorage calls in the administrators.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.From our partners
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: www.smh.com.au
