The billionaire who’s a winner from David Jones’ collapse

No one will be celebrating the collapse of a retailer with the storied history of David Jones. However, for rival Myer and its billionaire backer, Solomon Lew, it will certainly provide more breathing room as they seek an answer to what is now a very topical question: Do department store operators have a future?

Myer will endure some short-term pain as the corporate undertakers now running David Jones raise money for the cash-strapped group any way they can with massive discounts on any goods the retailer can sell.

But Myer’s share price tells the story of who is going to win this round of their ongoing fight. Its shares were up as much as 9.8 per cent on Thursday, and are up nearly 50 per cent on the September low when it became evident that David Jones’ former private equity owners, Anchorage Capital, were running out of options.

The biggest financial relief will come from shopping centres housing both Myer and David Jones stores. If the nearby David Jones store closes, Myer will pick up a significant share of sales, according to the MST Marquee retail analyst team led by veteran Craig Woolford.

“Up to half the lost David Jones sales could switch to Myer,” Woolford says. The uplift could be as much as $180 million.

Lew is Myer’s biggest shareholder with a stake of more than 25 per cent.

It was never a fair race between the veteran rivals. The impatient money driving private equity was no match for the 81-year-old Lew on this front.

Private equity (PE) relies on leveraged bets to make outsized financial gains – and multimillion-dollar bonuses – quickly.

David Jones is what happens when the bet goes wrong.

Anchorage, as is the PE playbook, tried using other people’s money to wear the risk of the financial engineering involved.

Last year, lenders ran out of appetite as the $250 million cost of the David Jones revamp reached its peak. Lenders only coughed up more cash this month when the situation became so dire that David Jones did not have the cash to buy all-important Christmas stock.

The group had already wrung every dollar out of its suppliers. They have had their terms of payments stretched so David Jones could make free use of the money it owed them before repaying on terms that extended out to months.

It came at the cost of the brand loyalty and exclusivity that underlined David Jones’ image as the upmarket department store.

The exodus of brands across to rival Myer has been well-documented this year.

David Jones has yet to respond to stories of the financial sting for concessionaires who stayed with it.

Concessions refer to the big brand presence within its department stores. The stock, staff and floor space are paid for by the brands like Carla Zampatti, Christian Dior, Gucci, and MJ Bale.

The only thing David Jones does is handle the transaction, extract a fee, and pay the brands. Some concession operators say they have not been paid this week. They will now rank as unsecured creditors for these sales while being liable for all the costs.

In the end, a desperate gamble on a deal with David Jones’ landlords was the only thing standing between David Jones and financial oblivion.

Anyone who has dealt with Westfield owner Scentre, David Jones’ largest landlord, would know that these shrewd operators were never going to allow themselves to join the list of parties coming off second best to Anchorage.

The only questions now are: How many stores will close? Will they all stay open for the festive season sales rush? And how many employees will be out of a job before Christmas?

And we will know soon enough whether a new owner emerges with the vastly reduced network of David Jones stores, and if they have the deep pockets to survive another round with a billionaire with deep pockets and who knows retail down to his fingernails.

Wouldn’t you want to know what suppliers and landlords think of the news today that Anchorage is interested in bidding for the restructured David Jones business that will emerge from administration with few staff, stores and lower rent.

There might be a buck to be made from the misery after all.

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