David Jones customers are looking for clarity after the department store giant entered voluntary administration, raising concerns about potential store closures, the future of gift cards and whether major clearance sales are imminent.
The 188-year-old retailer made the move on Thursday after failing to pay rent owed to Scentre Group, the owner of Westfield shopping centres. The decision has placed the future of the business and its 6,000 employees under a cloud.
Retail analyst Barry Urquhart said the weakest suburban locations were likely to face the greatest risk across David Jones’ 38-store network. He also advised customers with gift cards to consider using them in case some stores ultimately shut.
According to Mr Urquhart, the flagship stores in Sydney and Melbourne have stronger prospects because they benefit from tourism and consistently high pedestrian traffic.
‘I’m told they have identified between eight and 10 stores that they will be closing down,’ he told the Daily Mail on Thursday.
‘I suspect one, two, three or four may close before Christmas. The underperforming suburban stores are very obvious. They simply don’t have the traffic.
‘The CBD stores have their own drawcard. They have an established presence and naturally generated footfall.’
Mr Urquhart said David Jones had spent more than three years looking for a buyer, but had failed to attract a successful offer.
Australian department store David Jones has entered voluntary administration
Retail analyst Barry Urquhart (pictured) says David Jones’ weakest suburban locations face the greatest threat across its 38-store network
Mr Urquhart said the failed search for a buyer reflected wider pressure on department stores worldwide, including Macy’s, Saks Fifth Avenue and Bloomingdale’s. Pictured, an empty David Jones store
‘It is clear there isn’t one. They have searched internationally for potential buyers and come up with nothing,’ Mr Urquhart said.
‘There has been no sign of anyone wanting to purchase it over the past three years. Why would that suddenly change now?’
Mr Urquhart said David Jones’ difficulties formed part of a wider crisis affecting department store chains around the world, including Macy’s, Saks Fifth Avenue and Bloomingdale’s.
‘Once the cash runs out, the time runs out as well. Then creditors force the business out. That is essentially what is happening here. They have a cash-flow problem,’ he said.
‘This won’t be a sudden collapse. Wherever possible, it will be a managed process of gradual reduction.
‘David Jones used to be the destination that brought shoppers into centres. It has not played that role for a long time.
‘You cannot operate as a national department store in Australia with 12, 15 or 20 locations. That simply doesn’t work.’
Customers hoping to take advantage of dramatic liquidation discounts may also be disappointed, with the retailer unlikely to stage the kind of deep clearance sales often seen during major retail collapses.
David Jones may not be able to offer the huge liquidation discounts associated with retail collapses because it needs to conserve cash, Mr Urquhart said
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Mr Urquhart said the company could not afford to sacrifice large amounts of revenue through aggressive discounting because it needed to protect its remaining cash reserves.
‘In retail, every dollar discounted comes directly out of your profit,’ he said.
‘They need to generate excess cash flow. A massive discount campaign or clearance sale would work against that.’
Employees were told on Thursday that the David Jones board had appointed McGrathNicol as voluntary administrators. The retailer’s main financier separately appointed FTI Consulting as receivers.
In a joint statement, McGrathNicol and FTI Consulting said David Jones’ stores and website would continue operating under the receivers’ oversight while the business and its current operations were assessed.
Financial services firm MST Marquee has highlighted a number of suburban locations as particularly exposed, including Westfield Parramatta and Warringah Mall in New South Wales.
The Queensland stores named as vulnerable include Carindale, Indooroopilly, Robina Town Centre and Sunshine Plaza. Westfield Marion in South Australia, along with Westfield Doncaster and Southland in Victoria, has also been flagged.
In Western Australia, Carousel, Booragoon and Karrinyup are considered among the locations facing the greatest risk.
The wider consequences could ultimately affect superannuation fund members whose retirement savings are invested in shopping centres and property companies
Mr Urquhart said the most significant long-term consequences may extend beyond David Jones employees and shoppers.
‘My greatest concern is not the David Jones customer. It is the superannuation funds that have invested in shopping centres and property developers,’ he said.
‘David Jones remains an anchor tenant for shopping centres. Its decline will have significant and unintended consequences.
‘Ultimately, superannuants and superannuation funds may receive lower returns from their investments in property development companies.’
For customers holding David Jones gift cards, Mr Urquhart advised against panic but urged them not to delay indefinitely.
‘I wouldn’t panic. I wouldn’t rush out immediately, but I also wouldn’t keep it indefinitely,’ Mr Urquhart said.
‘It may be a good time to review what you have and make a plan to redeem it in the near future, without acting out of panic.’
David Jones had reportedly asked for temporary relief from rent payments and sought permission to shut several stores before their leases ended.
The retailer also reportedly requested access to about $70 million held by landlords as lease security, saying the funds could be used to pay employees and suppliers.
Scentre Group said David Jones had breached its lease agreements by failing to pay its October rent. The shopping centre owner said it had offered the retailer deferred rental payments and the option of closing some Westfield stores during the next 12 months.