Urgent warning over ‘retail apocalypse’ after sale of David Jones

Bargain sale of David Jones just the start of ‘retail carnage’ as Aussies close their wallets – as experts reveal why Kmart is bucking the trend and only becoming MORE popular

• The bargain basement sale of David Jones points to major retail uncertainty  
• Australia faces a potential retail apocalypse early in the new year as rates rise
• Retailers likely to hold on for Christmas but could then face a harsh reckoning 
• One store that has defied the gloom is Kmart, which has become fashionable 

By David Southwell For Daily Mail Australia

Published: 01:33, 22 January 2023 | Updated: 01:33, 22 January 2023

The bargain basement sale of iconic department store David Jones could just be the start of a retail apocalypse. 

This year threatens to see carnage in the sector as interest rate rises take a big chunk out of consumer spending and impact other well-known stores  – with one surprising exception. 

David Jones was off-loaded by South African owners Woolworths Holdings (which is not connected to the local Woolworths brand) to Australian equity firm Anchorage Capital Partners for a paltry £100million in December.

Megan Gale at the official opening of the stage one redevelopment of the David Jones Bourke Street Mall store in Melbourne when it was hugely popular

Model Miranda Kerr showcases designs by Carla Zampatti during the David Jones season launch in 2012/13, which are glory days the beleaguered retailer might never see again 

It’s only the start of bleak news for Australia’s shopkeepers as retail spending suffered its first monthly dip of the year in October, according to the Australian Bureau of Statistics (ABS). 

Heather McIlvaine, who is managing features editor for specialty publication Inside Retail, said that this could be ‘the shoe dropping’ for a long expected freeze on consumer spending.

‘Retailers are aware 2023 might be a lot tougher but they just aren’t sure yet how tough it might be,’ she told Daily Mail Australia.

Ms McIlvaine said the acid test for retailers would come in the early months of next year because the rise in popularity of Black Friday sale shopping and normal Christmas splurging would likely keep spending elevated in the short-term.

‘Without those two drivers in the new year we will see what the cost-of-living crisis means for spending,’ she said.

A model shows off a Brosa couch with the furniture retailer going into receivership despite seeming to have the ideal contemporary business mix of online/offline trade

‘A lot of closures happen in January, this is their holding on through that Christmas period, to see if they can get through that and it gives them the cashflow to keep going.’

Steve Mickenbecker, a finance expert with financial comparison website Canstar, said the record-breaking speed of the Reserve Bank hiking the cash rate by 3 per cent in eight months will start to hurt household budgets. 

‘I think discretionary spending has to fall,’ he said.

‘The interest rates are going up and on average £500,000 mortgage the rises already amount to an extra £1,000 a month repayment.

‘It will be coming out of the money that would have gone on discretionary spending.

David Jones stores across the country are reportedly set to be offloaded at a bargain basement price

‘To date (consumers) haven’t been hit by the full impact of the increases we have already seen let alone the increases that I expect are going to come their way in 2023.’

Ms McIlvaine noted that even with consumer spending largely holding up there had been some notable collapses in retail this year.

‘We’ve seen a large number of on-demand delivery providers either pulling out of the Australian market or collapsing, such as Deliveroo,’ she said.

‘There has been a lot of speculation about the MilkRun (grocery delivery) business, how sustainable that is.

‘They were positioned as the future of shopping, instant delivery and clearly it’s not going to be the near-future of shopping.

Inside Retail managing features editor Heather McIlvaine says the October fall in retail spending could be the ‘shoe dropping’ on a long awaited downturn

‘Maybe it takes more time to work out the kinks in that business model and how to make it more profitable. It’s to do with the paper-thin margins.’ 

A collapse Ms MIlvaine said was particularly significant was luxury furniture retailer Brosa, which went into voluntary receivership in mid-December.

She argued that before Covid many retail collapses were businesses that struggled to adapt to a more online environment but with Brosa ‘that wasn’t the case at all’.

‘They were a digital first retailer – primarily online but with two showrooms targeted at the millennial market,’ Ms Ilaine said.

‘From the outside it was an example of a retailer doing all the right things. 

Kmart has become an Australian success story with the discount retailer becoming fashionable for young shoppers with a huge social media reach

‘It had this online, offline approach, which we have heard from many experts in the industry is the winning model but it’s obviously not bulletproof.

‘It shows how impacted the retail industry is by all these broader economic factors.’

Ms McIlvaine observed that department stores, which recorded the largest dip in October turnover out of the ABS retail sectors, have been struggling worldwide since well before Covid. 

Troubles in niche retail 

Plus-sized clothing retailer City Chic announced a profit warning leading to the share price tanking in December

Lifestyle group Luxury Retail No.1, which had three stores in Melbourne and two in Sydney, went into receivership in early August

Cult shoe retailer Sneakerboy entered voluntary administration in July owing staff £500,000 and suppliers more than £17 million

Premier Retail closed Sydney Peter Alexander, Smiggle and Portmans outlets in March and a Just Jeans shop in July.

<!- – ad: https://mads.dailymail.co.uk/v8/gb/news/none/article/other/mpu_factbox.html?id=mpu_factbox_1 – ->Advertisement

However, she said specialty retailers had thrived especially during the pandemic. 

‘When people are shopping online generally they are shopping for something specific,’ Ms McIlvaine said.

‘Department stores by their nature are more one-stop shops, maybe people don’t know exactly what they are looking for so it’s more of a discovery shopping journey.’

Mr Mickenbecker also noted that many people who tried online shopping for the first time during the pandemic discovered they liked it which caused bigger issues for the traditional giants of Australian non-grocery retail David Jones and Myer. 

‘If you back 20 years ago Myer and David Jones were king and there was very little competition,’ he said.

‘Since then online shopping is continuing to increase.

‘That’s got to be a worry for them, plus there’s been a massive influx in the fashion brands with their own outlets, the SABAs the H&Ms, so they are facing increasing competition there. 

‘When it comes to whitegoods and appliances they face off against the ‘category killers’, such as the Harvey Normans and the Good Guys, 

‘There are category killers in almost everything you can imagine now. So they have narrowed themselves to cosmetics and fashion, it’s a retail model that’s an older one.

‘They lose that department store mystic, which was their differentiation.’

Canstar finance expert Steve Mickenbecker says the rapid rise of interest rates will have to begin curbing consumer spending

Australia’s first David Jones boutique store closed in March 2020 due to Covid-19 and remained closed 18 months later.

The Barangaroo, Sydney, store opened in November 2016 (pictured) amid much fanfare

Both Ms McIlvaine and Mr Mickenbecker thought there was an exception to the older bricks-and-mortar department stores struggling and that stand-out was Kmart. 

‘Kmart has made such a comeback, it’s got a lot of fans in the younger generation, who in previous generations would have dreaded going into Kmart,’ Mr Michenbecker said.

‘People are flocking back to Kmart and it is seen as a cool place to shop.’

Secrets of Kmart’s success

Prices appeal to a large market

Lots of fans in the younger generation

Seen as a cool place to shop

Huge social media reach

Responds quickly to trends – especially home decor

<!- – ad: https://mads.dailymail.co.uk/v8/gb/news/none/article/other/mpu_factbox.html?id=mpu_factbox_2 – ->Advertisement

This perception was backed up by an August survey that found Kmart is the country’s top beneficiary of influencer marketing.

Hype Auditor found the retailer, which was once better know for being daggy and dodgy, had  790 mentions from 717 influencers during the first six months of the year translating to an incredible reach of 6.11million people.

Ms McIlvaine said Kmart had a big advantage, especially in tough times, compared to the upmarket retailers. 

‘The lower end of the market is always going to be very successful because you are going to a wider market,’ she said.  

She also acknowledged that Kmart, which has dwindled to three outlets from about 2,000 in the US, had done a good job of reinventing itself in Australia.

‘I know Kmart is particularly strong in the home decor space,’ she said.

‘You would assume they have a very good design team who are aware of the trends and are very good at translating that quickly into their own take of a product at a very accessible price.

Food delivery service carnage

Razor-thin profit margins and competition from the big supermarkets setting up their own delivery services has seen food and grocery services tumble in Australia in 2022 

DoorDash laid off 1250 staff in December citing challenging market conditions 

Melbourne delivery service YourGrocer shut up shop in December

Food delivery services Deliveroo and Voly closed Australian operations November

Victorian food delivery company Delivr collapsed in July 

Industry pioneer Milkrun scaled back its delivery promises in June

Food delivery service Send entered voluntary administration in  May

Grocery delivery company Quicko collapsed in March 

<!- – ad: https://mads.dailymail.co.uk/v8/gb/news/none/article/other/mpu_factbox.html?id=mpu_factbox_3 – ->Advertisement

‘Maybe you could say it’s the Instagram culture where you see all of these beautiful interiors.

‘Then you go into a Kmart and see some version of that trend or design that we can afford and put into our own home and feel like we keeping up with the fashions or getting ‘hacks’.

‘Their ability to respond very quickly to design trends really shines.’

An Instagram post from homeinmelbourne shows trendy Kmart furniture

A spokesperson for the discount retailer said they had ‘a huge focus on customer insights and listening to customers’ feedback’.

‘We’re pleased when the outcomes of this translate into customer love,’ the spokesperson told Daily Mail Australia. 

‘The rise of our Kmart community on social media and sharing of product hacks over the past few years is testament to the way our products have resonated.’

David Jones opened with the mission to sell ‘the best and most exclusive goods’ in Australia 184 years ago

Shops are also facing the pinch from rising power prices, shortages of labour and the potential impact on wages of new collective bargaining laws introduced by the Albanese government. 

The sale of David Jones is understood not to include the flagship store in Melbourne’s Bourke Street Mall – which is valued at about £250million in its own right – but that is likely to go on the market as well in the coming year. 

Considering that Woolworth Holdings paid £2.1billion for the famous retailer in 2014, £100million is a shockingly low sale price for the 184-year-old store established to deliver ‘the best and most exclusive goods’.

It is understood to be a fraction of the price brokered for David Jones less than a decade ago.

Woolworths Holdings, which also owns Country Road, made over £1billion in write-downs due to losses across its businesses during the course of the Covid-19 pandemic and is understood to be focused on repaying its debts.