Can Myer and DJs halt their slide into irrelevance?

For more than 100 years, David Jones and Myer ruled Australian retail. From the 1800s they linked us to the world, giving us a taste of the high fashion and luxury missing on Australian shores.

Now the two department stores no longer reign supreme. Facing a trifecta of missed opportunities, a downcast consumer and the rise of lean, agile rivals, few are optimistic about the future of the dominant retailers.

So dire is their plight that in January, analysts at investment bank Morgan Stanley threshed out the plausibility of the two giants merging.

“Department stores now compete more with others [than with each other],” wrote Morgan Stanley retail analyst Tom Kierath. By merging, the two stores could save some of the money that goes into competing with each other, and more efficiently focus on planning for the future.

Kierath and his team even did the sums on it. They reckon the two stores could save $91 million, or 26% of their net profits, in synergies, largely through a lower management headcount and “more rational discounting”.

The Morgan Stanley analysts acknowledged they hadn’t heard of any merger talks between the two, and given the historical rivalry and potential regulatory hurdles, a merger is unlikely. Nonetheless, the proposal shows the belief in many sectors of the market that the two companies need to do something radical to emerge from their slump.

“Without visionary, out-of-the-box thinking, they could well become redundant,” says Steve Ogden-Barnes, a retail industry fellow at Deakin University. “Without that, their future is one of very limited growth and increased competition.”

Ogden-Barnes says he doesn’t have the solution to the dilemma facing department stores. And he’s pessimistic about what he sees as tired, rehashed solutions.

“Domestic expansion doesn’t seem to work. Discounting doesn’t seem to work. Trying to sell more to existing customers doesn’t work. Trying to be a dominant force in online doesn’t seem to work.

“I’m not sure where that leaves you. There isn’t an easy answer. You can always try harder and do better, but I don’t think there’s an obvious, straightforward answer. There’s no single thing, or no shortlist of things, that will change things exponentially for either of them.”

What went wrong?

It’s hard to believe that only five years ago the outlook for the two department stores was bright. In 2008, just before the GFC hit Australian consumers, Myer and David Jones had sales of $3.3 billion and $2.1 billion respectively. By 2012, Myer was down 6% on 2008 figures to $3.1 million in sales while David Jones lost 11% to $1.87 million. If we look at profits, Myer weathered the downturn better than David Jones – posting a 8% rise in pre-tax profits over the five-year period (from $213 million to $230 million), compared to David Jones’ 40% fall (from $174.6 million to $105 million).

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