David Jones owner marks down its value by A$700m+ in tough Australian market

By

Sandra Halliday

Published
Jan 25, 2018

Upscale Australian department store chain David Jones saw A$712 million being slashed from its value on Thursday as South African owner Woolworths booked an impairment charge linked to the underperforming business.

It wrote down the value of the business, which meant its value has dropped by 33% as unprecedented trading conditions, a cyclical downturn and structural changes underlined just how serious the problems facing the chain are.

For those not in Australia, that might not seem like big news. But it really does matter both for locals and for the rest of the world as David Jones sells a basket of the world’s biggest-name fashion and beauty brands, as well as its own labels. The brands on offer include Valentino, Ralph Lauren, G-Star, All Saints, Karen Millen, Maje, Berlei, Burberry, Dior, Crocs, Diesel among many, many more.

Woolworths (the South African firm that’s no relation to the Australian supermarket) had paid around A$2.2 billion to buy David Jones in 2014. Thursday’s news from the firm was a reflection of just how much the Australian retail market has suffered in the subsequent years as global giants and the internet have radically shaken up what was once a relatively isolated and protected market.

Woolworths cited a weak local retail market but also blamed David Jones itself. It said in a statement that “this impairment has been exacerbated by delays and poor execution in certain of our key initiatives.”

Not that the writedown was much of a shock. In its most recent yearly results, David Jones had seen a near-30% drop in profit as Australian consumers struggled with a high level of debt that was holding them back from spending, despite low interest rates.

While David Jones sales growth was slightly higher than the retail sector as a whole, the company had been forced to discount and its margin fell almost 1 percentage point. And in the most recent half year, comparable sales fell 3%.

But the business isn’t throwing in the towel. The company is investing heavily in boosting its operations, including a A$200 million spend that includes a revamp of its Elizabeth Street store in Sydney.

A company spokesman said on Thursday: “These conditions have not altered our focus on the transformation of David Jones and we are committed to the resolution of these execution issues and our ongoing investment plans for the business.

“We have recently implemented new merchandising and customer relationship systems, and will continue to make significant investments in both our online and in-store offerings. These initiatives will prepare our business for the retail landscape of the future while building on the great heritage of our brand.”