A drowning retailer in an online world will grab any idea that sounds good and is being used by a peer offshore or at home. There’s no shame in using someone else’s idea, especially if it sounds good and can help give the impression you are “with it”.
David Jones hasn’t been “with it” in the online world for years, and in the past 6-8 months, its efforts in the analogue retailing space haven’t been too flash either. In fact the company has looked rudderless and going out the door backwards. So the pressure was on for the retailer to do something, preferably something online with a bit of pizazz and oomph.
And so that is what David Jones has done. Amid a series of statements this morning, the struggling local upmarket department store chain, (which also announced a big profit drop for the first half of the current financial year; forecast larger profit fall for the full year) revealed that it has settled on a new online strategy (and of course, six or more of new stores). This new online strategy is called an “Omni-channel” strategy. Already 200 new staff have been employed across its information technology, digital and operational divisions.
Gerry Harvey, that serial moaner about all things online and competition, is another to have grabbed to Omni-channel bug. It’s big overseas, most notably at Macy’s the huge US department store chain, as a story in a February edition of The Economist revealed.
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“Macy’s is embracing ”omnichannel” integration, that is, selling stuff on television, through mail-order catalogues and online, as well as keeping its department stores. The company runs 810 shops across America under the mid-price, mid-market Macy’s brand and 38 posher Bloomingdale’s outlets.”
The driver for the David Jones is the realisation that the previous strategy (devised by former CEO Mark McInnes, now running retail for Solomon Lew’s Premier Investments) of lifting profits by 5% during a downturn, hasn’t worked.
David Jones revealed that instead, first-half profits fell by nearly 20% to $85 million as first-half revenue slumped 6.7% to $1.011 billion. David Jones also predicts profit after tax to falling by 35% to 40% for the full 2011-12 financial year, which is nasty. But it can’t be all that bad, the company is still paying an interim dividend of 10.5c a share.
But what is this Omni-channel? Can it really be a solution? The Harvard Business Review, one if the favoured journals for management and other strategists and consultants, reckons its the all-singin’ all-dancin’ idea for struggling retailers to attach themselves to.
Sounds like the solution, doesn’t it. “We’re saved,” they shouted in David Jones stores this morning as a chorus of hosannas were sung to the new retailing, which sounds like, add some Disneyland, a bit of SeaWorld and the odd clown and trick bike and do it all in a crazy mix of the the real and online fantasy world (use fantasy money perhaps?) and give customers a good time.
Just what a struggling retailer wants. So it’s no wonder David Jones said yesterday it was “investing in technology and realigning its processes and structures. The company will increase its online SKUs from 9000 to 90,000 before Christmas 2012. Its OCR offering will integrate the shopping experience across sales channels (i.e. physical stores, web-store, mobile applications, contact centre, social commerce platforms) to enable customers to choose how and when they engage with David Jones, supported by integration and investment in its marketing channels (traditional and digital).”
And it plans to open six new stores and spend $70 million to $80 million a year in capital spending. Several smaller format stores will be opened as well.
But it seems odd that to be expanding heavily in face the weak sales (down 6.7% in the first half) and prospects of more to come as the online world strips the company of sales and profits in products such as perfume and make-up, white goods, electronics, clothing and footwear.
In the US the glum outlook for bricks and mortar retailers was nicely summed up by the Economist story:
“Whatever priorities retailers set, their physical stores are likely to shrink as the share of sales made online keeps rising. Retailers in America have a surfeit of space. Between 1999 and 2009 the amount of shopping space per person boomed from 18 square feet to 23 square feet. The productivity of that commercial acreage slumped after the financial crisis and shows no sign of recovering.
“The retailers who will survive the drift online are the ones “listening to the dynamic demands of customers.”
In Australia there are too many shops as well. Just walk up Oxford Street in Sydney (more than 25 shops are vacant from Taylor Square to Bond Junction: five years ago it was packed). Other retailing strips from Melbourne and Brisbane tell a similar story. Westfield’s huge new shopping and food destination complex in Sydney’s CBD is struggling as well. The expansion in retailing space in Australia would be similar to that in the US, seeing the major force here (Westfield) is a major player in America.
Being Omni-channel is the current buzz phrase in retailing, but for how long?