David Jones (DJS) has struck an exclusive co-branding deal with Dick Smith to run its electronics business, in an attempt to turn around one of its poorest performing categories in the face of aggressive discounting.
The three-year deal will see David Jones' electronics business rebranded “David Jones Electronics Powered by Dick Smith”.
Under the Retail Brand Management Agreement, effective 1 October, Dick Smith will pay David Jones monthly an unspecified fixed percentage of the sales of the joint business. It will also buy the upmarket retailer's inventory.
David Jones chief executive officer Paul Zahra said the deal meant it had "transformed what was an under-performing category in our business into a profit contributor".
The deal was expected to deliver David Jones a positive return on investment within a year.
"Our agreement with Dick Smith enables us to remove the risks associated with this business (electronics) and preserves our ability to participate in the sales and profit upside that results from combining both our businesses," Mr Zahra said.
“For some time we have reported on the challenges that our electronics business has faced, including deflation and aggressive discounting."
Dick Smith will make a minimum payment each year regardless of sales volumes.
It covers televisions, computers, tablets, home office, audiovisual and other digital products but excludes whitegoods and small appliances.
Dick Smith will buy David Jones’ electronics inventory and take on its electronics front line staff.
"This will enable a smooth transition of this business from an “own buy” model to a RBMA model," David Jones said.
David Jones will have control of branding under the deal and remain owner of the electronics business customer database.
The three-year agreement has three subsequent 12-month options to renew.
Dick Smith chief executive officer Nick Abboud said the deal would "create critical mass, which will strengthen our buying power, allowing for more competitive prices for customers."
David Jones said it would incur a number of one-off costs in the 2013 and 2014 financial years in connection with implementation of the RBMA, mainly for inventory and head count.