Department store draws line in the sand

In the world of top end Australian department stores there are only two players - and mounting sniper raids on each other's big-name suppliers is considered a no-go zone.

And with good reason. Neither wants to deal with the retaliatory battle breaking out.

Fashion brands do shift camps between the two big retailers, but only when contracts have expired.

Thus the legal case around glamour apparel designer Kym Ellery - who ditched Myer halfway though her three-year contract in favour of a new exclusive deal with David Jones - will be closely watched as it plays out this week in the Victorian Supreme Court.

Make no mistake, this is about money. But it is not about the amount that Ellery contributed to Myer's sales. Indeed, one of the designer's beefs was that not enough stock was being moved through the department store.

It is a shot across the bow from Myer warning others that defection, while in contract, will not be tolerated.

Had the situation been reversed, Paul Zahra at David Jones would probably have done the same thing.

Both department stores fight very hard to extract exclusive deals from suppliers. It is their point of difference, and a very valuable one.

Some of the larger middle-range brands are represented in both department stores, but only because the foot traffic and sales they bring provides enough bargaining power for them to sit on both shelves.

The high-end designers such as Ellery don't sell a large number of garments (which is not a surprise, given her dresses sell for $1000 a pop), but she is one of the hottest names in fashion circles right now and her presence gives a department store plenty of cachet.

The idea around having Ellery as an exclusive supplier is that it works for the Myer brand, and may lure people into the store who will spend on other things too.

As one astute insider suggested, these high-profile brands are like loyalty schemes. They are not there to reward existing shoppers but to entice promiscuous consumers with little or no store loyalty.

But with small-volume brands such as Ellery the economics don't work for the department stores unless they are exclusive.

For Myer or David Jones, stocking the likes of Ellery is an investment in the department store brand. They are marketing in fashion shows and catalogues, as well as being draped around high-profile model/celebrity ambassadors. The last thing a store can afford is to have a designer such as Ellery available at a competitor.

This exclusive model operates all over the world.

The brands also matter because they allow the department store some control over pricing at a time when competition from the internet is taking pricing power away.

This is a big reason David Jones promotes itself as the "house of brands". It is also the reason Myer boss Bernie Brookes has been busy buying brand suppliers such as Wayne Cooper. A few years ago Myer spent more than $50 million buying a majority share in one of our better known designer outfits - sass & bide.

In court this week Myer is seeking to stop Ellery from selling through David Jones, as well as seeking damages. Damages could be difficult to measure, bearing in mind Ellery was only a small fraction of Myer's business.

These smaller, high-end designers usually make a slim profit - if any - and if Myer is successful one has to wonder whether Kim Ellery has the readies to pay.

It makes one wonder why Myer did not join David Jones as a defendant for inducing Ellery to breach the Myer contract.

(When Network Ten lured Seven Network executive James Warburton to become chief executive of the television business, Ten was joined as a co-defendant in Seven's legal action for this reason.)

Ellery has become a test case in what is being billed as a David and Goliath battle. While there have been suggestions that this case involves restraint of trade, the reality is that Myer's contract with Ellery allowed for other points of retail distribution including the internet and her own retail outlet.

The last thing that either department store would want is for the Australian Competition and Consumer Commission to go messing around with the ability to negotiate exclusive contracts.

The difficult retail market has put plenty of pressure on the department store chains, and they cannot afford to have an additional challenge.

Myer clearly felt it needed to draw a line in the sand, over which suppliers could not cross.