DJs a takeover prize

Circumstances around the nature of his impending departure aside, Paul Zahra's exit from David Jones (DJS) has brought the challenges facing the department store sharply into focus.

Given the re-emergence of private equity groups in the past year, the upmarket retailer is a sitting duck for a takeover and ticks every box for a private equity purchase.

A household brand name that has lost its way with stagnant earnings and an underperforming stock price, the emporium has only a limited vision of how to cope with a challenging environment. But wait, there's more. David Jones has one other major but largely overlooked allure: a rich portfolio of high street real estate.

While the headlines around Texas Pacific Group's ownership and turnaround of rival emporium Myer (MYR) centered largely on its controversial sale and the non-payment of tax, it was the sale of Myer's flagship real estate that delivered fabulous riches to the American/Caribbean/European based investment group.

TPG departed before the full impact of online retailing hit Australian department stores (see Online retail spurs space mission).

Both David Jones and Myer have been left floundering and now are left playing catch up with half-baked strategies as they desperately attempt to adapt to the new environment.

The structural changes coincided with a dramatic cyclical downturn in consumer spending that initially allowed the retailers to ignore the more concerning long term issue, but later only served to highlight how ill-prepared both corporations were to the shift.

In the case of David Jones, the online phenomenon took hold of retailing just as the company was left reeling by the departure of previous chief executive Mark McInnes  amid lurid allegations of sexual harassment and a messy court case.

Paul Zahra was thrust into the role at a moment's notice, prepared or not.  In recent weeks, he has been delivering his vision for the company, with no indication that he was intending to leave.

Having seen off the previous chief executive, it could well be the David Jones board, mindful that it needs new direction and a sharper focus, could not afford to simply eject his replacement without appearing desperate. And so Zahra will remain in the job while the board scouts for candidates. But time is running short.