DJs reshapes retail landscape
In a strategic partnership that may be the first of many for department stores, David Jones on Monday revealed it would hand over day-to-day running of its loss-making electrical floor space to the private equity owners of Dick Smith.
The new retail banner, to be called David Jones Electronics Powered by Dick Smith, will be established at 29 David Jones stores. Dick Smith will also be responsible for the department store's electricals website offer.
DJs' exit from electrical ends a horror run for the business. The consumer electronics operations, covering categories such as televisions, computers, tablets, home office and audiovisual products, is responsible for more than half the group's sales declines in 2012-13.
It is a huge coup for Dick Smith, which was offloaded by Woolworths last year to private equity group Anchorage Capital Partners in a $20 million fire sale, and is one of the deals aimed at giving Dick Smith the revenue base and economies of scale it needs to be flipped into an initial public offering as early as 2014.
DJs is, however, keen to protect its image as Australia's most exclusive department store. DJs boss Paul Zahra argued it had the whip hand in the new relationship and would govern the way Dick Smith was advertised and marketed across its stores.
"We have a strict agreement with Dick Smith, where they will be operating under our brand principles, which includes the staffing and the look and feel of the marketing and visual merchandising in store," he said.
Mr Zahra said David Jones was especially fortunate that the boss of Dick Smith, Myer veteran and one-time executive general manager Nick Abboud, had an understanding of how department stores operated.
"Equally we have clauses in our contract that if we weren't to get to a resolution on any issue we could terminate [the deal]. But I don't think we will ever get to that."
Dick Smith would also not be allowed to creep into other category offerings from within its David Jones enclosure, such as whitegoods and small appliances.
Under the three-year deal, which will kick off on October 1, Dick Smith will acquire DJs' electronics inventory, fixtures and fittings, and front-line David Jones staff will also go across.
David Jones will book a one-off charge of $5 million to $10 million as it writes down the value of stock and pays for some redundancies to back-office staff.
"We think this is a super deal for all involved," Mr Zahra said. "It has transformed what was an underperforming category into a profit contributor."
The concept of a store-within-a-store should generate positive returns for David Jones within 12 months.
Mr Abboud said the relationship would put his retail brand in front of a demographic that previously it was unable to reach. "David Jones plays in the 'A' demographic and the 'American Express' customer; it's a great opportunity. We don't have that customer, so it's sort of all new business for us," he said.
David Jones shares rose 13¢ to $2.74 on Monday.
Frequently Asked Questions about this Article…
David Jones has struck a three-year strategic partnership with Dick Smith under the banner "David Jones Electronics Powered by Dick Smith." Dick Smith will run the day-to-day electrical floor space at 29 David Jones stores, operate the department store's electricals website, acquire the electronics inventory, fixtures and fittings, and take on front-line David Jones electronics staff.
David Jones' consumer electronics operations were a loss-making category and accounted for more than half the group's sales declines in 2012-13. The deal is designed to turn an underperforming category into a profit contributor while allowing David Jones to protect its premium brand and customer experience.
The agreement kicks off on October 1 and runs for three years, during which Dick Smith will operate the electronics offering inside David Jones stores under strict brand and marketing controls set by David Jones.
David Jones will book a one-off charge of about $5 million to $10 million to write down stock and to cover some redundancies for back-office staff. Management expects the store-within-a-store concept to generate positive returns for David Jones within 12 months.
No. The contract prevents Dick Smith from creeping into other category offerings inside its David Jones enclosures, specifically limiting expansion into areas such as whitegoods and small appliances. David Jones will also control marketing, staffing look-and-feel, and visual merchandising for the in-store offer.
Front-line David Jones electronics staff will transfer to Dick Smith as part of the deal. David Jones will also pay for some redundancies among back-office staff as it restructures the category.
The partnership is a significant win for Dick Smith, which was sold by Woolworths to private equity group Anchorage Capital Partners in a $20 million fire sale. The deal helps build Dick Smith's revenue base and economies of scale ahead of plans to relist the business via an initial public offering possibly as early as 2014, while giving Dick Smith access to David Jones' 'A' demographic.
On the day of the announcement David Jones shares rose 13 cents to $2.74. Everyday investors should note the one-off $5–$10 million charge in the near term, management's expectation of positive returns within 12 months, and the contractual controls David Jones has retained to protect its brand and customer experience.
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