David Jones and Myer face big challenges as they deal with lacklustre consumer demand, a shift in household spending away from merchandise to what the retailers call experiences - lattes instead of crockery, say, or a plane ticket instead of a new suitcase - and the expansion of internet retailing.
They are, however, making a pretty good fist of a task that many observers believed would be beyond them. The price gap between them and overseas online retailers is closing, and it seems it is doing so without creating a profit sinkhole.
Consumer sentiment is cyclical, and it has lifted since the federal election. Most of the challenges Myer and David Jones face are structural, however, and JPMorgan neatly summarised them this week in its review of David Jones' flat $101.6 million profit for the year to the end of July.
First, consumers are continuing to see value in experience shopping, on cafes and restaurants and travel, for example. The Australian dollar has risen in value by almost 5 per cent in a month, but is still 15 per cent lower than it was in mid-2011, so overseas travel is more expensive. At current levels around US93.4¢ it is not the impediment to overseas travel that it once was, though: after Paul Keating's famous "banana republic" warning in 1986, it didn't push decisively above US80¢ for 21 years.
Second, Australia is being invaded by international chains such as Topshop and Zara, and luxury brand-specific stores, including Chanel, Coach, Armani, Hugo Boss and Prada.
The interlopers are clustering in central business districts and upmarket shopping centres, the crucial customer catchments for the department stores. JPMorgan estimates, for example, that DJs extracts about 25 per cent of its sales and a larger percentage of its profit from its CBD stores in Sydney and Melbourne.
Third, there is leakage to savings. The impact was heaviest when savings were expanding. Households were spending slightly more than they earned when the savings trend began a decade ago, but were spending only 90¢ in the dollar by 2010. But JPMorgan says it doesn't think the savings rate will fall, but that it could go higher.
Finally, there is the threat posed by online retailers, particularly international ones. Both department store groups were late to respond with online shopping platforms of their own, and the error was magnified as the $A rose.
Myer chief executive Bernie Brookes and DJs chief executive Paul Zahra have both scrambled hard, and both now say that they have the crucial elements of an integrated online offer in place. Myer says it offers more than 70,000 separate products on the internet, and DJs said this week that it offered about 90,000. Both groups also say their online businesses are on the cusp on making money.
Turnover as a percentage of sales for both groups is, however, still only a fraction of what is being achieved in developed markets overseas. The overseas retailing benchmark is for online sales to represent about 10 per cent of total sales. DJs' online sales exceeded $18 million in the year to July, and that was only about 1 per cent of the total. If Myer hits its online sales target of $50 million this year, it will be collecting only about 1.5 per cent of its total sales on the new platform.
Clearly the two chains have to do more. Zahra's take this week though was that DJs has its online sales channel developed to a point where it is at last in a position to compete, and Myer is similarly placed. The big fixed costs on setting up the platform have been taken, and the task now is to drive online revenue higher.
Price competitiveness with international online retail sites in key categories including cosmetics will be crucial to the success or failure of the exercise, and the slightly surprising news, as I said, is that on price, the Australians are getting back into the game.
What they call "price harmonisation" began more than a year ago with talks between the retail groups and suppliers that focused on key brands, products and volume lines.
The problem was obvious. The chains were offering goods that could be bought online from international competitors for significantly less. The question, however, was how this gap would be closed. Myer and DJs both argued that it would be suppliers that took the big haircut and, so far, it seems they were right.
DJs for example has now price-harmonised about 60 per cent of 250 key brands it initially identified as being overpriced compared with the international online offerings. All up, the prices of 1700 products have been lowered, and DJs says its gross profit margin on the products has been maintained, and that sales of them have grown. Lower retail prices on the products are being covered by cuts in the wholesale price and by higher sales volumes as consumers respond to the price cuts and buy more.
Myer is reporting the same trend, and Bernie Brookes gave an example in his presentation on Myer's result two weeks ago - cherry-picked because it is was a pearler, no doubt, but illustrative nevertheless.
One of Myer's biggest cosmetic lines is Clinique DDML+, an up-market moisturiser that goes out the door of a Myer store once every 90 seconds on average.
In July this year, Myer cut the price of a 125ml bottle of the elixir from $74 to $49, and cut the price of a 75ml bottle from $40 to $29: in the following six weeks, unit sales jumped by 108 per cent, and dollar sales rose by 36 per cent.