Riding the retail revolution
David Jones' top man is up against the world, writes Elizabeth Knight.
In June 2010 Paul Zahra was parachuted into the top job at David Jones - a month later this newbie conducted his first major media interview. It was a lunch format and, for him, virgin territory. He was nervous but delightfully unrehearsed, careful but unusually candid.
Three years on, Zahra is a different beast. He is experienced - the personal and professional toll that the media and investment markets exact on business leaders, and recognises the need to be "on message" regardless of the social setting.
Lunch starts well. I notice his iPhone wallpaper shot - a self-portrait with his scruffy Norwich terrier, Compass, perched on his lap helping him read David Jones board papers. It's a personal side that in 2010 he may not have been comfortable to have on display.
His birth into the premier management position at David Jones was premature. His predecessor Mark McInnes had been as close to a "rock-star executive" as there was in Australia. News of the sex scandal that dislodged McInnes went viral. While newspaper and TV outlets were pursuing McInnes around six-star Thai health retreats during his immediate self-imposed exile, Zahra was back at David Jones headquarters dealing with a board in post-traumatic shock, worrying about brand damage.
In the inner circle of the retail industry, Zahra was well known but to the outside world, the man now in the limelight was Paul who?
Zahra's was a baptism of fire.
Turn the clock forward three years and the fire should have been well and truly doused. But with the wisdom of hindsight, the McInnes drama was a walk in the park.
The tectonic plates in the retail industry had been shifting while McInnes and his predecessor, Peter Wilkinson, had been at David Jones, but it was when Zahra arrived that people really woke up to the potential threat of digital as a "disrupter" to bricks and mortar retailers.
The tipping point for digital recognition was the broader economy. In 2010, the global financial crisis had spawned a new, more anxious consumer - one who did not want to spend and for whom reducing household debt was the rapidly emerging fashion. The discretionary dollar was dwindling and consumers were deserting shops.
Zahra called this cyclical-structural pincer the perfect storm. "The macro settings were not good for department stores, and not good for a department store that hadn't prepared itself for the new digital world," he said.
Today the David Jones challenge that Zahra contemplates as we sit in Sydney's fashionable Felix eatery, in the central business district, supping on beef cheek and chargrilled pork neck, is an existential one.
Brand Zahra is now well known - eyes and chatter are directed our way and a high-profile newspaper gossip columnist wanders over to pay his respects and mine the table for any conversational crumbs.
The new public face of David Jones might be model-ambassador Jessica Gomes, but in a corporate sense it is Zahra who carries the company's success or failure.
Over a glass of 2011 Chateau Riotor Cotes de Provence rose, he offers some insight into the intensity of the task. "If I knew what I was stepping into, would I have taken the job? Absolutely not. But I am glad I took the job because it's been the most amazing journey I have had, and I couldn't imagine myself doing anything else ... It's been three years, but not three normal years ... I've never actually experienced what a normal fiscal year would be like ... it feels like double that time frame. It feels like I've done 10 years of work in 10 months."
Unsurprisingly, he does not believe that the premium Australian department stores are past their use-by-date but is the first to admit that the sector is challenged.
Department stores, he tells me, started off being based in towns, moved to regional, state and then national businesses.
Thanks to the digital age, "they are now becoming international": "People mischaracterise the competitive battle as being between David Jones and Myer. It's actually David Jones versus the world."
How can Zahra be so convinced there is a future for department stores when offerings are now available through channels accessible from a laptop to a mobile phone, and often for a better price? Why do we, as consumers, need bricks and mortar stores imposed between us and the brand manufacturer/designer?
"I have a strong vision to be a style destination and a customer experience. Someone has to play the editing role, otherwise you are lost in the worldwide web. We are human beings and we want interaction. Shopping is still tactile," he says.
The new lexicon for traditional businesses that are fighting back - be it retail, newspapers or cable television - is about being the sieve in an avalanche of choice: the editor or the curator.
He reminds me that the large department stores in the US, that are ahead of Australia in the digital space, still book 90 per cent of their sales in-store.
But Zahra, impeccably yet conservatively dressed in a dark suit complete with a houndstooth handkerchief tucked in his jacket pocket, is not a flat-earther.
These days he is a zealot about the department store's omni-channel future - one which, he confides, will ultimately lead to fewer David Jones stores with smaller footprints. Stores will digitally recognise customers as they walk in through Wi-Fi, and tell them about a new range from their favourite designer. Already the recently installed point of sale systems at the counter will locate, display and transact items not in-store.
While his head swims with the introduction of David Jones' digital plans, he is still a bloke who has presided over mostly negative quarterly sales for a couple of years. He knows his challenge is how to lift revenue without sacrificing profit. Historians will judge him on whether he can execute a retail revolution that will reinstate the relevance of premium department stores in Australia, and harvest a new customer rather than rely on the older generation of loyalists.
The introduction of national Chinese debit/credit card UnionPay is one plank, the transfer of home electronics to a Dick Smith concession is another.
The full-year result that David Jones just released suggests he has hit on one element of the success formulas - cutting consumers' addiction to almost continuous "sales events".
It's a good result, born of Zahra's strategy to manage the levers that are within his control.
Three years ago the response to slowing sales - from almost all traditional retailers - was slashing prices.
Today, David Jones cannot afford to boost sales this way. It runs a relatively high-cost model and cannot discount its way to success. Nor, he tells me, can it keep its international suppliers happy if their brand is being subjected to chronic discounting.
The bricks and mortar retailers, David Jones among them, have been busy bringing prices down to a closer facsimile to their international online rivals. It is called harmonisation, but it is still a work in progress. Ask any online shopper and they will tell you there is a way to go yet. While Zahra ponders whether today's new retail environment is the "new norm", he yearns for a return to the days when the consumer had longer arms and shorter pockets.
But consumer confidence is an emotional thing that economists find increasingly difficult to predict. Lower interest rates have not yet provided the usual spending stimulus, and consumers have been slow to embrace the improvement to finances traditionally generated by improving share and house prices.
But for a significant part of the market (younger shoppers in particular), the genie is out of the bottle.
David Jones has placed its omnichannel offering on steroids over the past 18 months and is now getting plenty of traction. Fourth-quarter sales numbers have the company's online store growing at more than 700 per cent.
David Jones is now on track to produce a profit from its online operations in the first full year of operation.
Three years has been a hard slog, and Zahra believes a chief executive's role in the modern era of 24/7 communications is more extreme than it was even 15 years ago, and this accounts for tenure falling.
"The number of years [chief executives stay in the job] is coming down. You have to be physically and mentally up for the challenge. Even in the good times you are planning for the bad times."
So how much longer is Zahra, 47, up for the challenge?
"I will continue while I'm having a good time. Like going to a party - you leave when you are having a good time."
Life and times
1966: Born in Melbourne to Maltese immigrants.
1982: Takes a part-time job at Target at the age of 16. Later joins his brothers in the
family panel-beating business until accepting a management cadetship at Target.
1994: Meets Mark McInnes and Stephen Goddard while at Officeworks after working
widely across Coles Myer group.
1998: David Jones brings in McInnes and Goddard as new brooms and Zahra joins
the troika as general manager of merchandise.
1999: Zahra starts four-year stint running DJs cosmetics counters – a key business
for store branding.
2003: McInnes appointed DJs chief executive. He installs Zahra as general manager
of stores with responsibility for 36 shops and 8000 staff.
2010: Appointed David Jones chief executive after McInnes’ resignation amid sexual
harassment complaints by former employee Kristy Fraser-Kirk.