Lessons from David Jones’s downturn strategy

Retail sales might have ticked up in May, but Australian retailers are unlikely to be rejoicing. Outside of the food retailing sector, conditions remain weak and most of the pick up in sales in May has been attributed to liquidation sales and deep discoun

Retail sales might have ticked up in May, but Australian retailers are unlikely to be rejoicing. Outside of the food retailing sector, conditions remain weak and most of the pick up in sales in May has been attributed to liquidation sales and deep discounts.

Few retailers feel a downturn as much as high-end department store chain David Jones. In an interview with The Australian Financial Review yesterday, DJ’s CEO Mark McInnes said June had been a challenging month as the soaring oil price smashed consumer confidence.

Yet McInnes says the company can still deliver net profit growth of between 8% and 13% for the second half of the 2007-08 financial year and 5% to 10% for the 2008-09 period. “We respect the cycle and we planned for the cycle, and in doing so we believe we will deliver profit after tax and dividend growth through the cycle,” he told the paper.

How can he be so confident? David Jones started implementing its downturn strategy last October, with the first signs of a slowdown in sales. It’s a plan that every business operator can learn from, and here are a few of the key steps:

• Plan for the worst. David Jones has spent a lot of time planning for this downturn and working through various scenarios. While the company is forecasting revenue growth for winter will be between 0% to 1% (on a same-store basis) it has planned internally for sales to be much weaker than that.
• Manage inventory. The company has been keeping tight control of inventory as economic conditions worsen. Slow-moving stock is being marked down and cleared and summer orders have been cut back in anticipation of lower sales over that season.
• Reduce costs. David Jones outlined a big cost reduction plan in its 2009-12 strategic plan, with 74 separate cost cutting programs underway designed to slash its key cost-of-doing-business to sales ratio by 50-80 basis points by 2009-10. Some of those programs will now be brought forward and the company has also taken the axe to discretionary expenses such as travel and entertainment. Some casual staff have had their hours reduced but the company does not plan to cut staff numbers.
• Keep marketing. One area DJs won’t be cutting costs is in marketing – this is no time to lose market share. The chain will continue with its big promotions of shopping events such as Father’s Day and Christmas and will only cut marketing budgets if it sees competitors doing the same.

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