David Jones speeds up store closures after massive profit plunge

David Jones will accelerate plans to close some of its 45 stores after the coronavirus slashed sales by 35.8 per cent.

South African-based parent company Woolworths Holdings said in a trading announcement on Wednesday the department store chain had suffered a significant drop in foot traffic as a result of COVID-19.

Online sales in the second half of the financial year were double that in the prior comparable period, but overall revenue fell off a cliff.

The company said it had started several initiatives to strengthen its balance sheet and establish “a platform which enables us to position the group for sustainable, longer-term growth”.

These include:

• Talking to landlords about an accelerated downsizing of the David Jones store network
• A loan of $75 million from Woolworths Holdings to David Jones, conditional on the suspension of covenant testing by local lenders, with an additional loan of $25 million on offer if needed
• Proactively seeking the suspension of covenant testing, as the challenging trading environment means David Jones may breach some of its loan conditions in the second half of the year
• Cancelling its final FY20 dividend payment and suspending all further distributions to shareholders until further notice
• The appointment of investment bank UBS to oversee a review of the company’s debt, capital structure and property portfolio.

Woolworths’ first major sale will be the David Jones Menswear building on Bourke Street in Melbourne.

Woolworths said it has already exchanged contracts with the preferred purchaser.

“The sale price achieved is in line with expectations and final settlement is anticipated before the end of July 2020 following the fulfilment of customary conditions precedent,” the company said.

Meanwhile, stablemate Country Road saw overall sales plunge 50.4 per cent over the eight weeks to April 30, with online sales jumping 19.0 per cent in the second half of the financial year.

Unlike David Jones, the clothes retailer was forced to shut its doors during the lockdown, as it couldn’t observe strict social distancing measures.

It started reopening stores on May 22.

Woolworths’ trading update comes just months after CEO Ian Moir said it would shrink the David Jones store network to just 12 “gold tier” stores, down from the current 45.

In February, it revealed operating profits over the second half of 2019 had plummeted 56 per cent to just $20 million.

Weeks later, rival chain Myer announced half-year profits had dropped 26.9 per cent.

The announcements were a sign of the times.

Even before the coronavirus, weak wages growth and record-high debt had forced Australians to cut back on spending.

And increased online competition tipped many retailers over the edge.

Some of the largest retail casualties over the past 12 months include Target, fashion retailer Bardot, homewares store Harris Scarfe and McWilliam’s Wines.

And given the economic disruption and job losses caused by COVID-19, it’s likely there will be many more to come.