Paul Zahra, chief executive of David Jones. Photo: Tamara Voninski
Consumers haven't yet responded to an increase in the cost of overseas purchases resulting from the lower Australian dollar.
David Jones boss Paul Zahra said today that he didn't think consumers would fully register that their online purchases from, say, US rival Nordstrom, had gone up in price until they paid their credit card.
How this plays out for Australian retailers over the medium term will be interesting to watch, assuming the Australian dollar remains at this level or even falls further.
If, after the election, the government decides to impose a 10 per cent GST on online purchases under $1000, the competition game between Australian and offshore retailers will become more interesting. (The GST imposition probably isn't close. It costs the Treasury coffers $700 million to $1 billion a year - depending whose numbers you use - in forgone tax but the cost of administration doesn't make it compelling yet.
It certainly wouldn't provide a cure-all for retailers and the particularly challenged premium department stores. If you exclude the small improvement in the first quarter of 2012-2013, David Jones has been experiencing quarterly sales declines for almost two years.
It's telling that dropping only $8 million in sales in the 2013 fourth quarter came as a relief to some. Analysts were expecting same-store sales, which fell by 2.9 per cent, to be worse (down about 3.7 per cent). Deutsche Bank said Bureau of Statistics data implied non-discount department store sales would be off 4.3 per cent for the quarter to June 30.
David Jones fared better than that but there must be an expectation among investors that its sales numbers will have to turn positive.
Zahra has made inroads in protecting the profit line from the harsh sales environment through tight inventory management and scaling back the almost constant price discounting that has become viral in many areas of Australian retail.
In the 2011 winter season of 2011 David Jones was operating some kind promotion sale activity for four months out of six. Zahra says he has found the right mix of discounting but weaning customers off discounts will come at some cost to sales.
The big driver of new sales is clearly the group's online store, which boosted sales 770 per cent in the fourth quarter, 550 per cent in the third quarter and 288 per cent in the second quarter. But despite this, online still accounts for only 1 per cent of sales.
The flip side is that fewer customers came though the bricks and mortar stores – but the average value of each transaction was greater.
None of the retailers is getting any help from consumer sentiment and Zahra sees this remaining constant for the rest of this financial year. He makes no promises about future sales.
The biggest problem area was home electronic, which experienced a double-digit decline. David Jones will soon be using the Dick Smith concession model, which will arrest some of the sales volatility.
David Jones had positive sales numbers during the quarter in women's apparel and cosmetics but menswear and children's wear were flat.
A warm start to spring bodes well after a disastrously warm winter.