At first glance, the idea of a merger between Myer and David Jones seems utterly natural. The two stores have been struggling in the dying light of the traditional retail industries. Their centuries-old premises in city centres seem like relics of a gaslight era, when the prospect of a lift ride was exciting and shoppers donned their Sunday best.
Must these revered icons of Australian retailing continue to fade, as Georges did before them? The message from the internets is: no.
Online, the department store concept has never looked stronger. eBay does not stick to just one line of merchandise. Nor does Amazon. Speciality stores are not a natural reaction to a burgeoning online world.
And in other corners of the retail universe, companies that offer a range of goods seem to be thriving. What is Target, but a department store that happens to be a bit cheaper? Same with KMart.
The biggest and most sucessful retailer in the world offers 100,000 different items in its stores, everything from bling to black beans. I’m talking about Walmart, which made almost $4 billion in profit in a three-month period in 2013.
So there is nothing inherently fail-worthy about trying to sell a lot of lines from one company.
But if you bought $100 worth of Myer shares when it split off from Coles, they would now be worth around $66.
If, that same day, you’d bought $100 of David Jones shares, they’d now be worth about $55.
Why are Myer and DJs failing? It’s not because their death is inevitable. In the UK, a department store called Selfridges is operating the upscale department store model, but doing it a lot better. It is hitting new record profits and expanding its stores.
In a way the problem is the Hotelling model. That suggests that when there are two competitors, they should try to match the other, whether on location or concept. DJs, for example, has a promise of “lower everyday prices” to combat the perception Myer is cheaper
The two stores have matched each other step for step. They have been so frightened to differentiate themselves from each other that they have, while staring the other in the eye, walked into the same tar pit.
But the Hotelling model works best with only two competitors. The world of retail has changed and so the strategies of Myer and DJs need to diverge.
As Myer and David Jones struggle for the same huge swathe of middle-class customers, they are hurting each other. One needs to make a bold break for freedom.
David Jones was traditionally the more fancy of the two – perhaps it could ramp that up to appeal to the increasingly self-assured and aspirational Australian Market. Or perhaps it could move to serve the growing market of elderly – our ageing population has to be good for a few pennies.
The crucial thing is to make a move the other won’t follow. There has to be room for two big department stores in this country, but not two that are perceived as so similar. David Jones has recently announced a plan to set up smaller stores in rich suburbs. That attempt to make a break for freedom might be why it had the confidence to reject Myer’s $3 billion merger offer.