Australia Based Leading Upmarket Retailer Brands

David Jones Ltd (DJS) is one of Australia-based leading upmarket retailer brands. It currently operates 36 department stores and 2 warehouse outlets throughout Australian states and territories. DJS provides consumer credit through its store cards. It also provides services encompassing corporate services, gift and bridal registry, hampers, gift card, interior decorating, flowers, foodhall and the rose clinic (David Jones Ltd web site). This traditional department store has a variety of products which includes cosmetics, fashion, homewares, furniture, electronics and a distinctive food offering. In 2008, David Jones has formed a joint venture with American Express to establish a David Jones branded credit card in Australia.

David Jones Ltd has an increase in department sales from $1983.2m in FY07 to $2098.0m in FY08 (refer to Graph 1). It has generated net profit after tax (NPAT) of $137.1m in FY08 (Graph 2). In comparison to NPAT in 2007, there is an up to 25.1% increase in between. Company has confident to achieve an at least 5%-10% growth in NPAT in FY09.

Australia has one of the strongest economies in the world. Its real growth domestic product (GDP) rate was 4.3% in 2007. It is mainly contributed by service sector at about 70.6%. In 2007, 3 percent of Australia GDP was contributed to by agricultural sector and 26.4 percent came from industrial sector. Service sector contributed 70.6 percent of Australia’s GDP. Mining sector of Australia has been a positive contributor to its gross domestic product.

Due to the impact of the Global Financial Crisis (GFC), Australia annual headline inflation rate on Consumer Price Index slowed to 1.5% in July 2009 from 4.5% last July according to ABS. (Graph) The cash rate (interest rate) is also being affected and it is reduced by the Reserve Bank of Australia to a low of 3% in April 2009 from 7.25% last March. In respect to the cash rate reduction, the cost of borrowing for the companies will be greatly reduced. It creates opportunities for firms to take more investments and there will be a higher probability that the investment will recover more strongly (Trading Economic web site), especially the mining companies.

Industry analysis is critical in determining the success of any industry. Strategy research suggests that there are ”five forces” which will ultimately influence the average profitability of an industry.

DEPARTMENTS

The average profitability of the most industries is primarily affected by the nature of rivalry among existing firms in the industry (Palepu&Healy, 2008). The ”rivalry” indicates the number of competitors. There are few major players who dominate the local market due to the distinct nature of the industry, once there are the competitors; they are very big to compete against. Those few competitors can be identified as Myer, Dimaru and Harris Scarfe. However, Myer is the major competitor, who has almost equal in size and in power with David Jones. Myer continues to have similar store layouts, products range, colour schemes, store locations and services with David Jones. Also there are several factors determine the intensity of competition between existing players in an industry. It is visibility in industry growth, concentration and balance of competitors, product differentiation and switching costs, scale economies, industry over-capacity and exit barriers (Palepu&Healy, 2008).

People have already formed relationships and also trust/faith with those retail companies, this creates great barrier to new competitors to enter into the market. For the ”newborn companies”, it will be so difficult for them to build a reputation and retain their customer-base. To become a department store like David Jones, one major and primary threat is the cost of capital for the firm. As a new retail industry, millions of dollars will be needed. It will be really hard to meet it financially. There are some other threats making the new born companies more challenging. It may be the categorization of people. They categorise some stores by the some specific brand individually. For an instance, people may shop for wedding gifts only from Myer or David Jones. The threat that those retail leaders have already created their goal creates barrier for the new entrant to find its status in competing with those existing firms. Another threat would be economies scale, it includes economic use of by its products, specialization of factors of production and also the growth of supporting facilities and services is encouraged by the company”s large scale of investments in research and development (Waud, 1996). Other barriers include level of access to channels of distribution and relationships, government policies, product differentiation and cost disadvantages (Palepu&Healy, 2008). To compete against David Jones, it is not only to compete against it as a brand, but also to compete against all its other 36 stores. Over the market, the threat of new entrant is low in this particular industry.

The threat of substitute products for David Jones is relatively high. The threat of substitutes depends on the relative price and performance of the competing products or services and on customers” willingness to substitute (Palepu&Healy, 2008). If customers or consumers are not satisfied with the price, service that company provided or even the product, the people”s willingness to substitute will be high and there are some retailers at efficient levels in the market, such as Myer. Myer is not only the direct competitor but also the substitute one. Low switching costs is one of the factors that will drive the threat of substitute increasing. The threat becomes more serious if the substitute products” price falls. Other substitute product can be online shopping and specialty stores. People will prefer to substitute if they can spend less time and fees for getting those products. David Jones faces high threat of substitutes.

The bargaining power of buyers gives the customers power to buy the products from the store which they would like to. They can create long term relationship with the company or just be the end consumers. A higher bargaining power of buyers indicates that there is reduction in volume purchases, the concentration of buyers, profits reduction and even the switching costs. If David Jones comes up with woolen cardigans at the market price for the latest fashion, and its major competitor Myer brings out with a duplicate for selling at the same price, it may influence the consumers” decision making that where they may buy this product. Customers and consumers may change their attitude toward David Jones Ltd and lose their faith for the company. The bargaining power of buyers for David Jones Ltd is relatively high.

The bargaining power of suppliers

DAVID JONES CREDIT/STORE CARD

http://www.moneybuddy.com.au/credit-cards/david-jones-american-express-credit-card

To sit alongside with its store card, this department store giant has launched the brand new American Express David Jones credit card. The David Jones credit cards provide its customer with points for shopping whether instores or outside David Jones. For this kind of point earning scheme and its spending incentives, it is in confident that the store will attract its loyal customer base to embrace this credit card.

http://www.tradingeconomics.com/Economics/InflationCPI.aspx?Symbol=AUD

David Jones Ltd”s product ranges include electronic. However, they can also be found in companies like, Myer, Dick Smith Electronic, Harvey Norman and other electronic retailers.