By Craig Zammit
SYDNEY: David Jones has confirmed that it will not be renewing its contract at Westfield Eastgardens when the lease expires in October 2007 after negotiations with the landlord, Terrace Towers, broke down.
“We believe that given our decision not to accept Terrace Towers’ terms and renew our Eastgardens lease, Myer will enter the centre on the terms we declined,” said David Jones CEO, Mark McInnes, in a statement to the Australian Stock Exchange.
“In our view, entering into a lease on the proposed terms by Terrace Towers reflects a decision based on short term sales gain with limited long term benefit for the leasee. David Jones’ store portfolio strategy is very straightforward – we will not commit to a long term lease on the basis of short term sales growth – our decision will always be based on what delivers the best overall value for our shareholders over the life of each lease,” he said.
Earlier this month during its third quarter sales announcement, David Jones reiterated that it will not enter into long term leases unless the terms deliver bottom line profit growth and economic value in the hope of securing top-line sales growth.
In the statement, McInnes stated that “despite lengthy negotiations with Terrace Towers, we have been unable to reach an agreement on terms that are economically feasible for our company and in the interests of our shareholders.
“The profit that would be generated under the proposed terms of the lease will be captured as we transfer David Jones’ customers to our Bondi Junction and Sydney CBD stores. This can be achieved at a vastly reduced investment on David Jones’ part in comparison to renewing the lease on the terms proposed,” he said.
Despite losing the Eastgardens location, David Jones is confident that its customers will continue to favour the David Jones’ style of department store, and follow the brand to its other nearby locations.
“Based on extensive market research, customer who live in Randwick, Clovelly, Coogee, Kingsford, Waverley, Centennial Park and Kensington have told us that in the event that the David Jones Eastgardens store were to close, they will continue to shop at our Bondi Junction and Sydney CBD stores based on our national and international brand portfolio and the quality of our service,” McInnes said.
“This is further evidenced by the fact that our Eastgardens store profit has been in decline since the opening of the redeveloped Bondi Junction centre in 2004.
“We are committed to providing continued employment to all of the current Eastgardens employees within David Jones. Whilst we would have liked to enter into a long term Eastgardens lease, the terms proposed by the landlord are not in the best interests of our shareholders and we can achieve a better short, medium and long term return for shareholders by focusing on marketing to customers in this catchment area and attracting them to our neighbouring stores,” he said.