By Claire Reilly

There is no doubt that David Jones’ most recent profit results, released on the ASX today, were disappointing. The company reported a 20 per cent decline in both profits and earnings, with its department stores dragging the chain for the company, while its financial division showed moderate growth.

In response to the profit results – and as a possible attempt to staunch a haemorrhage in share values (which are already falling following the removal of the company’s voluntary trading halt) – David Jones has released a paradoxically-lengthy “3 Point Strategy” for future growth and profitability.

In this mea culpa, the retail giant points out the significant problems that have led the company to its current lows, before outlining the means by which it hopes to “deliver medium [to] long term Profit After Tax growth”.

Herewith, a concise summary of the new strategy and the key targets the retailer hopes to meet. (The full document is available on the David Jones website.)

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Challenges faced by DJs (and the retail sector as a whole)

– “Structural Changes”: online retail (both pure-play-online and “bricks and clicks”) is changing the way consumers shop while causing “greater global price comparisons”, and is putting pressure on retailers to focus on customer service.

– “Macro Economic Headwinds”: Due to the decline in the Australian dollar, deflation and high levels of saving, “department store industry sales have experienced the worst two year period in more than 20 years”.

– “Challenging Australian Consumer Credit markets”: Average Australian credit card spend has dropped 89 per cent since 2008, and DJs “has not achieved the underlying Financial Services growth it had anticipated in 2008 when it entered into its alliance with American Express”. In FY14 the company expects Financial Services earnings to halve.

The strategy to deal with these challenges

Transformation: Including increased “customer service and engagement”, with more shop staff, “performance based incentives” and more events; a renewed focus on technology; a change in management composition; a move towards global “price harmonisation”; and a new “Omni Channel Retail strategy”. [Stay tuned for further updates on these two final points, as Current looks at how DJs addresses issues affecting the entire retail industry as a whole.]

Growing Store Network: 6 new Full Line Department Stores are in the works, which will increase the DJs network to 42 stores, as well as new Smaller Format Stores that are also in the pipeline.

Strengthening the Core Business: Including focusing on brands and “continuing to invest and add to [DJs’] brand portfolio”; reducing cost of doing business to “deliver approximately $30 million of incremental [earnings] over the next 3 years”; an improvement of gross profit margins to 40 per cent; and “high value refurbishments” of stores in Miranda, Elizabeth Street and Burwood (NSW), Karrinyup (WA), and Toowong Village (QLD).

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Finally, DJs announced several “Financial Service Initiatives” relating to its alliance with American Express. These include the launch of a new Platinum Card for “premium” customers; new events and promotions for card customers, as well as insurance offers; and a “new customer database” for creating offers tailored towards spending activity.

The company is confident that this broad new strategy will deliver “sustainable future growth,” according to David Jones’ CEO Paul Zahra.

“We have entered an era which is both challenging and full of opportunity and are well positioned and prepared to adapt to the changing environment around us,” he said.

“Our ‘Three Point Strategy’ will enable us to create a strong business model from which the Company will be well positioned to deliver year on year sustainable PAT growth. It will provide us with enormous leverage to generate sales and PAT growth as and when the macro-economic environment improves.”