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David Jones, billed as the house of brands, still feels like a house of cards.
The war between David Jones and its suppliers has become so extreme that Accent Group, owner of Platypus Shoes and Athlete’s Foot, threatened to exercise its default rights against David Jones after enduring months of overdue payments.
Typically, this “default right” would involve legal action or even a winding up order against David Jones – one that could trigger an avalanche from suppliers that have been waiting for payments.
Faced with Accent’s hardball game, David Jones swerved and paid the group, which is now supplying only on a cash-on-delivery basis.
It also emerged last week that David Jones was proposing to lengthen its payment times for suppliers, meaning for many a 20-week payment schedule.
Under this plan, early payments would be small and regular with instalments ramping up each month. In theory most suppliers would receive what they are owed by November or even December.
Most of the department store’s suppliers are still waiting for at least some of their money.
Not all are equal, and the smaller suppliers are unlikely to get the same deal as the larger and more important ones. The former have less leverage, given that David Jones is more important to their business than their business is to David Jones.
Last week, this masthead also revealed that designer labels including Effie Kats, South Australian founded Acler, Significant Other and Aston Studios have left their contracts with David Jones to sign exclusively with Myer. R.M. Williams ended its relationship with David Jones nine months ago.
The instalment schedule for suppliers does not support the view that David Jones is even close to financially robust. The department store declared in April that its business had turned the corner from the sustained losses of the previous years to post a profit in the nine months to March.
Since then, consumer sentiment has fallen off a cliff, thanks to higher interest rates and fuel prices and a fall in house prices. The profits of discretionary retailers are under renewed strain.
Myer has warned that retail conditions have deteriorated since May and that the run-up to Christmas will be a discounting bonanza for shoppers – one that will eat into retailers’ profit margins.
In June, David Jones replaced chief executive Scott Fyfe with Erica Berchtold and had found a new financier, Hilco Capital.
Suppliers had hoped that the Hilco refinancing would result in immediate payment of amounts outstanding. Instead, they are still effectively bankrolling the department store.