David Jones Small Appliances

Executive summary David Jones Limited is an Australian based department store chain that was founded by David Jones in the year 1838. Currently, the company has about 37 stores located in most Australian states and territories. The Australian department store industry is mostly dominated by large players which are David Jones and Myers, alongside smaller and independent companies. The report analyses David Jones’s external environment using Porter’s Five Forces model alongside the PEST model. The industry does not possess major threat from new entrants due to strong barriers to entry and strong competition for retail space.

There is also a strong rivalry between competitors as limited space is being contested by major players alongside competing sales events meant to attract new customers. Online shopping is the most significant substitute for David Jones but is not as threatening as the hand on experience is not replicable by online shopping. Buyers or consumers possess a moderate amount of power as consumers are more careful of expenditure after the GFC and with the strong Australian currency, they can afford to purchase cheaper imported products.

Supplier power is split in two, where more popular brands possess high power as they can choose whether to supply or not while smaller companies have considerably less as they depend on department stores to gain awareness and momentum. With the PEST model, it is shown that the department store industry is expected to show only a small amount of growth due to lack of confidence and increased spending. Also, government legislation is increasing David Jones’s fixed cost for operating by increasing employee wages, electricity bills and taxation.

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However modern technologies used such as Radio-Frequency Identification (RFID) can help reduce expense and achieve high performance. Increasing population, increasing importance of sustainability and also increasing multi-cultural growth, forces David Jones to adapt to satisfy these different needs and demands. The internal environment of David Jones is analysed using the value chain analysis and also analysing their resources and capabilities. The value chain analysis focuses on general management, HRM, technology development and procurement.

David Jones provides financial services with an agreement with American Express via the use of credit cards. They also train and retain its over 9000 employees through constant development programs managed by their HRM department. David Jones focuses heavily on technology to manage their activities revolving around their products such as managing inventory levels and procurement. David Jones faces economies of scale when it comes to procurement as they possess multiple stores and tend to buy in bulk and also allowing products to be sold cheaper compared to smaller, independent stores.

David Jones also focuses on partnerships with brands as they only sell final products, making contact with brands important so as to ensure exclusive distribution. Heavy investment is also placed into maintaining and improving store appearance to ensure the best consumer experience. In terms of resources and capabilities, David Jones possesses a few resources that build sustainable competitive advantage. The first major one is David Jones store locations as they are rare and hard to imitate due to the high cost and lack of availability.

David Jones is also moving into the online market with a partnership with IBM to help improve online integration and give them a first mover advantage over Myers. Though the loyalty program employed by David Jones  contains points of differentiation, it is easily copied by Myers as the offerings are similar making it a temporary sustainable advantage at best. Improving service staff to act customer sales advisors may be a powerful source of differentiation, but as consumers are more tech savvy, this may become a strategic rigidity and is therefore viewed as a temporary competitive advantage.

Industry Analysis Australian Department Store industry is a highly concentrated industry, with the big 4 companies account for over 80% of the market shares (Outlaw, 2012). New South Wales, Victoria and Queensland are the regions contributing over 75% of the 18. 9 billion industry revenue. Westfarmers (Target and Kmart) and Woolworths (BigW) are the two largest companies competing on low-cost strategies (Porter, 1980). Myers and David Jones, holding 15. 3% and 10. 5% market shares respectively (Figure 1), compete on differentiated strategies targeting the upper consumer market (Porter, 1980).

Over 10% of the total working population are employed in this industry (Productivity Commission, 2011). In recent years, department stores industry has contracted since the hit of Global Financial Crisis creating shock on consumers’ confidence (Figure 2), despite Australia’s narrow escape from going into recession (Uren, 2009). As a result, the marginal propensity skyrocketed after GFC effect hit the economy from nearly mere 3% in mid-2007 to 12% in late-2008 (Figure 3).

To stimulate the economy, RBA employs monetary policy by continuously lower cash rate since 2011 (RBA, 2012). Although 2012 has seen some increase in the industry revenue, IBISWorld predicted continuous decline until 2014 (Outlaw, 2012). David Jones announced in its ASX Release 40% decline in profit-after-tax in 2012 is expected, partly associated with costs involved in its new strategic initiatives (David Jones, 2012). Myer, David Jones’ closest competitors, experienced decreased total sales of 3. % and stated in the annual report that sales were disappointing due to challenging retail environment (Myer, 2011). Major retail chains, such as Zara and Gap, intensify the industry competition by opening their own branches in Australia (Productivity Commission, 2011). David Jones has 37 branches operating across Australia, except Northern Territory and Tasmania (David Jones, 2012). Sales revenue for David Jones was AUD2 billion in 2011, a 4% drop from previous year (David Jones, 2011).

The decline in sales revenue is expected for the income year ending 2012, despite reopening of its Melbourne CBD stores after 3 years redevelopment late 2011 (David Jones, 2012). As part of its ‘growing store network strategy’, two new branches in Highpoint (VIC) and Indooroopilly (QLD) has commenced construction and are due to open in 2013 and 2014 respectively (David Jones, 2012). Furthermore, it is planning to replicate the successful branch operation to the new stores and promised to build on its core strength. Figure 2: Consumer Sentiment Index

Figure 3: Household Marginal Propensity to Save External Analysis Porter’s Five Forces New Entrants (low) Australia’s growing population attract new entrants to the market trying to capture the potential growth, as depicted by UK investment fund offer to overtake David Jones (Harper, 2012). However, the barrier to entry from the current major competitor is exceptionally high. The high industry concentration, with David Jones and Myers being the main players, are equipped with the funding allowing them to start price war blocking any interested entrants.

As the industry is dependent on the population demography, all medium to high density regions are equipped with either Myers or David Jones (David Jones, 2012. Myer, 2012). It is more than likely that one will often find both stores located adjacent to each other. This limits the space available for new entrants as existing competitors are competing for such retail space. Thus, threat of new entrants is low. Rivalry (high) Rivalry among the department store industry has been increasing since 1980s, with major players have outlets throughout Australia both metropolitan and country areas.

In order to operate efficiently and effectively, both large retail space and high volume traffic is required (Outlaw, 2012). Such space is rare, and every player is competing for it. Wide range of products and services is required as consumers are becoming more time sensitive (Drake, 2009). Sale events are often used as tools to attract consumers into their department stores, further emphasis the high competition in the industry. David Jones is competing for the higher segment than Kmart or BigW, hence must differentiated itself in non-price form as evident from its store decorations.

Other formed of differentiation are value added products like own label credit card. With major retail chain, such as Zara, now operating independently in Australia, has increased the level of rivalry and threaten the existing retailers with their effective vertical integration allowing them to operate efficiently and quick stock turnover (Productivity Commission, 2011). Threat of substitute (low) The most significant form of substitute is online shopping which has become increasing legitimate form of shopping.

With Amazon and eBay being the dominant player in the online industry, they are providing very wide range of goods and services on the online platform, allowing customers to browse products without limit on its location and range. However, they are not a major concern for the industry as consumers expected to have their hand on the products before making purchases especially in apparels retail. The current players are shielding themselves be offering online purchase services, with the growing trend to increase their online stock (David Jones, 2012).

Niche market retailers posed as potential substitute for David Jones. However, they have little impact as David Jones captures the larger market. Power of buyers (consumers) (medium) Consumer spending drops as they become more price cautious after the post-global financial crisis, placing constraints on the David Jones and Myers (Productivity Commission, 2011). Intense rivalry among department stores has empowered buyers to enjoy vast savings as each strives to attract consumers into their stores. The strong dollar places challenge on domestic retailers as imports become relatively cheaper.

David Jones need to work harder to attract customers to move out of the lower price alternatives, not only through enhanced shopping experienced but also through partnerships with AMEX and Quantas (Reilly, 2012). Power of Suppliers (medium) Retails such as Myers and David Jones, to some degree, depend on their supplier product line. One key aspect of differentiation strategy is get well-recognised brands to be selling exclusively at their stores. These power brands have relatively high power over David Jones, as demanded by consumers. Without them, consumers will go elsewhere where greater product selections are available.

On the other hand, other minor brands require shop from, and David Jones can provide them with shop front across Australia. These manufacturers depend on David Jones for their shop front, hence David Jones has power over them. This interdependent relationship results in medium power of suppliers in general, as some may have higher bargaining power while others have less. Macro-environmental Forces Economic condition Although the global economy had started recovering from the global financial crisis, Australian retail industry is not completely unaffected.

With an increased saving ratio, the industry was forecasted to only slightly climb up 0. 5% in this financial year, as Australian consumers do not have strong confidence in the market (IBISWorld, 2012). The declining consumer disposable income could lead to decrease in retail sales revenue. It had been found that David Jones’ profit went down by roughly 15 per cent with a drop of 8. 3 per cent in Consumer Sentiment (Appliance Retailer, 2011). Under this environment, consumers probably prefer discount goods instead of high-end products. Figure 1: Sales of David Jones for the past 5 years

Political and legal Early 2010, the government introduced the New Modern Retail Award and the award has influenced the industry in many ways. For example, the employers have to pay double wages to employees if they work on Sundays (IBISWorld, 2012). In addition, an up to 19% jump of the electricity bill could be imposed on large retailers due to the government implemented carbon-tax (Renewable Energy News, 2012). Definitely, an increase in taxation would not only increase retailers’ fixed cost, but also increase consumers’ living cost and decrease their disposable income.

Indeed, the power which comes from the government has great influence on the retail industry. Technological Retailers are able to cut expenses and achieve high performance because of advanced technologies that were broadly used in managing inventory and customer-relationship. Bar codes, EFTPOS and Radio-frequency identification (RFID) are the three most common instruments used in retail industry (IBISWorld, 2012). For instance, RFID could allow retailers to improve logistic efficiency by identifying accurate stock level, to reducing labour costs and preventing theft and theft.

As the number of Internet users increased sharply from 6 million in year 2000 to  17 million in year 2010 (Internet World Stats, 2010), Internet shopping has become a trend among Australians. The development of transportation and secure online payment systems, like Paypal, made online shopping more attractive. Most department stores had built up websites, which support online shopping. Nonetheless, David Jones’ online shopping service might be still in the infant stage because of insufficient investment in technology (B&T Magazine, 2012).

Demographic Australia’s estimated resident population expects the Australian population would increase to between 30. 9 and 42. 5 million, which could be at least 1. 5 times to 2 times of today, by year 2056 (ABS, 2008). The demand of normal goods tends to keep growing. In other words, the department store could have broader development space. Socio-cultural As the population realized the significance of environmental sustainability, most department stores have implemented the idea of “sustainable environment” in their company policy.

David Jones’ environment policy aims to operate and manage the company in a sustainable manner, such as reducing electricity consumption, promoting reusable shopping bags and building environmentally- sustainable stores (David Jones). Furthermore, growing number of immigrant have led Australia to be a multi-cultural nation. The Australian Bureau of Statistics expected that net the number of overseas migrants would grow instantly about 4000 quarterly until 2015 (2012). Culture diversity could change the original supply chain of department store in order to meet the new immigrants’ needs.

Therefore, changing culture demographic could force department stores to have more brands, to suit different cultures. Internal Analysis Value Chain Analysis As support activities, the analysis takes into account general administration, HRM, Technology development and procurement. Even though David Jones is not recognised for having an excellent relationship with its customers, that’s one of the points over which the company watches. In terms of financial services, the company maintains an agreement with American Express for the use of credit cards in its stores (IBISWorld, 2011).

The retail industry is responsible for nearly 20% of the jobs in Australia (David Jones, 2012), and David Jones itself employs over 9000 people (IBISWorld, 2011). The company claims to train and retain its employees, which means constant development programs (David Jones, 2012). The activities performed by the HRM department include hiring, remunerating, training, promoting, motivating, etc. Being such a huge retailing company makes it imperative for David Jones to have an efficient use of technology.

Managing stocks, mapping sales, purchasing goods, supporting applications and other key activities rely on technology (David Jones, 2012). Besides, the growing of online shopping constitutes a new demand for the company: to offer an online store consistent to customers’ expectations. Turning down an eBay offer for online shopping (Arnott, 2012) is an indication of the company’s own commitment in the field. Procurement here can be faced as a source for economy of scale, since the company runs 37 stores in Australia (David Jones, 2012).

Therefore, the model adopted must be of large scale purchasing. The primary activities include partnering with vendors, purchasing goods, managing and distributing inventory, operating stores and marketing and selling. Since David Jones only sells final products, the contact with the brands it sells is of primary importance. It buys from more than 600 suppliers (David Jones, 2012), and one key practice is maintaining partnerships with them. Currently, there are a few deals of exclusive distribution with some key vendors (Outlaw, 2012).

Given the company’s size, economy of scale is a key factor on its purchases, making it possible for customers to buy cheaper than they would do in smaller stores. Almost 40% of the company’s sales consist of clothing and footwear (Outlaw, 2012), followed by 13% of electronics and household appliances. The company depends on sales forecast to manage its inventory. More details about how the company deals with these forecasts were not found. David Jones currently invests in the appearance of its stores, what means making them more friendly and attractive to customers, enhancing their experience of buying and reducing the time spent on queues.

Since price is the major basis of competition in that industry (Outlaw, 2012), David Jones needs to watch over this point. Other factors are location of the stores (in this case, stores are very well located), brands offered (usually well-known brands) and promotion (Outlaw, 2012). Resources and Capabilities David Jones uses the resources and capabilities that they possess to allow them to maintain its current market share in the department store industry and also provides them with the necessary competitive advantage to continue advancing in the industry.

However, resources alone are not necessarily sustainable competitive advantage and must possess four attributes, which are rare, valuable, inimitable, and possess no equivalent substitutes (Dess, Eisner & Lumpkin, 2009). David Jones’s primary sustainable competitive advantage comes from its large store base and store locations, with over 37 stores in major areas all across Australia (David Jones Limited, 2012). David Jones stores are situated in areas with high flow of traffic such as in larger shopping complex and within the central business district.

These locations are costly to hold and act as barriers to entry for potential entrants in the market as competitors would require a large amount of capital cost to be able to compete, making it an inimitable resource. Aside from that, David Jones also bought two major city properties in Melbourne and in Sydney rather than leasing them which is another advantage as Myers continues to pay rent for those similar store locations (Bartholomuesz, 2010). Not only does David Jones save on costs over time, they are also able to invest more into the property or choose to sell the property for a large sum should the need rise. David Jones also places an emphasis on partnerships with different companies to improve their operations in their business. In the fiscal year of 2011, it is shown that David Jones’ online store only contributed only 0. 2% of total sales in a time where recent studies show that about 78% of Australian consumers expect to be able to use technology as a part of their shopping experience (Philips, 2012). Hence, David Jones is partnering with IBM to improve their online presence.

IBM provides David Jones with an end-to-end multi-channel e-commerce platform to facilitate a consistent experience across all store mediums. This provides a substantial competitive advantage as there is no dominant online retailer in the Australian market yet (Philips, 2012). This gives David Jones the first-mover advantage, where a company attains an advantage associated with higher profit margins or increased market share by introducing a new process or product before their competitors (Kerin, Varadarajan, & Peterson, 1992).

They are able to solidify their position in the online market by providing physical and digital integration for a sustainable competitive advantage. To ensure that they are able to maintain their market share, David Jones utilises loyalty programmes to encourage customer spending. David Jones has its own loyalty programme which is focused mainly on its own David Jones Storecard and David Jones American Express Card. David Jones encourages customers to join by providing benefits such as deferred payment options, invitation to events and also instant rewards (David Jones Limited, 2012).

One differentiating factor of David Jones’ loyalty programme from major competitors such as, Myers is the partnership with Qantas to provide cardholders with frequent flyer rewards that is given only when card holders use the storecard when making purchases (Reilly, 2012). This not only creates switching costs for customers, but also makes it difficult for new entrants to imitate due to the partnership. Unfortunately, Myers also possesses similar offerings and is an easy substitute for the consumer base.

Therefore, loyalty programmes only provide David Jones with a temporary competitive advantage if no further points of differentiation are created. Finally, David Jones also focuses on developing and training service staff to enhance their service to customers. In a similar fashion to Apple in-store service, David Jones has recently hired 200 more service staff to act as personal sales assistant and advisor to customers, with the goal of offsetting the poor image of customer service currently held by consumers (Stafford, 2012).

This service is a powerful source of differentiation as the staff training is costly and difficult to be emulated by competitors. However, considering trends of consumers spending more time with online shopping it is unclear whether personalised sales services will benefit David Jones in the long run (Stafford, 2012). Sticking too closely to the past, might make this a strategic rigidity and will not provide any advantages. Therefore, this should be viewed as a temporary competitive advantage. Conclusion In conclusion, David Jones is an Australian based company that operates with 37 store outlets across major states in Australia.

The department store industry is mainly dominated by large players with other smaller firms competing. The industry is concluded to be relatively attractive using the Porter’s five forces model. The changing demographic and technology alongside economic and political challenges influence David Jones to act accordingly to remain competitive. David Jones uses activities like human resource management and supply chain management to add value to the products sold. Finally, David Jones possesses a wide array of resources and capabilities, but only some may be considered sustainable competitive advantage.

References Arnott, G. (2012). David Jones snubs eBay. Retrieved from Australian Bureau of Statistics. (2008). Population Projections, Australia, 2006 to 2101. Retrieved from, http://www. abs. gov. au/Ausstats/abs@. nsf/mf/3222. 0 Bartholomuesz, S. (2010). Property could be the Difference Between David Jones and Myer: Bartholomeusz. Retrieved from, http://www. smartcompany. com. au/retail/20100923-property-could-be-the-difference-between-david-jones-and-myer-bartholomeusz. html Campbell, P. (2012). IBM