Kmart the standout success in Australia's gloomy retail market after David ... trends now
The bargain basement sale of iconic department store David Jones could just be the start of a retail apocalypse.
This year threatens to see carnage in the sector as interest rate rises take a big chunk out of consumer spending and impact other well-known stores - with one surprising exception.
David Jones was off-loaded by South African owners Woolworths Holdings (which is not connected to the local Woolworths brand) to Australian equity firm Anchorage Capital Partners for a paltry $100million in December.
Megan Gale at the official opening of the stage one redevelopment of the David Jones Bourke Street Mall store in Melbourne when it was hugely popular
Model Miranda Kerr showcases designs by Carla Zampatti during the David Jones season launch in 2012/13, which are glory days the beleaguered retailer might never see again
It's only the start of bleak news for Australia's shopkeepers as retail spending suffered its first monthly dip of the year in October, according to the Australian Bureau of Statistics (ABS).
Heather McIlvaine, who is managing features editor for specialty publication Inside Retail, said that this could be 'the shoe dropping' for a long expected freeze on consumer spending.
'Retailers are aware 2023 might be a lot tougher but they just aren't sure yet how tough it might be,' she told Daily Mail Australia.
Ms McIlvaine said the acid test for retailers would come in the early months of next year because the rise in popularity of Black Friday sale shopping and normal Christmas splurging would likely keep spending elevated in the short-term.
'Without those two drivers in the new year we will see what the cost-of-living crisis means for spending,' she said.
A model shows off a Brosa couch with the furniture retailer going into receivership despite seeming to have the ideal contemporary business mix of online/offline trade
'A lot of closures happen in January, this is their holding on through that Christmas period, to see if they can get through that and it gives them the cashflow to keep going.'
Steve Mickenbecker, a finance expert with financial comparison website Canstar, said the record-breaking speed of the Reserve Bank hiking the cash rate by 3 per cent in eight months will start to hurt household budgets.
'I think discretionary spending has to fall,' he said.
'The interest rates are going up and on average $500,000 mortgage the rises already amount to an extra $1,000 a month repayment.
'It will be coming out of the money that would have gone on discretionary spending.
David Jones stores across the country are reportedly set to be offloaded at a bargain basement price
'To date (consumers) haven't been hit by the full impact of the increases we have already seen let alone the increases that I expect are going to come their way in 2023.'
Ms McIlvaine noted that even with consumer spending largely holding up there had been some notable collapses in retail this year.
'We've seen a large number of on-demand delivery providers either pulling out of the Australian market or collapsing, such as Deliveroo,' she said.
'There has been a lot of speculation about the MilkRun (grocery delivery) business, how sustainable that is.
'They were positioned as the future of shopping, instant delivery and clearly it's not going to be the near-future of shopping.
Inside Retail managing features editor Heather McIlvaine says the October fall in retail spending could be the 'shoe dropping' on a long awaited downturn
'Maybe it takes more time to work out the kinks in that business model and how to make it more profitable. It's to do with the paper-thin margins.'
A collapse Ms MIlvaine said was particularly significant was luxury furniture retailer Brosa, which went into voluntary receivership in mid-December.
She argued that before Covid many retail collapses were businesses that struggled to adapt to a more online environment but with Brosa 'that wasn't the case at all'.
'They were a digital first retailer - primarily online but with two showrooms targeted at the millennial market,' Ms Ilaine said.
'From the outside it was an example of a retailer doing all the right things.
Kmart has become an Australian success story with the discount retailer becoming fashionable for young shoppers with a huge social media reach
'It had this online, offline approach, which we have heard from many experts in the industry is the winning model but it's obviously not bulletproof.
'It shows how impacted the retail industry is by all these broader economic factors.'
Ms McIlvaine observed that department stores, which recorded the largest dip in October turnover out of the ABS retail sectors, have been struggling worldwide since well before Covid.
