Fernando MonteiroDavid Jones and the Secret of Retailing
August 30th 2009 11:33
David Jones (DJS) sells upmarket products, shoes, frocks, hand bags and cosmetics priced dearly and makes a fortune doing so. Its 2008 net profit was $147 million on revenues of more than $2 billion. What’s David Jones secret?
In part the answer is that the Australian public is greatly affluent, commands large disposable incomes, and likes buying from distinct places such as David Jones. In part the answer for its success is that David Jones knows how to create a buying experience that will both delight and distinguish the upmarket customer.
Retail is in nature a simple activity: you conceive of a product which you source from someone, you mark it up and put up it for sale. Two tricks, though, must be operated for you to make a gain: (a) you must match the product concept and quality you want to sell to your publics characteristics and (b) you must perform an efficient operation.
Retailing is, perhaps after agriculture, the oldest and most widely known skill everywhere. But, if you just have a visit to a David Jones department store, you will agree that in our day conceptualisation and refinement reached dizzying highs. In David Jones case, it’s interesting that the price to be paid for anything is also part of the shopping experience. Any lady buying a hand bag there can be assured that, not just the quality of the item will impress anyone, but also that everybody will know that she has spent a considerable sum. So, in DJS’s case, the customer demands the higher price, which must be quite an interesting proposition for the seller who carefully set up everything to this end.
Besides the net profit after tax of $147.3 million, $91.2 million for the first half 2009, DJS current return on equity is 22.1 per cent, a high figure which it has been able to sustain during the last few years. Its net profit margin is 6.2 per cent, which I find impressive. Shareholders equity grew 27 per cent in the last six years to $619.8 million. Long-term debt is a low $100 million. DJS share price is $4.83 and P/E (price to earnings) is 17 times, perhaps fully priced at this stage.
One of the reasons why I like retailing, besides its inherent profitability, it’s because it plays fewer variables in its game. Just think of a high tech company such as Intel and you will know that predicting the future direction and earnings of such an enterprise is something challenging. But retail is simple and so you stand less chances of failing. For the wise investor this should be something to always keep in mind.
In part the answer is that the Australian public is greatly affluent, commands large disposable incomes, and likes buying from distinct places such as David Jones. In part the answer for its success is that David Jones knows how to create a buying experience that will both delight and distinguish the upmarket customer.
Retail is in nature a simple activity: you conceive of a product which you source from someone, you mark it up and put up it for sale. Two tricks, though, must be operated for you to make a gain: (a) you must match the product concept and quality you want to sell to your publics characteristics and (b) you must perform an efficient operation.
Retailing is, perhaps after agriculture, the oldest and most widely known skill everywhere. But, if you just have a visit to a David Jones department store, you will agree that in our day conceptualisation and refinement reached dizzying highs. In David Jones case, it’s interesting that the price to be paid for anything is also part of the shopping experience. Any lady buying a hand bag there can be assured that, not just the quality of the item will impress anyone, but also that everybody will know that she has spent a considerable sum. So, in DJS’s case, the customer demands the higher price, which must be quite an interesting proposition for the seller who carefully set up everything to this end.
Besides the net profit after tax of $147.3 million, $91.2 million for the first half 2009, DJS current return on equity is 22.1 per cent, a high figure which it has been able to sustain during the last few years. Its net profit margin is 6.2 per cent, which I find impressive. Shareholders equity grew 27 per cent in the last six years to $619.8 million. Long-term debt is a low $100 million. DJS share price is $4.83 and P/E (price to earnings) is 17 times, perhaps fully priced at this stage.
One of the reasons why I like retailing, besides its inherent profitability, it’s because it plays fewer variables in its game. Just think of a high tech company such as Intel and you will know that predicting the future direction and earnings of such an enterprise is something challenging. But retail is simple and so you stand less chances of failing. For the wise investor this should be something to always keep in mind.
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