A week is supposed to be a long time in politics, in retailing these days it seems to be very, very quick.
Take David Jones for instance. It was only last Wednesday that the retailer was warning the market that it might lose a store in the Eastgardens mall in Sydney’s Eastern Suburbs.
The retailer said:
“The lease relating to David Jones’ Eastgardens (NSW) store expires in October 2007. The Company has been in discussions with Terrace Towers (the owner of the centre) although to date, agreement has not been reached.”
Mr McInnes said, “Whilst our firm preference is to enter a long-term Eastgardens lease, we are not yet in a position to do so. In the event that an acceptable agreement is not reached, we believe that Myer is likely to enter the Centre”.
Yesterday that expectation was realised with the news that the now privately-owned Myer will replace rival David Jones at the Westfield’s Eastgardens.
And Mr McInnes made it quite clear why the retailer had withdrawn from the centre:
“Despite lengthy negotiations with Terrace Towers we have been unable to reach agreement on terms that are economically feasible for our Company and in the interests of our shareholders.
“The profit that would be generated under the proposed terms of the lease will be captured as we transfer David Jones’ customers to our Bondi Junction and Sydney CBD stores.
This can be achieved at a vastly reduced investment on David Jones’ part in comparison to renewing the lease on the terms proposed.
“We believe that given our decision not to accept Terrace Towers’ terms and renew our Eastgardens lease, Myer will enter the centre on the terms we declined.
“In our view entering into a lease on the terms proposed by Terrace Towers reflects a decision based on short term sales gain with limited long term benefit for the lessee.
“David Jones’ Store Portfolio strategy is very straight forward – we will not commit to a long term lease on the basis of short term Sales growth – our decision will always be based on what delivers the best overall value to our shareholders over the life of each lease,” Mr McInnes said.
“Our Eastgardens store profit has been in decline since the opening of the redeveloped Bondi Junction centre in 2004.
“We are committed to providing continued employment to all of the current Eastgardens employees within David Jones.
“Whilst we would have liked to enter into a long term Eastgardens lease, the terms proposed by the landlord are not in the best interests of our shareholders and we can achieve a better short, medium and long term return for shareholders.”
In other words the landlord wanted too much and David Jones called their bluff.
David Jones was a founding anchor tenant in the centre and the move to replace it is a little odd given the sharp improvement in the retailer’s performance in the past 18 months.
Myer has also lifted but that has been from a low base and the retailer seems to be still benefiting from the split with Coles and discovering the freedom to compete.
David Jones is more upmarket and Eastgardens is in a middle class area of Sydney’s East, relatively close to the airport. Both Myer and David Jones are founding anchor tenants in Westfield’s $750 million Bondi Junction Mall, further to the East. That is in a much wealthier area than Eastgardens.
Terrace Tower Group, the owner of Westfield Eastgardens, said yesterday Myer would be the new anchor department store at the complex following the expiry of David Jones’ lease later this year. The opening date of the new Myer is yet to be confirmed but it will be in the last quarter.
For David Jones the loss of selling space will be a temporary setback: it already has the Burwood store operating. It replaced Myer there in a Westfield complex in Sydney’s inner west, so there is a bit of tit for tat exchange.
The group’s new Chermside and QueensPlaza stores in Brisbane will open over the next seven months: Chermside in August and QueensPlaza in Brisbane’s CBD after Christmas. DJS says QueensPlaza will double its selling space in the Brisbane CBD.
The Doncaster store in Melbourne is due to open in October of next year.
David Jones has yet to renew its lease for the Centro Centre at Bankstown in Sydney’s inner south western suburbs.
“The Company’s Bankstown store lease expired in September 2006 and since that date the Company has operated in Centro’s Bankstown centre on a month-to-month lease,” the company said last week.
Mr McInnes said, “Since the expiry of our Bankstown lease we have added the new Burwood store to our store portfolio, which has given us an additional presence in Sydney’s western suburbs.
“We have over the past 7 months been in negotiations and discussions with Centro in relation to the terms upon which David Jones would consider remaining in the Bankstown centre. We will only remain in Bankstown if we can significantly improve our store profitability. Our final position has been put to the Centro Board and we await their decision.”
DJS shares eased 6c to $5.32, just under the all time high of $5.40 reached earlier this week.
