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WHAT IT MEANS: Department stores look for new ways to boost foot traffic. David Jones turnaround gains traction.

Department stores are rare retail beasts. Unlike their forecourt or supermarket kinsmen who are largely fashioned for the prosaic, even grudging, activity of their in-and-out customers, department stores have a considered resolve to make you linger.

They do this with visual and visceral displays, made-to-measure suiting, flutes of crisp champagne and bespoke fragrance bars. Retail theatre, they call it.

Engaging customers through innovation and the unconventional can’t be replicated online, so department stores have essentially become spaces for inspiration and socialising and, in doing so, have found a way to remain relevant in a digital age.

In this blurring between retail and recreation, food plays a key role.

John Dixon, CEO of Australian department chain David Jones, says a thriving food business in a department store can have a "halo effect" on other categories.

"We started thinking about dwell time and the role of the department store in the future, especially with more and more people shopping online ... [department stores] are really there to offer not only a house of brands but a layer of services, whether that’s beauty or otherwise as well as an overall leisure experience. So many women are looking to go shopping with their friends or mums and it becomes a day out," he says.

Building a big food business is part of the revival of the 178-year-old David Jones chain which, after years of underinvestment, was bought by JSE-listed Woolworths two years ago in a R23.3bn deal.

One portfolio manager, who could not be named in line with company policy, says Woolworths had again proved to be clever operators. "Food brings in feet. This one-stop-shop or total retail type store with a clear cross-shop opportunity is what they had in mind when they bought the business ... there’s only so much fancy perfume one can sell."

The push into food leverages the strength of the David Jones brand. It already has a strong premium positioning, giving it a fighting chance to take some of Australia’s A$90bn grocery market.

Forget about flat whites, Tim Tams and Vegemite. In the past 10 years the Australian culinary scene has flourished, largely on the rise of reality cooking shows like MasterChef, the mindful or clean-eating movement and "Instagrammable" café culture.

Stuart Bennie, a retail consultant at Sydney-based Impact Retailing, says David Jones has always had a reputation for quality food "à la Harrods food hall".

"The supermarket space is a different story — [it’s] highly competitive with Aldi having gained market share consistently until recently," he says. "Woolworths (Australia) is in disarray. There is talk of Lidl entering the market. But at the top end David Jones has opportunities."

Way back in 2000, David Jones had a go at the food space, through its "Foodchain" stores. The venture was eventually shut in 2003, accumulating losses of about $120m.

The market has changed since then. German discounter Aldi has expanded aggressively, targeting low-middle-income consumers through its more utilitarian offer of high-margin private label products.

"They came into this market about 10 years ago in a typical Aldi-like way — under the radar," Dixon says. "They didn’t really make much of a fuss and just got on with understanding the market — who the key competitors and customers were. Roll on 10 years, up to now, and they’ve got quite a foothold and are causing a lot of disruption to Woolworths (Australia) and Coles and they are not even nationwide yet."

Dixon is a former Marks & Spencer man and has had a relationship with Woolworths for yonks (M&S provides consultancy services to the Cape Town-based group).

Dixon replaced Iain Nairn, who departed rather suddenly, along with a raft of long-serving David Jones-ers.

"If nothing changes, nothing changes," says the portfolio manager.

With the cosy duopoly of Australian grocery stalwarts Coles and Woolworths (Australia) now being challenged, a gap has emerged.

"There is nobody that does quality, innovative, great-tasting food in the Australian market," says Woolworths group CEO Ian Moir. "They [Australian supermarkets] are all in a rush to the bottom. Aldi are there, taking market share like there’s no tomorrow. Woolworths (Australia) and Coles are not looking at the top end of the market — that is where we want to be."

The initial focus at David Jones will be on food service, so cafés and food-to-go. Then will come fresh produce and restaurant-quality prepared foods, in partnership with celebrity chef Neil Perry.

"The way we talk about it is, food for now and food for later," Dixon says. "So maybe a customer wants to come get a cup of coffee or a bagel or sushi or visit the noodle bar. Maybe they need food for the next couple of days or evenings. It will be highly unusual for our customers to try to do a weekly shop at David Jones because it’s a speciality food store rather than a grocery store. We really see it more as them topping up their weekly shop that they are doing somewhere else, with us — so we will be a high-quality treat, something innovative."

What Moir and his team have in mind is not unlike Eataly, the Italian smorgasbord founded by Oscar Farinetti. Through its 31 locations around the world it is essentially a high-end food emporium.

Food utopia won’t come cheap — capital investment of A$100m over three years has been pencilled in.

"We don’t expect to make any money for the first couple of years," says Moir. "We are building a business for the future — but we will bleed a bit in the first instance."

Losses of between A$5m-A$10m in 2017 and 2018 are expected before the business moves into profitability in 2019.

Already, one of the group’s biggest SA suppliers, In2Food, has entered into a joint venture in Australia with Victoria’s Yarra Valley Farms, which has a supply chain capability that will provide distribution for the David Jones food business.

The first of its new upmarket food halls will open in the middle of next year at its Bondi Junction store in Sydney. Its flagship stores in the Sydney and Melbourne CBDs will also get a food facelift.

"So we will build a business that is present in the right David Jones stores (not all of them) — we have to have the right space and demographic. We will then move to standalone [stores] of different sizes," Moir says.

Last month, ratings agency Moody’s said plans by David Jones to expand its premium food selection were "credit negative" for Woolworths (Australia) and Coles, which together control 60% of the market.

Moody’s vice-president and senior analyst Ian Chitterer says that while it is expected that the scale of the David Jones food retail operation will remain small relative to Woolworths (Australia) and Coles, it will still lead to market share losses for the "Big Two ".

"More importantly it will mean they will face increased competition at both ends of the socioeconomic spectrum, that is from groups which are price-sensitive and those which have higher levels of disposable income."

According to Dixon, David Jones won’t be turned into "some sort of supermarket".

"Australians are very discerning when it comes to food and quality ... they are well travelled, they are aware of international flavours and cuisine and yet there’s no-one occupying that top end of the market from a food retail perspective. And that’s the opportunity we see."

The rest of the transformation at David Jones has progressed — with a few bumps and at a slightly slower pace than some have been comfortable with, necessitating a more conservative view on timing of synergies.

The bulk of the changes, like the A$200m refurbishment of its Elizabeth Street CBD store, a customer relationship management programme, an improved online shopping platform and a new merchandise system, will be effected over the next 18 months.

The fix-up of its CBD store will be funded with part of the proceeds from the sale of its menswear store in Market Street, which was sold to Scentre Group for A$360m — twice the amount of its independent valuation. The group will also relocate head office operations to Melbourne.

"We’re on track — but we have a heap to do," says Moir. "We have always said it wouldn’t happen overnight. We’ve had some good surprises and some issues but that was always going to be the case."

Still, David Jones outpaced the market, boosting sales by 8.4% in the full year to June 28 — comparable sales rose 7%. Pretax profit of A$168m was reported.

"Retail is tough at present in Australia, as it is in SA," says Bennie. "Given the mess Woolworths inherited, they are well on the way to returning David Jones to a recovery. The relocation of the David Jones head office to Melbourne is a bold and clever long-term move. The heart of retail is in Melbourne. Try hiring, say, a merchandise planner or buyer in Sydney. Not easy. The move will be costly and some good (and bad) people will leave. But there is no doubt that it is the best place for the head office."

There is another turnaround at play, albeit a mini one, at Country Road. The brand has suffered — comparable store sales were 3.9% lower than in the prior year. Markdowns led to a 1.5% decline in gross profit margin to 59.4%.

"It was a bad combination of poor design and bad buying so the mix was wrong. We will get it right," Moir says.

He has more than 16 years of experience in the Australian retail market and has been credited as the chief turnaround agent in the prior revival of Country Road, where he was chief operating officer and then CEO.

So we might be inclined to believe him.