Rumours swirl of a David Jones-Myer merger

Rumours abound that department stores Myer and David Jones are finally going to make it official and tie the knot. Picture / AAP

It's the reluctant retail romance that refuses to die. Rumours abound that department stores Myer and David Jones are finally going to make it official and tie the knot.

That would leave Australia with just a single high-end department store chain.

Like the star-crossed lovers in Romeo and Juliet, the powers that be — in this case the Australian Competition and Consumer Commission (ACCC) — have historically been circumspect about the marriage. Chiefly because it would remove both stores' largest competitor.

But times have changed, and retail watchers have told news.com.au the intense competition of online shopping and depressed consumer spending, as well as the bottom lines of the pair, may mean a tie-up is now too tempting for regulators to turn down.

If a merger between the two does go ahead expect to see stores closing and possibly one of the brands to be thrown on the retail scrapheap — in all probability, Myer.

"There's no advantage for David Jones in retaining the Myer brand. It will be like when Qantas took over TAA and almost the first thing that happened was the Qantas name took over," Marketing Focus director Barry Urquhart told news.com.au.

But the retail analyst also questioned if there was any financial sense in combining two struggling bricks-and-mortar retailers.

On Friday, the Australian reported that the owner of David Jones, South Africa's Woolworths Holdings (no relation to Australia's Woolworths), was preparing a A$300m ($316m) bid for its longstanding fashion foe.

Too many shops?

Certainly, Myer is a cheap catch. Its current share price of A38c (as of today) is less than one-tenth of what investors paid for the department store when it floated in 2009.

Last month, Myer announced an almost half billion first-half loss. Not that DJs is a star retail performer, but at least it's still making a profit.

Myer last month announced an almost half billion first-half loss. Picture / AAP

Myer is also in turmoil. Just months ago, it ditched chief executive Richard Umbers and effectively threw his "New Myer" strategy — of chasing moneyed-up customers — in the bin.

Woolworths Holdings said of the bid gossip: "These rumours have no basis".

Following the reports of the A$300m bid, Woolworths boss Ian Moir told the Australian Financial Review it was not something the board was considering.

"We're absolutely focused on getting our business right and making sure our stores are brilliant," he said.

But talking to news.com.au, Retail Doctor Group consultant Brian Walker said it would be unlikely for the firms not to be sizing one another up.

"Something has to happen because the market can't sustain two department stores so the logical piece is for Woolworths [David Jones] to buy out Myer," Walker said.

"Australia is the third most over-shopped country in the world with something like one shop for every 325 people, and there's just too many department stores.

"Myer has been in decline for 20 years so creating a $5 billion department store chain with DJs will mean better negotiations with suppliers and landlords."

Would a merger be allowed?

We've actually been here before, in 2014. And back then, the answer may well have been no. Then the boot was on the other foot with Myer stalking David Jones and talk of annual synergies in the hundreds of millions of dollars as dual head offices were closed and back offices merged.

At the time Myer said both brands could be retained. The merger proposal was never formalised but the competition regulator weighed in anyway. The ACCC said it had no intention of blithely waving through a combination of the two grand dames of Australia's department store world.

"Should Myer or David Jones decide to pursue a merger the ACCC will then conduct a very thorough review," the regulator said in February 2014.

Four years is a long time in retail. Today there is fierce competition online, bleeding bottom lines and the likes of luxury brands — like Chanel, Hermes and Prada — are now available in stand-alone stores from Pitt St to Pacific Fair.

"Department stores' share of retail has fallen from 14 per cent in 1985 to 5 or 6 per cent now; there would be no issues about a [merged company] dominating the market," Walker said.

"You can buy a lot of very expensive high heels online these days."

Aside from saying sayonara to a competitor, DJs would also have a more powerful negotiating position with shopping centre owners who are believed to have Myer over a barrel with expensive store leases.

A combined firm would likely shutter duplicate stores in proximity, potentially leaving some big holes not just in malls but also in the likes of Sydney's CBD and Melbourne's Bourke St.

What would happen to the Myer and DJS names?

There's a big chance a merged company would axe one of the two brands. With DJs more secure in its market positioning, Myer fans should worry.

"There would be no advantage to retain the Myer brand ... If you do you need two head offices, two management teams, two buying teams," Urquhart said.

Walker was less pessimistic about the Victorian brand's future, calling Myer a "fantastic brand" which isn't an asset you kick to the kerb without a second thought.

In addition, the Myer One loyalty program was one of the most successful in Australia.

But Urquhart questioned the very rationale behind a merger of the two famous names, pointing out online retailer Kogan now has a market valuation more than twice that of Myer.

He said department stores were the retail platform of the past, not the future and barely the present.

"If the question is, will a merger between David Jones and Myer going to facilitate any wealth creation, the answer is probably no. So is this a plan for survival or just to hold on for a little longer?" he said.

On Friday, a spokesman for Woolworths Holdings told AAP: "We are not considering an acquisition of Myer and there have been no discussions regarding an acquisition with advisers or between the two companies."

Shares in Myer closed at A35c on Thursday, but on Friday were up 10 per cent on the merger rumours.