CEO's exit could hurt retailer

David Jones, Australia's second-largest department-store operator, faces possible damage to its brand and may struggle to retain management after chief executive Mark McInnes resigned for "unbecoming" conduct.

New chief executive Paul Zahra has to contend with media coverage of McInnes's departure and "potential negative impact on trading and damage to the David Jones brand", Credit Suisse Group analyst Grant Saligari said in a note to clients.

Credit Suisse downgraded the stock to "underperform" from "outperform" and cut its target price to A$4.50 from A$5.30 after McInnes, 45, quit on Friday, apologising for his behaviour towards a female colleague.

"The change in CEO increases risk around retention of other senior management team members," Saligari said.

David Jones' stock had surged fourfold since 2003, when the top job went to McInnes, who emulated the success that overseas chains such as Bloomingdale's had with international designer brands.

McInnes, who was often photographed with celebrities, signed agreements with companies including Polo Ralph Lauren and Bottega Veneta owner PPR.

"What markets fail to see is that the long-term direction of a company in retail isn't driven by the product but by the skill and the merchandising and the ability of the people who lead the company," said Mark Ritson, of the University of Melbourne.

"Wherever Mark goes next, he'll take half of the people on his team."

- BLOOMBERG