KEEPING UP WITH THE JONES (DAVID)

Ky Chow, Sky News Business Reporter

24 March 2011

Subdued consumer sentiment has been one of the dominant economic themes lately. Shoppers are "cocooning" during tough times, as Myer CEO Bernie Brookes puts it.

David Jones CEO Paul Zahra agrees. "Many people out there think it's the end of the world", he said at a briefing yesterday, referencing the natural disasters that are weighing on the psyche of both investor and shopper.

In the case of the upmarket department chain, however, it's not all bad. Sales of their mainstream brands are gloomy, and don't show any signs of recovery, Zahra says, but designer labels and youth brands are selling well. In other words, the super rich don't seem to care too much about what's happening overseas and, as the David Jones CEO theorises, the younger end of Gen Y still doesn't have major expenses such as a mortgage.

DJs is targeting young folk, too. Zahra says a major digital marketing campaign via social media is coming this year. The company has plenty of enticing promotions, such as fashion parades that will be given extra mileage via YouTube.

In other words, the emphasis is on the web being a promotional, rather than e-commerce weapon. (Although the company hopes to reach regional areas with online shopping.)

Speaking of online, Zahra isn't worried by cheaper overseas sellers as he says the threat will go up and down in line with the Aussie dollar. In other words, currently stingy consumers are all about price right now, but you'd think a bounce in consumer sentiment and depreciating Aussie dollar are just a matter of time. The tactile, sensory experience of shopping is more than just buying stuff - Zahra says foot traffic hasn't shifted down even though sales have.

Finally, the company is looking to hang onto at least the lower end of the guidance it has provided to investors about profit margins for the rest of the year. It's been able to do this by cutting costs - staff costs are very flexible based on the regular sales data they get in, and the company has successfully saved a ton on ad spending through new contracts, while maintaining its air time, or "share of voice", as Zahra calls it, against competitors.

Brokers, while being happy with David Jones's results for its first half of its financial year, are worried that such cost savings will hit a wall at some point. And with consumers (including in the last six weeks) still staying in their cocoons rather than venturing out into the hot February weather to buy the new Winter range (Zahra says weather is a major factor in sales), it could be a long cold spell.

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