Case study: The Change Intervention at David Jones

You are an Organisational Development practitioner. You have received a call from a colleague, requesting your thoughts on a OD consultancy he is working on. He would like to hear your thoughts and analysis of a change intervention which is being conducted at David Jones.

Your colleague has provided you with a project file, which is written in a case study format. .

Your task is to read this project file, and provide a response to the questions your colleague has posed to you. In addressing these questions, you will need to demonstrate your superior critical thinking and problem-solving skills and comprehension of change management theories, concepts and processes.

The questions you must address in your analysis include:

1. Which model of planned change best describes the change process employed by David Jones?
2. Do you agree with the changes being made in this current restructure of David Jones? If not, why? Can you suggest any other changes that the CEO should consider?
3. How would you describe the management style of the CEO of David Jones? What are the potential advantages and disadvantages of this style for the type of change being implemented at David Jones?

Submit your response as a short report to your colleague and submit it using the Turnit-in submission link. Support your analysis and recommendations, drawing on pertinent theories, concepts and processes, and relevant academic research

Please note the following formatting requirements:

• provide your response in a report format with a minimum of 1500 word
• Provide an Introduction and Conclusion to frame your response to your colleagues questions
• Minimum of !0 references

Case Study

Established in 1838 by Welsh merchant David Jones, the now iconic department store is the oldest trading department store in Australian history.1 Originally established to sell coveted products to the gentry, the business continues with the same mantra today as it did 174 years ago. However, the retail environment is starkly different to the days of colonial Sydney, as we enter the touch generation age where participating in retail therapy goes beyond the doors of the shop front, now to be dominated by the fingers of our constantly monitored smartphones. This case study reviews the recent troubles of David Jones, including its criticised company culture under Mark McInnes, its desire to emulate Nordstroms online retail success and its new strategy and positioning of its retail activities to reaffirm its importance in the Australian consumer arena.

DAVID JONE, Changing Fortunes\\

2010 was not a good year for David Jones. The sexual harassment case against former CEO Mark McInnes greatly damaged its reputation. An out-of-court settlement put an end to the case, but the process revealed an unhealthy culture of corporate arrogance within the business which has tarnished David Jones ever since. The fortunes of this iconic department store have continued to fall. Further, it has found itself in the midst of a global retail attack where it is simply not competing with other retail shop fronts within its physical environment. There is also additional competition from global online retailers shipping product to Australian shores.

Before his fall from grace, Mark McInnes tenure saw strong profit growth of 42% with net profit after tax growing from $109.5 million in 200708 to $156.5 million in 200910.2 During this period the share price of David Jones also rose from the $2 mark to an average of $5 by 2010. The continuing growth slowed to $101.1 million net profit after tax for 201112.3

Paul Zahra became CEO in 2010. Not only did Zahra have to clean up the publicity mess left after McInnes shock departure, but he had to guide the retailer through the touch age, where the new becomes old within a matter of months. The son of Maltese immigrants based in Melbourne, Zahra has 29 years of retail experience and the full confidence of the David Jones board to execute a strategy to get the retailer online and onto mobile devices.

Zahra sees the closure of the online store in 2003 as a crossroad in the retailers online approach. David Jones opened an online gift store in 2000. Unfortunately, over three years it had accumulated losses of $28 million.4 McInnes was CEO at the time and decided to close the online store due to lack of profitability. During this period, the American upmarket retailer, Nordstrom, had also opened an online store that struggled to make a profit. Nordstroms management decided to continue with its online strategy, which has now paid off in spades. The online store contributes 10% of Nordstroms sales and 20% of earnings.5 Zahra sees the results of Nordstroms persistence as inspiration for David Jones in the migration towards online and mobile retailing:

They launched their website at the same time we did. The difference is that we closed ours ... they continued to invest and develop and theyre advanced because of it.

Mitchell, 2011

THE CHANGING RETAIL ENVIRONMENT

What is the hurdle that David Jones has to overcome to bring it back to the glory days of Australias premier retailer? Firstly, lets look at the current changing retail environment. The Global Financial Crisis (GFC) has brought a mixed bag of goods into the Australian economy. Partly due to the strength of the mining sector, we are one of the few developed economies that has navigated the GFC with mild economic symptoms. However, the struggle of one of our trading partners, the USA, among other economic factors, has led to a strong Australian dollar, which has aided in the international spending spree of the Australian consumer. Further, the liberalisations of online shopping from local online to global online, coupled with the strong dollar and, in many cases, free international shipping, have left many shopfronts wondering: where have the customers gone?

Online shopping has provided the consumer with immense power to shop globally within the privacy of their homes and now the privacy of their smartphones, as Generation Y moves into purchasing from mobile devices. With 10% of all consumer purchases being made online, it is clear that to compete in the new retail environment, an online presence is vital.6 Having closed their online store in 2003, David Jones has lost years of online retailing experience and is now playing catch-up with its competitors.

Ross Honeywill, respected social researcher and former retail consultant, argues that the retail industry is in serious trouble as the traditional business model continues to drastically change:

The department store model is pretty tricky at the best of times ... there are a lot of department stores per capita ... one shop for about every 22000 people ... But they have 15- to 20-year leases and cant [easily] get out of them.

Honeywill, 2009.

As the retail environment continues to change, David Jones intends to move into the strategic scope of smaller stores to accommodate developing consumer sentiments. Zahra intends to locate in affluent catchments lacking solid retail competition.

Possible locations are in areas with good demographics which do not have major shopping centres located within the area.7

david Jones asX release, 21 March 2012.

Honeywill believes a serious concern for David Jones is that the company has alienated a key target audience in recent years, the New Economic Order (NEO) who account for 24% of the Australian population and 54% of discretionary spending. This powerful, trendy and fashion-conscious target market is who David Jones should be investing in, over their traditional market that may make up 50% of the population but only account for 24% of discretionary spending.8 Further, the NEOs enjoy shopping online and increasingly through mobile devices.

RESCUE PLAN FOR DAVID JONES

To rescue David Jones, Zahra presented the board with a three-pronged approach, which they approved. This multi-channelled business strategy would come at an estimated cost of $80 million to execute.9 Firstly, the opening of six smaller stores in strategic locations will increase corporate revenue, because annual profits have been falling since 2010. Zahra intends to be extremely targeted with this approach, working with less store space and giving the customers exactly what they want, catering to each area.

In addition to the new stores, the seventh floor of the David Jones Sydney CBD store will be transformed into a bridal boutique. Zahra wants to capture this market and push the boutique as a leading bridal specialist with a commanding range of designer brands and flawless service.10

Secondly, David Jones intends to focus on its core strengths. This includes maintaining its market position as the leader in fashion as a department store that supports Australian designers. David Jones has maintained its well-known commitment to local designers; in furthering this message they have struck deals with many local designers to have certain pieces as exclusives to David Jones only. This reminds the market of their buying power and their core competency as a retailer and a brand. In doing this, Zahra also intends to put a stop to the constant sales and price cutting. He insists that there will be shorter and sharper sales to prevent the stigma of perpetual sales on the brand image, which they are trying to rebuild and develop.11

In continuing the push on their core competencies, they also intend to lure the customer back into the shop floor with high-profile events designed to enhance the shopping experience. In the last 18 months they have invited high profile celebrities including Kim Kardashian and Nigella Lawson to promote key products. These appearances not only brought the customer back into the stores, but sales also jumped 10% each time. Zahra believes celebrity events not only bring in customers, but also remind us that David Jones is the premier department store in Australia, injecting glamour back into retail.12

Traditionally, David Jones was known for excellent customer service, but this has diminished over the years. In an effort to reinstate a key selling point, a personal shopper program is now provided and has been well received.

David Jones will also refurbish tired stores to remind customers what they stand for a complete shopping experience.

The third prong of the rescue plan is to transform the technologies used within the business and to establish a strong online presence. David Jones point of sale system is more than 17 years old. Much of the system is out of date, requires manual application and is inadequate in this fast-moving technological age. IBM has been enlisted to provide an e-commerce platform for the business, providing online shopping that incorporates mobile devices and utilises the power of social networking. In an effort to cover traditional markets as well, Zahra also intends to set up call centres so that shopping with David Jones is a multi-channels experience from store, to telephone, to web, to smartphone.13

In differentiating David Jones online store, Zahra has decided to continue the price promise online as well, matching prices of other retailers for the same product to keep their customers loyal by offering the best possible price.14

Zahra is also pushing for lower prices from suppliers, a process known as price harmonisation. It is no surprise that Australians are often charged much more than our overseas counterparts, for many reasons, lack of competition being one of them. Often the price varies as much as 40% for the same product. This is one reason why Australians are looking towards online stores: to avoid the price hike. Zahra hopes that price harmonisation will allow the company to compete with online international retailers.15

Zahra sees David Jones core competency as a powerful selling point and, in order to lure consumers online, they have negotiated select designer pieces to be sold exclusively on the David Jones online store. Zahra hopes this will further secure the companys reputation as the best department store for Australian designer fashion.

PROGRESS TO DATE

It is too early to comment on the outcome of the rescue strategy. The online store was launched in November 2010 and continues to develop as David Jones tries to catch up in the virtual market. The continued fall in net profit and drop in share price is expected, as they need to invest in order to implement the change. It may be a good five years before the strategy can be assessed properly.

Since the new strategy was unveiled, David Jones has announced that it will refurbish five of its six stores, including the Sydney flagship store. Moving with their improvement in customer service, David Jones has hired 100 new floor supervisors and 200 frontline staff members as it continues to expand its personal shopping service.16 In January 2012, a new store in the Indooroopilly Shopping Centre was announced, tapping into the growth and opportunities within this catchment area in Queensland.17

In this ever changing world, a companys longevity is dictated by its ability to adapt to needed change.18 The direction of David Jones strategy has the full support of their board. Bob Savage, the chairman of the David Jones board, is aligned with Zahras vision of change. The board and I view our ability to compete in a multi-channel environment as crucial to our future, Savage says.