Myer and David Jones face more competition

Two new international fashion brands to open in Melbourne.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published October 2, 2013 6:44 am AEST

Department stores Myer (ASX: MYR) and David Jones (ASX: DJS) are set to experience increased competition in coming years, as specialty fashion groups from Asia and Europe plan to test the waters with flagships stores in Melbourne and Sydney.

Australia's two big retailers, especially David Jones, are pinning much of their future growth on specialty fashion by signing exclusive deals with designers to increase their appeal to consumers.

The relatively recent arrival in Australia of international brands such as Spain's Zara, Britain's TopShop and US group Gap has made life difficult for Myer and David Jones. The increased competition has resulted in excessive discounting by Australian retailers in order to grow revenue, however this has come at the cost of decreasing margins and profit.

To make matters worse, Japanese fashion powerhouse Uniqlo has announced plans for its first Australian store. It will open in Melbourne's Lonsdale Street in early 2014 and occupy four floors, selling men's, women's and children's fashion. Owned by Japanese group Fast Retailing, the company has over 1,200 stores in 14 markets and has an affordable offering of casualwear.

In addition to Uniqlo, Swedish group H&M will open its first Australian store in Melbourne's GPO in March 2014. Both have signalled a desire to open a number of stores in Melbourne and Sydney initially.

Foolish takeaway

It's clear that the retail fashion scene has changed significantly in the past five years, as online retail has become mainstream and international brands have opened countless stores across Australia. Myer and David Jones have been slow to respond thus far, delivering poor online experiences and struggling to attract the required customer numbers to grow profits.

David Jones, in particular, appears to be turning it around. The company has pledged to reduce discounting to a minimum and focus on high end, high margin fashion over lower profit segments such as electronics. If it can execute its strategy, it will likely outperform competitor Myer.

Not many would consider Myer or David Jones as income stocks. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.