Strategic Review of Australian Department Store David Jones

David Jvirtuosos Limited (DJS) is an Australian retailer tracing its origins back to 1838 when it primary exposed in Sydney to sell the shell and most exclusive goods (DJS, 31 Oct. 2009). It has since expand to become a national retail chain comprising of nearly 40 premium department keeps. The subject of this analysis is a strategic business organization whole (SBU) that is playing an increasingly important role in the keep guilds future festering dodging namely the cookery of financial service.As the result of a strategic alliance with American prove (curbing), DJS launched the David Jones American Express (DJA) identity bank note in 2008 (ASX Media Release, 20 February 2008). To effectively learn the value pro side of meat of this SBU and product it is important to first examine the boilersuit value proposal of the company. As defined by Kotler, a companys value proposition is the set of wellbeings which it promises to deliver to consumers in collection to satisfy their needs (Kotler et al. 009). In the look of DJS these core benefits are the provision of an em positioning level of customer service, a distinctive store ambiance, a unique and high quality product range and international patsy portfolio tined at competitive prices, and a mission statement to be the best full line, differentiated department store (DJS enterprisingness Agreement 2006). primordial aspects of this proposition include the companys focus on quality, sumptuousness and aspiration.In terms of Maslows hierarchy of needs it demonstrates a appetency to deliver an experience and array of products which satisfy needs of belongingness and self-esteem in a potential buyer (Maslow 1954). It also forms the basis for the companys positioning strategy and its marting orientation towards customer satisfaction (AFR party boss Magazine, October 2009, p. 22). The company strives to deliver these hear benefits to a primary target merchandise consisting of three generations o f women (daughter, mother, grandmother) from households with above average disposable incomes (DJS JP Morgan Conf. October 2009). In other row DJS has a segmenting, targeting and positioning (STP) strategy that is female skewed and aimed at the loaded AB demographic which constitutes the top 20% of the socio-economic quintile based on education, income and avocation (Roy Morgan, 2009). The value proposition of the DJA tantalize dovetails into this broad set of company values, pass an array of augmentitional benefits and functionality for DJS customers that compliment the companys grocery position as an aspirational reproach (ASX Media Release, 20 Feb. 2008).Whereas historically the companys mark store shake was only accepted in DJS stores, the DJA card offers customers address facilities at any merchandiser who accepts kerb. It therefore leverages the bridle nock as a leading global payments, network and travel company with its synonymous level of acceptance to offe r DJS customers additional citation purchasing power and functionality ( bridle, 31 Oct. 2009). The DJA card also offers unique reinforcement benefits and gift points to true customers, professing to turn everyday using up into dream brands and dream destinations (DJS, 31 Oct. 009). The value propositions of DJS and DJA can be considered effective for a number of key reasons. Firstly the core beliefs which underpin these value propositions have remained more often than not uniform over time, with only nice changes in response to evolving markets. This is important given they act as the foundation of a companys brand building process (MM 2009, p. 2-34). Secondly they are unique, leveraging DJS focus on luxury and aspiration to help differentiate product offerings like the DJA card from that of competitors.Thirdly these values augment the companys segmenting and positioning strategy by providing clear benefits targeted to their core customer base. Lastly the value proposition is well communicated, permeating all aspects of their market mix and integrated marketing communications strategy through mediums such as in-store branding, direct mail, patsy media, publicity, and online marketing. An overall analysis of the tail fin Cs was conducted for the DJA business unit Company Strengths Joining of two strong brands, reduction of risk for DJS, besotted customer base, strong emergence of financial services, distinctive house of brands.Weaknesses capableness damage to DJS brand by alliance partners actions, bung building, lack of acceptance of AMEX separate generally, higher merchant salarys associated with AMEX. Opportunities break in expansion increasing r apiece of customer base for DJA card, expansion of DJA alliance, supplementary card, status program. nemesiss Cardholder resentment at one-year fee, alliance partner motivations, Myer IPO, supermarket co-branded card game, AMEX debt recovery procedures. Customers DJS retail DJs core customer comprises of 3 generations of women daughter, mother, grandmother, with a household income of $75,000 p. . (Macquarie Australia Confere nce, 2009, Mark McInnes). As the DJA honorable mention card is a product development strategy, of supplying new products to existing markets, the customers of DJA are essentially the same as the current DJS customers. Collaborators Strategic alliance with AMEX in the provision of the DJA confidence card. International alliances with other retail stores when the DJA card is apply deep down their stores (eg. Harrods, Harvey Nichols, etc. ). Other local bonus partners in the DJA reward program (eg. Vintage Cellars). Competitors DJs competitive environment is summarised using the following allowance of Porters Five Forces (Porter, 1908, in MKMT, 2009, 1-26). Industry Competitors Mastercard, visa, and other little credit card providers. Along with other AMEX co-branded credit cards and store cards. New Entrants Barriers to entry in the credit c ard market are high including capital for lending and the setup of infrastructure. Although these issues can be mainly overcome by forming a strategic alliance with one of the major credit card providers, as has been done in the case of the DJA credit card.Substitutes There are a number of substitutes to the DJA credit card including EFTPOS direct from bank accounts DJS store cards, Visa Debit and funds. Power of Suppliers Threat of forward integration by alliance partner AMEX. Context DJAs operating context is defined using the following adaptation of mash model (MKMT, 2009, 1-29). Political Operating within each Australian stir requires understanding of a multitude of separate state governments regulators, government insurance policy and the impact on consumer office in the provision of credit cards.Proposed changes to the study Consumer extension Regime currently being considered by the Federal Treasury. sparing Performance of the credit card sector is closely linked to consumer confidence within the market, key indicators affecting consumer confidence include GDP growth, unemployment rates, stakes rates, banking sector health, public sector debt. Increasing levels of private sector credit card debt. Socio-Cultural on-going trends in fashion affecting house of brands and indirectly the DJA card. Societal downward trend away from carrying and transacting with cash towards the use of selection point of sales payments.Technological New competitors in the form of online shop experience. Legal Operating within numerous legal jurisdictions requiring understanding of each unique jurisdiction in relation to providing financial services. Environmental Current push towards credit card companies to introduce paperless billing. Demographic Increasing old-hat of living in Australia leading to outstandinger take up of credit cards and other lending avenues. Ageing population in Australia which is line up with the DJS brand and the DJS core customer base. S WOT Analysis (MM 2009, 1-25) Strengths (S1) put up strengths David Jones is a strong iconic Australian brand with 170 year score (DJS JP Morgan Conf. , Oct 2009) and David Jones has offered branded credit cards to its customers for 48 years (McInnes, National Consumer Credit Regime, 12 June 2009). American Express formed in 1850 and in the 1950s, issued its first credit card (AMEX, 31 Oct. 2009). The DJA card capitalises on the strength of twain brand heritages and service cultures, both locally and internationally (ASX Media Release, 20 Feb. 2008). S2) ardent financial structure with reduced risk to DJS fusion partner is answerable for the credit policy and owns the receivables of the Financial Services business with the transfer of $374. 3m of largely debt funded receivables to American Express (DJS FY09, 24 family line. 2009) and so the risk associated with the portfolio sits with AMEX not DJS. (S3) Wealthy customers Core customers have above average disposable income with a household income of greater than $75,000 (DJS JP Morgan Conf. , Oct 2009). (S4) Strong growth of financial services 7. % growth in past year and same projected over close four years and large growth in core customer base (DJS JP Morgan Conf. , Oct 2009). (S5) Distinctive House of Brands positioning with the best product range, great service and the reinvigoration of high-value stores (David Jones FY 09, 24 Sept. 2009). Each DJS offering needs to be understandably branded in a way which creates an exclusive brand relationship with the customer whist also aligning with the overall position of the overlook brand of DJS itself (Aaker andJoachimsthaler 2000). (S6) Growth of brands Strong range of national and international brands (DJS JP Morgan Conf. Oct 2009). The growth of these brands via the introduction of 50 new department store exclusive brands to its portfolio crosswise all categories at DJS stores is more attractive to buyers (Samador, 28 Nov. 2008). (S7) Fee structure Hi gh membership fees, merchant fees, and credit fees generate more cash for generous rewards program. Weaknesses (W1) Risk of DJS brand being linked to AMEX DJS brand linked to AMEX credit policy and debt recovery. AMEX are perceive to be a pushy credit provider, with one shareholder describing AMEX as a low grade card that diminishes David Jones prestigious character, (Samador, 28Nov. 2008). (W2) Fee structure Internal shareholders resistance to the $99 one-year membership fee and 20. 49% per annum interest rate (the DJS Store card was free to join). (W3) High merchant fees and low merchant acceptance AMEX merchant fees are the highest of all mainstream credit cards on offer in Australia (RBA, 6 Nov. 2009). This has led to lower acceptance of AMEX compared to MasterCard and Visa Australia wide. Overall AMEX and DJS have complimentary and mutual strengths that compensate for their individual weaknesses, giving them greater combined strength.Opportunities (O-1) DJA credit card purp ose removed DJS stores The strong history of the store-card (McInnes, National Consumer Credit Regime, 12 June 2009) and the high correspondence of store-card holders in the DJA card program (Samador, 28 Nov. 2008) imply that card customs is likely to continue to be concentrated in-store. Given national disbursal in Department Stores accounts for less than 9% of total retail spending (ABS Retail Trade, Sept 2009) there is large opportunity for DJA to grow receipts through usage in the wider retail market. O-2) DJA credit card usage inside DJS stores The DJS store-card is held by many cardholders as a status symbolism (Hanson, 2009, pers. Comm, 30 Oct. ). DJA may build on this perception to encourage greater spending in-store and greater in-store usage of the DJA card. (O-3) DJA cardholder expansion The DJA card program get 400,000 active accounts from DJS (McInnes, National Consumer Credit Regime, 12 June 2009). However this is a small percentage of the market, given there ar e over 14. 3 trillion credit card accounts in Australia (RBA, 6 Nov 2009).Increasing the number of DJA cardholders, within the target segment, is a significant opportunity for DJA. Leveraging the increased market coverage, to be achieved by the DJS store expansion program (DJS JP Morgan Conf. , Oct 2009), is one such means of increasing cardholder numbers. (O-4) Expansion of the DJA alliance In addition to credit cards, AMEX offers a range of insurance products, travel and financial services (AMEX, 31 Oct. 2009). DJA currently offers insurance products and travel services to their cardholders through their award Points program (DJS, 31 Oct. 009). DJA may offer a wider range of AMEX insurance products, travel and financial services, under the DJS brand, to their existing DJA cardholders and DJS customers. Threats (T) (T-1) Resentment of the annual fee Many DJA cardholders, whom had migrated from the DJS store-card, resented the newly imposed $99 annual fee (DJS, 31 Oct. 2009). The resentment of the fee is re-ignited annually when the fee is levied, such that cardholders leave continue to re-evaluate the on-going benefits of the DJA credit card. T-2) Alliance partner AMEX Under the DJA alliance, the merchant fee is waived on purchases made within DJS stores on DJA credit cards (Hanson, 2009, pers. Comm, 30 Oct. ). Given the DJA credit card history as a DJS store-card, a high proportion of spending is conducted within DJS stores, thereby qualifying the merchant fees collectable by DJA. AMEX would benefit significantly by luring DJA credit cardholders to alternate AMEX products, so AMEX would receive merchant fees on card purchases within DJS stores. (T-3) The Myer IPO Preferential share allocations were offered to Myer whiz cardholders in the Myer IPO (Business Day, 23 Sept. 2009). Current and potential DJA credit card customers may have been swayed away to the Myer One card program to benefit in the Myer IPO. (T-4) Supermarket linked credit cards The co-bra nded credit card market is keenly contested by department stores, supermarkets and petrol companies to name a few. Monthly retail expenditure on food is over five times greater than department store expenditure (ABS Retail Trade, Sept 2009). Customers may elect to align their credit card with the retail store where they spend the most money, the most frequently. (T-5) AMEX Debt recovery procedures Under the DJA alliance, debt recovery is handled by AMEX.Strong debt recovery procedures and activity from AMEX may resound poorly on the DJA card and the DJS stores as customer may not differentiate between the two. References Ansoff, I. Strategies for Diversification, Harvard Business Review, Vol. 35, Issue 5, Sep-Oct 1957, pp. 113-124. Maslow, A. 1954, Motivation and personality, Harper and Row. Aaker, D. A. , Joachimsthaler, E. 2000, Brand leadership Building assets in the information society, Journal of Consumer Marketing. Kotler, P. , Adam, S. , Denize, S. Armstrong, G. 2009, Prin ciples of marketing, 4th edn, Pearson apprentice Hall.Marketing Management, 2009, AGSM MBA Programs Graduate Diploma in Management. ASX Media Release, David Jones selects American Express as its strategic alliance partner for its general purpose card, 20 February 2008. Mitchell, S. , AFR knob Magazine, October 2009, p. 22 McInnes, M. , Goddard, S. , David Jones JP Morgan Conference Oct 2009. David Jones, Full Year (FY09) Results August 2008 July 2009, http//www. davidjones. com. au/images/ bay window/pdf/2009/FY09_Results_24Sep09. pdf, 24 September 2009. McInnes, M. , National Consumer Credit Regime, http//www. treasury. gov. u/consumercredit/content/ denotation/submissions/downloads/national_consumer_credit_regime/David_Jones. pdf , 12 June 2009) Reserve Bank of Australia, Credit and Charge Card Statistics, http//www. rba. gov. au/statistics/bulletin. html , September 2009 5pm. Australian Bureau of Statistics, Retail Trade, http//www. ausstats. abs. gov. au/ausstats/meisubs. nsf/0/0C3F2426BB831DF3CA257662000E0A71/$File/85010_sep%202009. pdf , September 2009, p6 ASX Media Release, David Jones Selects American Express as its Strategic Alliance Partner for its General Purpose card, http//www. asx. com. au/asxpdf/20080220/pdf/317jmwgpqdm2qr. df , 20 February 2008. Samador, L. , Investors Turn on David Jones Amex card, http//news. theage. com. au/business/investors-turn-on-david-jones-amex-card-20081128-6mtb. html, 28 November 2008. Business Day, Premier results add weight to timing of Myer float, http//www. businessday. com. au/business/premier-results-add-weight-to-timing-of-myer-float-20090922-g0ly. html, 23 September 2009. David Jones, David Jones Enterprise Agreement 2006, http//www. sda. org. au/images/awards/award13. pdf, Accessed 2 Nov. 2009. www. americanexpress. com, Accessed 31 October 2009 5pm www. davidjones. com. au, Accessed 31 October 2009, 5pm