The food and clothing group paid a big premium to bulk up in Australia via David Jones as part of chief executive Ion Moir’s ambitions to turn Woolworths into a leading southern hemisphere retailer, but faced delays in overhauling the business.
The write-down, the second since 2018, frames a bleak picture for department store operators around the world as shoppers opt for broader product ranges from global online players like Amazon.com Inc or speciality fast fashion brick-and-mortar stores like H & M Hennes & Mauritz AB.
In response to the changing trends, David Jones beefed up its online offering, cut costs and store space and refurbished its Elizabeth Street flagship store in Sydney that will introduce exclusive brands in clothing, footwear and lingerie.
But even with all these changes, it has suffered as Australia’s economy hit a soft patch in the past year pressured by a slide in property values, weak consumer spending and slackening global demand.
Woolworths said it would book an impairment of $437.4 million against David Jones, reducing the valuation of the department chain to about $965 million.
The South African retailer paid about $2.1 billion for it in 2014.
“This write-down reflects sustained and unprecedented economic pressures and structural changes in the Australian market,” a Woolworths spokeswoman said.
“The retail sector in Australia is currently in recession and the Australian economy has slowed to its weakest level since the global financial crisis in 2009.”
The retailer added that a strategic review of the David Jones store portfolio also identified stores with onerous leases resulting in an additional provision of $22.4 million.
In 2018, Woolworths booked a non-cash impairment charge of $712.5 million against the value of David Jones due to the same reasons.
The Elizabeth Street store refurbishment was on track with women’s wear floors opening this month, Woolworths said.
“Operationally, our strategic initiatives position David Jones for the retail environment of the future,” a Woolworths spokeswoman said.
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