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David Jones tries online ... again
Dec. 2011.
SMEs take note: the inability of large businesses to do what they need to do can seem incredible. It's very hard for some leopards to change their spots. A case in point is the move to online retail.
An interesting example is David Jones. The magazine accompanying the Dec 2, 2011 Australian Financial Review had a good interview with Paul Zahra, CEO of David Jones (an upmarket department store).
In the interview, there were some startling facts about the failure of DJ's online effort.
Mr Zahra revealed that under the former CEO, David Jones canned their online effort after losing $28m. Losing $28m is remarkable for a channel where the turnover would have been below $5m. Normally we associate online stores with low fixed costs (and therefore low contribution margins and cheap prices). There are a couple of ways you can lose a huge amount of money. You can sell below variable costs, and lose money on each sale, or you can have astronomical fixed and startup costs. (A large firm can invent a third way: it may allocate irrelevant corporate overheads, and include them in the loss). I can't believe DJs achieved enough volume to blow $28m on selling below cash cost. This leaves fixed costs and startup costs. Spending that on consultants, developers and marketing is always possible, but it seems remarkably generous. I'm guessing some very over-priced acquisitions.
For SMEs, the lesson is that a firm with top-class management, a ridiculous amount of money and a nice strategic plan completely screwed up. Many smaller businesses have stepped into the gap.