David Jones Limited SWOT & PESTLE Analysis

Weaknesses

1. Weak financial position of the company amid the global financial crisis mainly due to difficult trading conditions and changing consumer sentiments: The company’s financial performance has been declining for the period 2009-2013. The net revenue of David Jones decreased from $1985.5 million in FY2009 to $1845 million in FY2013 by a compound annual growth rate (CAGR) of -1.82%. The decrease in the revenues was attributed to the challenging trading environment and also the strategy of the company to improve margins by reducing the amount of discounting. Also, the operating profit and the net profit decreased from $225.6 million and $156.5 million in FY2009 to $149 million and $101.6 million in FY2013 respectively. The operating profit and the net profit saw a CAGR of -10% and -10% respectively. Subsequently, the cash flow from operations also decreased to $180 million for the FY2013 from $196.7 million for FY2012 due to changes in the working capital in the FY2012. This indicates a gloomy position for the company majorly due to difficult trading conditions attributing to the weak consumer sentiments amid the global financial crisis and migration of the shoppers to online international retailers.

2. Loss of sales of the company to international online retailers: The company has been losing sales to international online retailers of late due to slowness in embracing online shopping while the counterparts Macy’s and John Lewis in USA and UK are encouraging people to shop online and have already reported huge profits through online shopping.

3. Capital invested on the refurbishment of stores may lower the cash flow for other engagements: The Capital invested on the refurbishment of stores to make them well informed, equip them with modern technology, make them look hugely different in terms of visual products, concession stores as well as the arena of retail space may lower the cash flow for other engagements.

Political

1. Laws and regulations enforced by the government against the misuse of market power by the market leaders: Woolworths, after acquisition of David Jones, is one of the retail giants in Australia and the 15th retail giant all over the world controlling the majority of the market share in Australia. Woolworths along with the other retail giant Coles have created a duopolistic market gorging on every other retailer by creating a lot of problems for the small retailers through cutting of supply options for the small retailers, predatory pricing and changing the way Australian food is produced. The government has started taking steps to control this misuse of market power by the retail giants. They have even designed a bill that would the court for the break-up of companies that tend to misuse their market power. This is in a way of stopping the retail giants in using their market power to restrict the small retailers from entering the market. This will in a way help the customers have a higher bargaining power and the autonomy to choose from a wide variety of options before going making a purchase.

Economic

1. Change in spending habits of consumers: Falling consumer confidence plagued by the global financial crisis and their changed attitudes towards buying indicates that they have a deep inclination towards quality and price at the same time. The customers are focusing more on value buying and the company has come up with a strategy of price harmonisation that focuses on everyday low prices for customers. This strategy has not only helped them to match the overseas retail rivals in terms of the prices offered by them but also has helped them to retain the market share. Through a wide range of products at offer and prices being reduced to lowest as possible, they are trying to be customer friendly and in a way are creating a price war that would either close down the small and marginal firms or be bought out by one of the retail giants.