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Retail giant David Jones announced new lower everyday prices yesterday. But it denies its margins have been inflated, claiming the reduced prices are the result of "continuing negotiation" with international brands.
The department store's "Lower Everyday Prices" program has secured price reductions of up to 50% across hundreds of products in categories such as fashion, beauty, accessories, shoes, homewares and electronics.
David Jones said the reductions are not temporary savings but ongoing, lower everyday prices.
The shakeup follows the announcement in March that David Jones had begun a global "cost price harmonisation" program with its international suppliers to address the price differences between the Australian retail sector and international department store prices.
Sacha Laing, group executive of marketing at David Jones, said since negotiations began early this year many of the department brands had been able to reduce prices by addressing issues such as improving their distribution channels.
"Consumers have the ability to compare prices around the world and similarly for us as retailers it has also meant that we have a greater level of transparency to cost prices globally as well," Laing says.
"A lot of our conversation with suppliers has been about why are Australia's cost prices so much more expensive in the other market for the same product."
Laing says this has given David Jones' suppliers the "opportunity" to go back to their parent companies and ask the same question.
When asked why David Jones had not negotiated to reduce its prices earlier, Laing said it was "a good question".
"It has not been as prevalent before, as online has become a more prevalent channel and you get the international exposure to the market it has highlighted these inefficiencies," he says.
"In the past, when a product was sold at a lower price in the United States, that was not necessarily transparent to us or to the consumer."
Laing says while consumers may have been aware of lower prices overseas, those products were not accessible to them.
"Previously, if products were available in a market at a lower retail price they were not available to the consumer. But now with the advent of global online shopping we are now operating in a global market," he says.
"In the past, department stores have been subject to false accusations of inflated margins but that is not the case and Australian retailers operate on similar margins to those in other markets."
Laing predicts the lower prices will lead consumers who may have bought mid-tier brands to "trade up" to Australian and international brands as a consequence of prices coming down.
"It is very much an international price issue, not a local price issue. It is not about retailers finally coming to the party; it is about transparency of price from a cost and retail perspective," he says.
Laing says the competitive price pressure on David Jones is not helped by a GST threshold of $1,000 for online shopping from overseas, which he says puts more pressure on the Australian market and onto Australian jobs.
Brands which have reduced prices for David Jones include Estee Lauder, Lancôme, Clinique, Sisley, Clarins, L'Occitane, Yves Saint Laurent, La Mer, Gant, Nautica, Lacoste, Scotch & Soda, 7 for all Mankind, Nudie Jeans, Tommy Bahamas, Armani Collezioni, marc by marc jacobs, DKNY, Michael Kors, Guess, Steve Madden, Fossil, Scanpan, Riedel, Parker, Waterman, Canon, Bose and Olympus.
Laing says David Jones will not be refusing to stock suppliers who do not reduce their prices and negotiations continue with other suppliers.
"We will continue to work with our suppliers for as long as it takes. We are committed to the program and ultimately the natural forces of supply and demand will benefit those brands that have moved prices," he says.
"Ultimately, the customers will drive the outcome."
David Jones chief executive Paul Zahra said in a statement that the cost price harmonisation program is a top priority within the business.
"We are increasingly competing in the international arena and this has meant that it is important that we do everything possible to protect our customer value proposition and to ensure that the international brands our customers love are accessible at David Jones," he said.
Brian Walker, chief executive of retail consultants The Retail Doctor Group, told SmartCompany it was unclear why David Jones had not worked to secure these savings earlier.
"I can only presume they are working harder and harder at the David Jones supply channel and squeezing a lot more out of their suppliers that inherently they were not before," he says.
"In other words; screw the suppliers."
Walker says David Jones must be looking at volume uptake, which is far more sales at lower margins.
"There is absolutely no doubt David Jones is trying to become a much higher volume retailer focusing on quantity of sales and margins as distinct from quality," he says.
"Why haven't they done it previously? Because, ultimately, the market hasn't asked them to and now the market has by shopping elsewhere."
This article was first published on LeadingCompany's sister site, SmartCompany.