Djs' Trump: Taking On Banks At Cards

Sydney Morning Herald

Friday January 27, 2006

Michael Evans

RETAILER David Jones is preparing to take on the big banks in the personal loan and credit card markets.

After the success of its in-store charge card and loans service, it is reviewing plans to expand its financial services business and is understood to be homing in on the personal credit market now dominated by the banks.

DJs has been examining a two-pronged strategy for growth beyond 2008 that focuses on an expanded financial services business and the opening of as many as seven new stores.

It is understood DJs is leaning towards expanding its card and personal finance business while backing away from an earlier interest in lending larger sums, such as for home loans.

No final decision has been reached; an update on the review is expected around April.

David Jones already owns and runs a successful in-store credit business that contributed almost a third of its 2004-05 net profit of $77.9 million.

Earnings from the company's finance business grew last year at nearly 17 per cent, easily outstripping growth in its department store business.

Its finance operations differ from other branded credit cards such as Harvey Norman's because David Jones owns its card business and has no relationship with any financial institution - meaning it pockets the lot.

Despite having one of the highest interest rates on offer at 21.9 per cent a year, DJs' charge card has proved popular with shoppers because it also offers access to in-house promotions such as fashion shows.

But it also successfully targets card holders by offering discounts and promotions and gathering information on their shopping habits.

Now the retailer is looking at how to capture more of the spending of its typical shopper by offering a card that can be used outside David Jones stores.

It is understood DJs sees the risk of default from its typical shopper as lower than for typical credit card providers, given the higher income and demographic mix of its shoppers.

DJs' chief executive, Mark McInnes, has cited the company's resilience to the consumer slowdown last year as being attributable to the demographics of its typical customer.

The retailer already runs a limited in-house finance operation offering lending terms on in-house items, including interest-free periods on special promotions and big-ticket items to drive sales.

Investors are keenly awaiting the outcome of the review, as the sale of Myer is likely to create a stronger competitor under new ownership.

It's also understood David Jones is considering intellectual property agreements on department store operations with Asian companies as a way to generate new earnings.

© 2006 Sydney Morning Herald

Back to News Index | Back to Home