Myer was keen to maintain the two brands while cutting back-office costs in any merger. Photo: Jim RiceWith Myer believed to be preparing to dust off its $3 billion merger proposal for David Jones, new research suggests the combined group could lose millions of loyal customers unless they successfully differentiate their brands.
Analysts say David Jones risks losing about 26 per cent of its customers – those who only shop at the upmarket department store rather than its mid-market rival – if the ”merger of equals” is mishandled.
According to Roy Morgan data, about 74 per cent of the 3.4 million customers who shopped at David Jones last year also shopped at Myer, which served around 5.8 million customers.
Under the merger proposal put to the David Jones board in October, Myer planned to maintain the Myer and David Jones brands and develop more differentiated offers to better target their respective customers and protect their combined sales.
Myer planned to maintain two independent merchandise and store operations teams, but the head office would probably move to Melbourne and functions such as supply chain, IT, human resources and treasury would be merged to try to extract synergy benefits estimated to be around $85 million a year.
Analysts said the merged companies could struggle to retain their most loyal customers if cost cutting, sourcing and sharing of services went too far and each chain lost its identity.
”Anything that blurs the boundaries between the department stores could create more problems and this data backs that up,” one analyst said. ”About 26 per cent of David Jones shoppers are loyal to David Jones and don’t shop at Myer – the challenge is trying to retain them when you merge the two,” he said.
”The biggest risk is the customers who don’t shop at both – they should be able to retain those customers who shop at both [Myer and David Jones]. They might not be as loyal to David Jones if it is no longer as differentiated from Myer because it is owned by Myer,” he said.
If the merged group maintained two head office structures and two supply chains in a bid to preserve their identities the cost synergies would be significantly less than $85 million a year.
This would reduce the value created by the merger, which Myer and its advisers believe could be as high as $900 million within three years.
Myer is considering a new approach to the David Jones board as soon as the retailer has appointed a new chairman and two non-executive directors. David Jones chairman Peter Mason and directors Steve Vamos and Leigh Clapham agreed to step down last week after pressure from shareholders angry about inappropriate share trading and poor corporate governance.
David Jones is also waiting to learn whether chief executive Paul Zahra changes his departure plans and stays on deck to complete the next stage of his turnaround plan.
Mr Mason has said the board would never consider a nil-premium merger, but would reconsider a merger proposal if the terms significantly improved.