Source : THE AGE NEWS
David Jones really did bury the lead with Monday’s blockbuster announcement. The crucial news isn’t the sudden and immediate replacement of chief executive Scott Fyfe. The real news is that the department store chain lives to fight another day.
Buried in this statement is the revelation that the lender that financed David Jones’ precarious cash-squeezed operations has been replaced with a different vulture fund that is willing to give it an extra cash lifeline.
For almost six months, David Jones has been engaged in a juggling act with suppliers, asking various of these creditors to stretch payment terms. In a seemingly fluid attempt to manage the company’s own cash-flow dilemma, some suppliers were part-paid, but others were paid months late.
It is really difficult to decide whether to read either piece of news (new financier and new chief executive) as a glass-half-empty or half-full development.
The half-empty interpretation would be that David Jones was dumped by its incumbent financier, Gordon Brothers, who wouldn’t extend it any more money than the $190 million it had previously agreed.
The half-full construction would be that its new vulture fund/international financier, Hilco, will extend it some additional cash (secured over David Jones’ business).
To appreciate Hilco’s success in managing distressed businesses, check out these awards and accolades. It has won, at various times, the special situations debt provider of the year at the IFT Awards, the turnaround of the year award at the Turnaround, Restructuring & Insolvency Awards, and the business rescue of the year award at the Insolvency & Rescue Award.
It looks like Hilco has the right team for the job.
At the very least, the refinancing and the governance changes support the understanding that Australia’s most iconic department store is in a meaningful financial bind.
Financially performing businesses don’t announce that the chief executive has been moved on as of yesterday. That signals governance chaos and dysfunction.
Apparently, Fyfe knew he was headed for the exit at some point, to be replaced by internal aspirant Erica Berchtold. It didn’t prevent him from addressing a retail conference last week, when he recounted his views on business turnarounds.
There is now gargantuan pressure on Berchtold to undertake the turnaround miracle that her predecessor couldn’t.
With Hilco’s extra funds, hopefully she can get those disaffected suppliers back on side.
But she will need all the help she can get from the general Australian economy – including a good lashing of consumer confidence and some interest rate reprieve.
Her appointment represents the “glass cliff” at its clearest (excuse the pun). The definition of the glass cliff is the situation where women (or other minority leaders) are promoted to precarious leadership roles – such as during a corporate crisis, financial crash or PR scandal – in which the risk of failure is exceptionally high and support is minimal.
In a recent earnings update for the nine months to the end of March 2016, Fyfe described the profit made during that period as indicative of David Jones being a “thriving business”.
That’s a call too big to make, but based on what David Jones’ owner Anchorage Capital told us, David Jones had made an earnings improvement in the first nine months of the 2026 financial year.
And given all that “thriving”, let’s hope that David Jones can see fit to give their suppliers a bit of bill-paying love.
Meanwhile, Fyfe said the board and he had agreed to conclude his tenure as part of a planned leadership transition. “The Board of David Jones and I have reached a mutual agreement to conclude my tenure as Chief Executive Officer of David Jones as part of a management succession plan.”
Hmmm.
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