Woolworths’s ailing Australian department store chain, the value of which has already been slashed by more than R7bn, has wielded the axe once again.

David Jones, which was bought by the high-end retailer for more than R20bn four years ago, said on Thursday it had dismissed its MD for clothing and general merchandise, David Collins, just a month after Woolworths axed its CEO in that country, John Dixon.

David Jones said it had also cut another 15 jobs at its head office, in a bid to cut costs and stabilise the business.

Amid a weakening department store market, David Jones has struggled since Woolworths bought it. And with online players Amazon and eBay wading into the Australian market, analysts say traditional retailers face an increasingly difficult trading environment.

Woolworths recently wrote down the value of David Jones by A$713m (R7.2bn). In May, it dismissed Dixon, a former Marks & Spencer executive who was the group’s regional head for less than a year.

Woolworths’s share price has halved from the highs reached in late 2015. The stock closed nearly 1% up for the day at R53.93 on Thursday.

Strategic cost review

David Jones said on Thursday that following a strategic cost review, it would consolidate its management and head office teams "to provide a flatter, more customer-focused structure".

With Collins gone, the merchandise leadership team would now report directly to David Jones CEO David Thomas.

Although Woolworths has impaired the value of David Jones, it is still making a number of strategic investments there. For instance, David Jones is adding food halls to its stores, and is spending almost A$200m on refurbishing its flagship store in Sydney, using funds from the sale of another outlet.

"In our view, department stores are a dying breed that have largely been replaced by exciting shopping malls and online retailing, so we were sceptical of Woolworths’s bold targets [for David Jones] from the start," said Bjorn Samuels, an equity analyst at Argon Asset Management. Samuels said the loss of skilled staff and the extent of management changes would make the business more difficult to manage.

"From our viewpoint, the original turnaround strategy has started to mutate and the many changes in key decision makers has confounded our visibility of David Jones being able to deliver."

Samuels said if Woolworths believed it could revive the department store chain, it should "throw more capital at the problem" rather than cut costs. But if Woolworths conceded that the department store format was dying, it could manage the decline by cutting costs.

Argon said it believed Woolworths shares were not priced attractively enough to compensate for these risks.

However, despite the company’s woes in Australia, HSBC analyst Jeanine Womersley upgraded the recommendation on Woolworths to buy from hold this week, according to Bloomberg data.

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