When the retailer’s doors slide open, shoppers are greeted by rows of slashed price tags, frantic discounting, and all the other hallmarks of a department store closing down.

Except, this isn’t David Jones, the embattled upmarket retailer that is shutting half its 38 stores.

This is its longtime rival, Myer, where entire floors are seemingly permanently on sale.

With Myer’s profitability battered and share price languishing near all-time lows, DJs’ slide into administration raises an uncomfortable question: is Myer next?

‘Sustained erosion of relevance’

At first glance, Myer’s headline numbers seem to defy the retail gloom, with double-digit sales growth to $4.1bn last financial year.

That lift, however, was not driven by surging demand, but by adding sales from the newly acquired apparel chains, Just Jeans, Jay Jays, Portmans, Dotti and Jacqui E, bought from billionaire businessman Solomon Lew’s Premier Investments.

Meanwhile, to keep registers ringing, Myer employed “higher than planned promotional activity to stimulate demand”, according to its annual report, which reduced its profitability.

The department store has also slashed the value of its brands, down more than $200m in one year alone, in an admission that its labels are worth far less than they once were.

Department stores have faced a “sustained erosion of relevance over the past five years”, according to IBISWorld market researchers, as online platforms win over bargain-hunters and specialists like beauty retailer Mecca prove more nimble in capturing shifting tastes.

DJs and Myer, on the other hand, have been weighed down by long-running physical property leases tied to underperforming stores in their sprawling networks.

The era of Australian families being fiercely loyal to either David Jones or Myer is long gone, replaced by a grim battle for both chains to stay relevant.

The stress on big department store profitability has been exacerbated by a period of cost of living pressures that have “entrenched deal-hunting behaviour, reshaping how and when consumers engage with department stores”, according to IBISWorld.

Myer was contacted for comment.

Survival tactic or slow-motion bankruptcy

Myer, however, has a critical advantage over David Jones: time.

While DJs fell into administration under mounting debts, Myer finished last financial year with a $100m net cash buffer, buying management breathing space to fix the business.

It has been reducing store numbers and with it lease liabilities – down to 56 stores from 60 before the pandemic – which is something David Jones is only doing now that it has collapsed into administration.

For the moment, Myer is leaning into the discounts demanded by shoppers, in the hope that more profitable trading conditions will emerge.

Richard Hemming, the editor at Under The Radar Report, says in retail “volume is everything”.

“If you get the volumes through, that customer base will eventually be in a position to pay more, and when volumes and margins both improve, you get that double effect,” Hemming says.

While analysts have mixed views on whether permanent discounting is a smart survival tactic or a slow-motion way to go bankrupt, department stores do need to move huge volumes of stock to keep cash flowing and clear seasonal goods.

They can use those discounts to get more people signed up to their loyalty programs – such as the successful Myer One program – in the hope they will become long term customers.

Hemming sees the upside in Myer’s current pain, noting the retailer is “cleaning house earlier than rivals” precisely because investors have long priced it “like it’s going to go broke”.

Myer is revamping the business to aggressively pursue online sales.

Advantage over old rival

Myer shares have been heavily sold down over the years, and now hover around the 24c mark, representing a fraction of its $4.10 float price from 2009.

It did, however, receive a price bump on the day DJs fell into administration.

With roughly two in five Myer stores sharing a shopping centre with a David Jones outlet, investors are betting the coming closure of 19 DJs sites will hand Myer an easy market-share boost, even as its own long-term turnaround demands further store cuts.

In the short term, the pain is likely to intensify for Myer as the David Jones stores marked for closure are under orders to clear stock with widespread promotions, luring customers.

Broader retail sentiment is also souring, as a string of interest rate rises and escalating cost-of-living pressures force cash-strapped shoppers to pare their discretionary spend.

The Retail Doctor Group’s chief executive, Brian Walker, says the main long-term advantage Myer has over its old rival is financial flexibility.

“Whereas David Jones was incredibly encumbered, Myer doesn’t have that issue right now,” Walker says.

“As we sit here today, Myer is financially stronger, but strategically still pretty vulnerable.”