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DJs flips CDs and DVDs

Up-market department store retailer, David Jones (ASX: DJS) has announced that it is will stop selling DVDs, music and games, after reporting a 1.4% fall in second quarter sales to $590 million.

After reporting a 2.1% rise in first quarter sales last year, the fall in sales was disappointing for those investors hoping for a sustained turnaround of the company’s growth, especially as the second quarter included the vital Christmas period. CEO, Paul Zahra said that performance was adversely impacted by the Home categories, in particular electronics, which continue to be challenging and subject to ongoing deflationary pressure.

The result shows how difficult it is to compete against the likes of consumer electronics specialist, JB Hi-Fi Limited (ASX: JBH), which has a much lower cost of doing business, and online retailers, especially in the face of the ongoing structural change in the music, game and DVD sectors.

On the flip side, higher margin fashion and beauty categories, including womenswear, beauty, menswear, accessories and shoes, delivered positive sales growth. That news augurs well for other listed fashion plays, Premier Investments Limited (ASX: PMV) and Specialty Fashion Group (ASX: SFH).

As part of its efforts to grow earnings after two years of falling profits, DJs is focused on improving the profitability of its sales. Low performing categories are being given the flick, reducing the depth and breadth of its discounting and increasing its focus on higher margin categories.

Foolish takeaway

David Jones is very much a work in progress. After being left behind by international and pure online retailers, the company has a lot of catching up to do. Both DJs and competitor Myer Holdings (ASX: MYR) have significantly ramped up their online presence, and are taking several other steps to encourage consumers to shop in-store. Today’s announcement is a minor setback in the process.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in David Jones and JB Hi-Fi.

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