Fund managers to David Jones Limited CEO Paul Zahra — please stay

David Jones is highly leveraged to a retail upturn

a woman

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The Australian Financial Review has reported that some fund managers have called on CEO Paul Zahra to rescind his intended resignation until David Jones (ASX: DJS) is further advanced with the restructuring process.

Crispin Murray, BT Financial Group's head of equities was quoted as saying: "We think it's important that Paul gets the opportunity to continue to run the company over the next 12 months or how long it takes him to find the right person and that he's a hands on CEO because there's still a lot to be done." David Jones chairman Peter Mason has said a board will not ask a chief executive to remain on the job after publicly announcing his resignation.

As a shareholder, I prefer to see a CEO who is happy and fulfilled in the job and Zahra has shown a great deal of honesty and foresight in announcing his intended resignation whenever a suitable replacement is found. Being a CEO of a retail icon must have been incredibly difficult over the past couple of years and Zahra has tackled numerous legacy issues head-on in a chaotic retail environment.

So, what has been achieved by Zahra and David Jones?

Software and management systems (including inventory control) have been upgraded and brought up to speed with contemporary retailing techniques.

There has been a heavy investment in staff training and knowledge, hopefully leading to more productive interaction with customers.

The first of the 'new concept' retail stores specialising in fashion and beauty has been opened with good response.

A flexible and advanced webstore has been opened and should be a standalone profit centre within 2 years.

Progress is being made with the introduction of higher yielding private label products and more exclusive deals with prestigious labels have been announced.

David Jones will survive and thrive

David Jones is highly leveraged to any sustained improvement in consumer confidence; however the new profit sharing agreement with American Express will impact profits in 2014.

With property holdings valued at $1.15 per share and low borrowings (8%), David Jones is a definite survivor and a likely thriver in the contemporary world of retailing.

Myer (ASX: MYR) is also searching for a new CEO ensuring 2014 will be an intriguing year for department stores.

Foolish takeaway

Whatever happens, Paul Zahra and his team deserve credit for the repositioning of David Jones, and its shareholders will be grateful. Like Sally McDonald from Oroton (ASX: ORL) the resignation comes after a lot of necessary improvements have been achieved. It would be ironic if McDonald (reputedly on the short list) replaced Zahra as CEO of David Jones.

Motley Fool contributor Peter Andersen owns shares in David Jones and Oroton

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