Can David Jones and Myer Holdings survive?

Yet another international competitor ramps up their Australian fashion offering

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It’s going to take some fancy footwork from department store retailers David Jones Limited (ASX: DJS) and Myer Holdings Limited (ASX: MYR) to remain relevant to Australian consumers.

Neiman Marcus, an American luxury department store retailer is planning to invest more in Australia to push its website to consumers, according to a report in the Sydney Morning Herald (SMH).

Increased marketing and marquee fashion events are planned, as Nieman Marcus’s Australian website climbs in importance, despite being just over one year old. Australia is now one of its biggest sales regions, with women’s apparel, shoes and handbags the biggest selling categories.

Nieman Marcus is clearly targeting upmarket David Jones and to a lesser extent Myer Holdings. Last year the retailer posted a 15.1% increase in online sales, and derives a large portion of sales from its online site.

The SMH estimates that many established US bricks and mortar department stores such as Macy’s, Bloomingdale’s and Nieman Marcus generate around a quarter (25%) of total sales and higher from their online stores.

That’s a far cry from Myer’s target of 5% and David Jones 2% of total sales coming from online.

And it seems Myer for one has its priorities the wrong way round. Looking to forge a friendly merger with David Jones and expand its retail store network, rather than focus on driving customers to its online store may end up costing Myer big time.

With a wave of overseas retailers setting up shop or expanding their Australian offerings, the two Australian department store retailers are facing an unprecedented attack on their revenues and earnings.

It also appears that they have underestimated the impact retailers such as Zara, Nieman Marcus, Williams-Sonoma, J. Crew, Aeropostale, Abercrombie & Fitch, H&M, Topshop and Old Navy could have on their future.

Foolish takeaway

Foolish investors may want to give these two retailers a pass until their future becomes clearer. Kathmandu Holdings (ASX: KMD) and OrotonGroup (ASX: ORL) may be better alternatives.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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