David Jones is moving its HQ to Melbourne

Photo: Caroline McCredie/ Getty Images for David Jones.

Two years after its $2.1 billion takeover of David Jones, South African retailer Woolworths is closing the department store chain’s Sydney head office and shifting corporate functions to Melbourne.

The move, expected to take place early next year, will free up valuable floor space at the retailer’s flagship Elizabeth Street store, which will be needed for retail space following the imminent $370 million sale of the Market Street store in Sydney.

It will also help Woolworths achieve cost savings targets of between $20 million and $30 million by merging David Jones’ head office and supply chain with that of clothing chain Country Road.

Country Road is expected to move its head office to David Jones’ new digs in Swanston Street when its lease expires in Church Street, Richmond in a year or two.

However, the move is likely to lead to the loss of hundreds of jobs in Sydney across roles such as buying, planning, finance and visual merchandising.

The operation of a portfolio of 66 department stores across Australia.

Insiders said David Jones would offer staff the opportunity to relocate to Melbourne, but more than 50 per cent were unlikely to be willing to do so.

The decision to close the Sydney head office is also likely to prompt Woolworths to bring forward plans to close David Jones’ Silverwater distribution centre and e-commerce hub, leading to further job losses.

David Jones’ distribution and e-commerce operations would move to Country Road’s new distribution centre in Truganina.

The move is expected to be unveiled in a joint announcement by David Jones’ new chief executive, John Dixon, and Victorian Premier Daniel Andrews in Melbourne on Friday.

Sources said the Victorian government had offered generous incentives to encourage Woolworths to move David Jones’ corporate office and distribution centre to Melbourne.

A spokeswoman for Mr Andrews could not be contacted for comment and a David Jones spokesman declined to comment.

Woolworths wants to turn the 178-year-retailer into the best department store in the southern hemisphere and has moved at a fast pace since outlaying $2.4 billion for David Jones and Country Road in August 2014.

Woolworths has all but replaced David Jones’ entire senior executive team, sold off more than $400 million in excess inventory, dropped more than 180 brands, tripled floor space for Country Road and its sister brands Mimco, Witchery and Trenery, and introduced its private label brands including Studio W, JTOne and RE:.

Woolworths has also tweaked David Jones’ service model, hired more permanent staff and introduced new accounting, merchandise and planning systems.

The work has paid off. David Jones’ same-store sales have soared, rising more than 8 per cent in the 12 months ending June 26.

However, earnings slipped almost 3 per cent to $104 million in the December half due to spending on new systems, stores, advertising and service.

Woolworths is aiming to boost David Jones’ earnings by $130 million a year within five years of the takeover to deliver a return on its investment for shareholders. Cost savings are a major part of the profit rebound.

This article was originally published on the Australian Financial Review. Read the original here.

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