Smaller stores, fewer staff and a big jump in online sales have helped Myer turn around its fortunes within the space of a year.

After a $486 million loss that stunned the market in 2017-18, the department store posted a $24.5 million profit for the 2018-19 year – its first year of profit growth in nine years.

But that turnaround wasn’t driven by selling more clothes, shoes or appliances, rather by reducing the number and size of its stores, slashing staff, offering fewer discounts, expanding exclusive lines and boosting its online sales – all part of a strategy hatched by chief executive John King, who took over in May 2018.

It managed to cut overheads by $32.6 million, which helped offset a 1.3 per cent fall in store sales, reflecting the struggles of retail generally, and department stores more specifically.

Since July 2018, the store has shed 29,000 square metres of floorspace – with another 5 to 10 per cent being considered for closure – and it will also let go level four of its space in Melbourne’s Emporium centre next May.

While its profit grew, revenue fell, which is “quite concerning” for the company’s future, IBISWorld senior industry analyst James Caldwell told The New Daily.

“Those revenue falls could be the result of the cost-cutting measures, and it’s possible that Myer has maxed out the cuts they can make,” Mr Caldwell said.

Continuing to focus on cost-cutting and efficiency measures could go “one of two ways” – either boost further improvement, or hinder the business’s growth potential.

While further reductions to customer service staff will cut employment costs, it will also compromise the quality of service on which the store has traditionally prided itself. Too few staff and customers might walk.

On the other hand, foot traffic may become a lesser priority for the store, as it transitions more of its sales to the web.

Sales online and completed by in-store tablets soared by 22 per cent to $292.1 million, or 9.8 per cent of total sales, making digital sales Myer’s “biggest store”.

Whether or not further cuts will hurt the business’s potential is “hard to tell”, but Mr Caldwell noted the tough business conditions experienced by department stores aren’t expected to let up any time soon.

More changes on the horizon

The Myer chief has flagged massive changes are still to come as the business struggles to stay competitive.

During the Melbourne Fashion Festival Mr King outlined plans to trial an “after dark” program in its Melbourne, Sydney and Brisbane stores from this month.

That will be a nine-week scheme running on late-night trading days that will offer customers a glass of sparkling wine, mood lighting and music.

Myer has also previously revealed plans to increase its range of exclusive brands to improve its margins, and has already added 50 new brands to its shelves, with the aim of boosting that to 90 by Christmas.

Those brands include Karl Lagerfeld Paris, Jack London, Twisted Tailor, Vero Moda and Fiorucci.

Myer’s online store will also be an increasing focus for the business, Mr King said.

Shoppers keep wallets closed

Falling house prices and weak wages growth have put pressure on consumers, who are cutting back on their spending as a result.

Department stores like Myer and rival David Jones have bore the brunt of this reduced spending, with some market insiders predicting one could be forced to close its doors permanently.

Retail figures out this week showed spending was down 0.1 per cent in July – despite tax cuts and lower interest rates – with growth for clothing, footwear and household falling.

Spending in department stores fell by 0.2 per cent, after a 0.6 per cent drop in June, according to data from the ABS.