Paul Zahra on leading David Jones through the ‘perfect storm’
It has taken several months to coax Paul Zahra into having lunch. Our long-awaited catch-up was preceded by dozens of Twitter messages, emails, phone calls and a coffee meeting. But the former David Jones chief executive has good reasons for wanting to stay out of the limelight after a four-year roller-coaster ride running one of the country’s most iconic companies.
Life is very different now and it shows when he arrives at Sydney’s Pendolino restaurant on a blisteringly hot afternoon. Zahra, 48, looks healthy after spending the past three months travelling and living at his holiday house on NSW’s central coast. In a nod to his more relaxed schedule, the self-confessed luxury addict is wearing an open-necked shirt and a sky-blue Ermenegildo Zegna sports jacket.
Despite his reluctance to discuss his role in one of the most talked about corporate upheavals of the year, Zahra is open and quick to laugh. It is his first media interview since South Africa’s Woolworths acquired David Jones, ending a tumultuous chapter in the 175-year-old retailer’s history.
A complimentary glass of prosecco arrives at our table and head chef and owner Nino Zoccali pops over for a chat, confirmation the restaurant was one of Zahra’s regular haunts when he worked a block away at David Jones.
I am burning with curiosity about Zahra’s reported falling out with his former chairman, the reasons behind his 2013 decision to resign, and the two takeover bids the company received on his relatively short time in the job. But it is lunch in January after all, and the conversation opens with travel tales from a recent stay at Tasmania’s luxury Saffire Freycinet lodge and the veteran retailer’s relief at having Christmas off for the first time in decades.
“It’s nice to have the time to do things, and to have a normal Christmas Day with all the trimmings instead of getting up at 3 in the morning the following day,” says Zahra, who is up before dawn most Boxing Days, when department stores are swamped with bargain hunters.
Time to re-evaluate
“It allows you time to re-evaluate, deal with things that you didn’t have the capacity to deal with before or to deal with other things on a personal level.”
Zahra has not worked full-time since Melbourne Cup Day, when his commitment to stay on as adviser with Woolworths expired.
He has stayed out of the public spotlight since then, honouring a commitment to his partner of 25 years to take a sabbatical and not rush into his next role.
“I’ve had lots of discussions, some of those are international. I did promise my partner I would have at least six months off. I want to keep all my options open. I am lucky financially and don’t need to rush into anything,” he says.
While he is not ruling out either executive or non-executive roles, he is excited by opportunities in “new retail” and the digital space as well as opportunities with major retailers in the United States and Europe.
The restaurant is filling up now and Zahra clearly knows his way around the menu, so I follow his lead and order the beef carpaccio for entree and pappardelle pasta with wild mushroom sauce for main. Our attentive waiter encourages a wine order, and why not? Zahra does not have an office to go back to at the moment, although I unfortunately do.
While clearly enjoying himself, the retail veteran is no layabout. He has been busy mentoring Mick Spencer, a young entrepreneur and philanthropist who founded digital sportswear group OnTheGo. Zahra has also joined the advisory board of PricewaterhouseCoopers’ diversity committee, is “negotiating my way through” social media and exercising daily.
Zahra’s stamina is a bone of contention after he controversially quit David Jones in October 2013. He was quoted in Fairfax Media as saying: “I need a break.” The timing was odd. It was just two months before the crucial Christmas trading period and there were early signs his strategy was working and sales were recovering.
Investors and sources close to the company now say there was a misunderstanding and Zahra was in fact “tired” of the internal politics and a dysfunctional relationship with some directors.
It is believed Zahra fell out with former chairman Peter Mason, who later stepped down along with two non-executive directors - Steve Vamos and Leigh Clapham - over alleged inappropriate share trading and the handling of a merger proposal from Myer.
Zahra has never talked about the issue publicly and made it clear before lunch the subject is off limits. Even a glass of excellent sauvignon blanc is not changing his mind. All he will say on the matter is: “I remained true to my values.”
He says of his performance at the time: “I was relatively young for a CEO, physically fit, at the top of my game. I was getting up at 5am. I was used to the intensity, it was great. I had the discipline.”
Since we sat down, Zahra has been talking passionately about the future of retail, online shopping and his love of luxury brands. He rejects suggestions the traditional department store model is dead, pointing to figures in the United States where online shopping has peaked at 10-20 per cent and 80 per cent of goods are still purchased in store. He believes a good retailer should provide customers with all channels and let them decide. Zahra says he still shops at David Jones, but leans more towards buying goods online.
While it is tempting to be distracted by the delicious carpaccio and keep the conversation light, I switch the topic to the series of headline-grabbing events that dominated his four years running David Jones.
Fair share of challenges
Zahra’s parents are Maltese but he was born and raised in Melbourne. While a lover of the finer things that a senior executive salary brings, Zahra says his working class background keeps him grounded and taught him to treat his staff with respect.
He started his retail career as a sales assistant in a suburban Target store at the age of 15 while still at school. His first management role was at 22, unusually young at that time when most of his team were a decade or two older.
Zahra is a retailer through and through. After working his way through the ranks at Target, he moved to Officeworks before joining David Jones in 1998.
Twelve years later, he was catapulted into the top job after his predecessorMark McInnes resigned over a sexual harassment complaint.
“I’m glad I didn’t know what I was getting into. I’m a better person for it. I’m proud of what I achieved despite what some individuals might think or say,” Zahra says now.
After enjoying seven straight years of double-digit profit growth, the timing could not have been worse for Zahra as retailers found themselves battling the toughest conditions in two decades.
Consumer confidence was falling, while the local currency’s jump to parity with the US greenback helped kick off Australia’s love affair with online shopping, tax breaks on goods bought offshore and a jump in out-bound tourism.
At the same time, Zahra had inherited a company that had underinvested in technology, had a 17-year-old point-of-sale system, and had let service in its department stores slip. With the backing of the board, he had to re-invest back into the business to steer the world’s oldest department store group into the digital age.
“I classified it as the perfect storm."
“I had to focus for the first year on reputational issues, so I lost a bit of time,” he says.
“It was a challenging time, no doubt, and it was really intense. I had to quickly work out who was on the bus and who wasn’t on the bus. I went in with some confidence because I’d been at the company for over a decade, over 12 years, so I knew the business quite well.”
Not everyone shared his confidence early on. Investors were getting nervous at the retailer’s share price fall, some media commentators said he wasn’t up to the job and McInnes accused Zahra of “rewriting” history after Zahra criticised the 2003 decision to close the retailer’s online store. (As with Mason, who Zahra lives near in Potts Point, Zahra will not comment on McInnes when I ask him about his predecessor.)
Zahra says his career low-point was in March 2012 when he issued a profit warning after learning that earnings from a legacy contract with American Express would be halved. The company’s alliance with American Express converted to a profit-sharing arrangement in 2014, which created a black hole in profits because it was no longer the common credit card being used by shoppers.
Zahra says he learned to cope with the critics.
“I am a human being so it was hurtful, to be really honest, but with maturity in the role I learnt it was only one opinion.
“It is unfortunate the market operates wanting short-term results, so that drives everyone’s thinking. I am more of a long-term thinker and I knew what I had to do and I knew the complexity.”
Zahra, who is openly gay, says his partner was supportive throughout.
“He was a massive support for me and we had to change our relationship, being in the public arena, like how we spend our time; it was difficult for him. If I sacrificed a lot, he sacrificed a lot more than me.”
But the tide suddenly turned towards the end of 2013, and Zahra’s tactics finally appeared to be paying off. His “house of brands” strategy to launch a range of high-end, private-label products in apparel, homewares and cosmetics was at the centre of his turnaround plan. He also exited low-margin categories such as DVDs and computer games and established what retailers call an omni-channel strategy, which combines online shopping with the physical store experience. Retail sales were soaring. Zahra says the work he did on digital was his biggest achievement.
Maybe he’s being nice because he’s my boss, but Zahra notes that Fairfax Media boss Greg Hywood gave him some good advice early on. “He said to me: ‘Paul, digital is like a super train. You’ve got to be on it; do not try and use traditional methods to try and work out a non-traditional phenomenon because that’s what newspapers have been struggling with.’
“So with that I went back to the office, put together a digital committee, put in an innovation committee and said, ‘okay team, what do we need to do?’”
Another chief executive who impressed him shortly after landing the job was Westpac boss Gail Kelly, who gave Zahra her card when he met her at an event to promote diversity, and said to call if he ever needed advice.
By late 2013, the strategy was showing signs of working as David Jones reported its first sales growth in nine months. But then something strange, even for David Jones, occurred.
Zahra shocked the market by announcing his intention to resign for “personal” reasons. It was eight weeks before Christmas; the company was heading into its most important trading period of the year.
While Zahra was pacing the department store floors, meeting staff and managers to assure them everything was going to be okay, shareholder sentiment shifted in his favour.
Resignation threat triggered events
Instead of leaving, his threat to resign triggered a series of events that ended with Mason and two non-executive directors quitting instead. Zahra rejected an offer to increase his remuneration to stay on, preferring to have his salary linked to future returns instead. The company’s big institutional shareholders publicly lobbied for him to stay put. Zahra says he was “overwhelmed” when one of the company’s biggest shareholders called him to ask him to stay.
“What I was proud of was how the remaining board members rallied together. At that stage we were without a chairman. I was concerned about staying for the right reasons and it was never about money.
“I am still overwhelmed by what occurred. I always believed in myself and the strategy, but then I felt vindicated. If I had any insecurities they were cleared by that stage.”
Zahra has ordered an entree-size chitarra spaghetti with ground barramundi. It looks modest compared with the rich pappardelle pasta with wild mushrooms he suggested I order. Both are delicious and the conversation flows.
By March last year, Zahra had a new ally in fellow yoga practitioner and new chairman Gordon Cairns, who he gets on with well, and online sales were soaring.
But Zahra hardly had any time to enjoy “normal” executive life. While a $3 billion merger proposal from rival Myer was never going to get off the ground, South Africa’s Woolworths was on the scene with an offer too good to refuse.
Zahra, who focused on operational issues while Cairns managed the takeover, admits it was frustrating but accepting the bid was the right thing to do.
“It is an emotional roller-coaster, going through a takeover. It is very rare a company so old gets bought out, but mergers and acquisitions are now part of everyday company life.
“My responsibility was ultimately to shareholders and I thought the best thing I can do is focus on the business.”
Differences in approach
Zahra says reports Woolworths did not want him to stay on as chief executive were rubbish. He won’t go into detail, but differences in his approach and Woolworths’ strategy to lift the level of private label to up to 30 per cent of sales would have played a factor.
“It was a natural exit point for me. It was an intense four years, it wasn’t a normal four years. I achieved what I wanted to achieve and did all the heavy lifting with my team. I felt it was time to be grateful, count my blessings and move on, I don’t regret my decision.
“I thought: ‘I’m approaching 50, I want to do other things.’ They were also coming in with a very different agenda and different strategy and I was used to mine.”
Lunch is almost over and Zahra has been talking non-stop for almost two hours. He has another meeting before heading back to the central coast, where I later learn he has been indulging in another hobby - kite flying.
An Amaro Montenegro materialises to end the meal and Zahra pauses for a final reflection. He says despite all the upheaval, there were many positives and he had a lot of fun on the way - whether it was the fashion shows, working with a team of staff who he compliments throughout the interview, or overcoming the operational challenges. “I’d never seen so many people rally together to get the job done,” he says.
“I look back now and all the hard work is done and I do think we’ve built a solid, sustainable business for the future, but through that there was a bit of heartache and a bit of criticism but I think internally we knew what we were dealing with.
“It’s not a job for the faint-hearted.”