Despite the gloom, CEO Paul Zahra believes taking the pain now will produce real gains in future.

David Jones's chief executive, Paul Zahra, says the department store is facing economic ''headwinds'' the likes of which it has not seen for 50 years.

So it's not a good time for the company to discover it also needs a significant re-investment in customer service. This will be dwarfed by the investment it needs to play catchup with the online retail leaders.

It definitely isn't a good time to discover that earnings from your ''magic pudding'' - the credit card business which has delivered 7.5 per cent profit growth year after year - will now flatten, and then halve after August next year.

Even the most dire estimates for the business expected earnings to continue to grow until the profit-sharing arrangement with American Express kicked in next year which would lead to earnings dropping by half from a higher base.

Package all this up into one frenetic earnings day announcement this week, including a drop in full-year profit of up to 40 per cent and no real earnings growth for two years, and you get some idea of what the company unleashed on investors.

Nearly two years into the top job Zahra has finally delivered a strategy he owns and a clear picture of what shape the company is in, even if it is an ugly view for investors at the moment.

''We need to use this time now, as painful as it is, to take the hit to profits now, so we ensure we are relevant in the future,'' Zahra said this week as the share price dropped more than 10 per cent.

''We believe we're doing all the right things to make sure that we invest in this company to set us up in a situation [that ensures] when retail conditions change we are there to leverage the upside,'' he said.

Relevance means the adoption of an omni-channel retail strategy, the gospel of every bricks and mortar retail business looking to survive in a digital future.

The company's slow start means it has plenty of evidence to explain why this works, and how traditional retailers can have an edge on pure online players.

''In the United States 17 of the top 25 online retailers are domestic 'bricks and clicks' businesses. The US experience suggests that having a physical presence enhances your online offer and provides customers more flexibility and choice in the way they wish to shop,'' Zahra says.

An effective omni-channel strategy means customers have a seamless shopping experience across a retailer's physical and digital sales channels.

It's about having the flexibility to buy online, or via social media, but pick up from your nearest David Jones store. If that's what you want.

To do this you can't have cash registers that are older than some of your customers, and back-end systems that can't communicate with every tentacle of your retail presence.

The massive investment to get the business up to speed by Christmas - when the omni-channel service is planned to be in place - will pay off, according to Zahra.

''International experience suggests that omni-channel shoppers are four to six times more valuable than single-channel customers,'' he says.

The company has used Nordstrom as a benchmark. The US retailer is now doing about 10 per cent of its business online.

''For them that's a billion dollars' worth of sales, those sales are much more profitable, of course, because they are fulfilled from a warehouse,'' says Zahra. ''Its about 20 per cent of their EBIT (earnings before interest and tax).''

Of course US retailers have been able to build their business in recent years with prices that entice shoppers from countries like Australia to buy up big.

Mind you, David Jones is even having to play catchup to a local rival like Myers, although the company says it is not too late to join the party.

''Online retailing is still in its very early stages here in Australia. It still represents less than 5 per cent of total Australian retail sales,'' Zahra says.

''This means an enormous opportunity remains, an opportunity that David Jones is well placed to capture.''

But the only certainty for hapless investors right now is that the company's only business with growing earnings, credit cards, will implode sometime next year.

And earnings from the department store segment will almost disappear this second half largely thanks to the massive investment spending that will peak over the next year or two.

Goldman Sachs estimated that EBIT from the department store business could be as low as $4 million from the current half year.

This includes additional headwinds like clearing out excess inventory and price harmonisation efforts that promise to close the competitive gap with the online competition.

It could also unleash significant price deflation on a business that is already suffering from declining revenue and rising costs.

While David Jones has effectively forecast that net profit will hover around the $100 million market for the next three years not everyone is giving them the benefit of the doubt. Especially with earnings from the credit card business going sharply into reverse next year.

Merrill Lynch forecast a net profit of $85 million in 2014, equalling the first-half earnings reported this week, with downside earnings risk from executing its strategy, deflation from price harmonisation efforts and increasing costs.

''There are many moving parts which will continue to see downside risk to our revised earnings - namely from execution, accelerating price deflation, increasing costs, and volatility around credit cards,'' said the Merrill Lynch team led by David Errington.

Even if all of the above goes to plan, Zahra still has to wait for consumer spending levels to return to normal before the investment gamble will pay off.

Of this, at least, he is confident.

''Consumers will ultimately return back to their normal behaviour. The savings ratio's at an all-time high. We know where their money is: it's in the bank, it will come back.''

Colin Kruger
SMH