The recent plethora of Australia fashion brands closing their doors is unprecedented, while Australian retailers have found themselves in a very unfortunate situation.
But what is happening? Some have claimed that the reason customers are staying away is because of bad weather.
Often times when it’s too rainy or too hot, shoppers prefer to stay at home. So this excuse may not be totally wrong, but there is much more happening to impact Australian fashion retail now.
Taking inclement weather out of the picture, the signs of stress have been there for some time, with sales continuously attempting to attract customers while retailers keep noting dramatic drops in sales.
As CEO Consult points out, 2017 was a terrible year for Australian fashion, with brands including Topshop and Topman Australia, Marcs, David Lawrence, Herringbone, Rhodes & Beckett, Pumpkin Patch and Payless Shoes collapsing. 2018 was not much better, with Maggie T, Diana Ferrari, Gap and Esprit just some of the brands closing their Australian outlets. Ed Harry and Bardot are two of the 2019 casualties, and Jeanswest went into administration this year.
While some of the unfortunate retailers were sold to larger companies, many had to simply close their doors and walk away.
Why are so many Australian retailers failing?
So what is going on for Australian fashion retail? Why have so many retailers gone into voluntary administration (if an Australian company is or is likely to become insolvent, they can be placed into voluntary administration).
In Australia, since 2017, numerous retailers, including those mentioned above, went into voluntary administration, with some being purchased later and others closing permanently.
Why is this happening? One obvious reason is globalisation. For many years, Australia’s fashion industry and retailers had been geographically isolated, and this protected them from global competition.
While this was good for Australian retailers, customers often had to wait a full season to be able to access the “latest” fashions from the northern hemisphere’s fashion capitals such as London, New York, Paris and Milan.
But now Australian fashion retail is being hit hard by globalisation and its accompanying international competition.
This global competition can be seen in the last decade’s introduction of brands such as Zara, H&M and Uniqlo into Australia.
While these brands did not have an immediate impact on Australian fashion retail, they have now established themselves to the point where Australian retailers are really feeling their presence.
Now that these major brands have established themselves in Australia, Australian retailers simply cannot compete with their power and speed. The size of these companies affords them huge buying power and access to diverse ranges, while their ability to act fast puts them way ahead of many Australian fashion retailers.
Some Australian brands require six months to one year to get a major design on the shelves, but the international competitors can take a design from its first appearance on a catwalk and have it on the store shelves in less than two weeks.
Exodus to online
Not only do Australian fashion retailers now have to compete against the international big brands that have opened up physical shops next door; they also need to compete against major online-only fashion retailers such as Asos and The Iconic.
According to ecommerce Statistics Australia, eight out of 10 Australians currently shop online, with online department and variety stores seeing a 29.6% growth in 2018, and this growth is expected to continue. Major online retailers such as Amazon are continuing to expand to ensure they reach Australia.
Although this trend to online shopping is certainly not new, some Australian retailers have been slow to embrace it. Australia Post points out that online shoppers expect competitive prices and fast service, so businesses such as Cotton On and The Iconic, which provide both price and speed, are highly competitive.
Of course, no matter how competitive a fashion retail brand is online, the reduction in foot traffic often means that their physical stores continue to close, as is the case with Cotton On.
The key point about the exodus from physical shops to the online environment is that many Australian retailers were just too slow to make the move. Many took a ‘wait and see’ approach, and by the time it was clear there was no turning back, it was too late.
Reduced spending
Another reason Australian fashion retailers are feeling the pinch has to do with consumer sentiment. Consumers are feeling under pressure despite the fact that the Australian economy is fairly stable. In 2018 Credit Suisse stated that “Australia has overtaken Switzerland to record the highest median wealth in the world, driven by high property prices and large superannuation balances”.
However, it is now 2020 and the coronavirus is here. Roy Morgan reported that as of February 24 2020, one out of every six Australian business had felt the effects of coronavirus on their bottom line. It is very likely that the coronavirus will continue impacting consumer confidence.
This lack of financial confidence means that Australians are becoming more and more cautious about where they are spending their money.
In addition to the current coronavirus worries, Australians have also been very aware that the growth in Australian salaries has slowed in the recent years. In fact, in 2018, CNBC reported that wage growth had fallen globally its lowest level in almost 10 years.
It is therefore no surprise that the typical Australian consumer is now more cautious about their purchases. This has had a major impact on retail fashion sales, as fashion is a purely discretionary purchase.
Although consumers will still make the occasional big spend on luxury items, they will focus on finding the best bargains for all other purchases. This has meant that brands positioned in the mid-market, such as Marcs and David Lawrence, have taken the biggest hit.
Australian consumers had reached a point where they were looking for price as opposed to quality and value. For example, a polyester suit for A$300 would often be chosen over an A$500 Australian wool blend.
What are Australian retailers doing?
The Australian retailers that are doing well in this challenging environment are those that have a point of difference—those that have created a niche market.
For example, Sophie Doyle’s silk label, The Fable, is successful as an ethical brand known for creating the best handmade silk shirts on the market.
Kookai is another example of an Australian niche market fashion brand. Kookai’s two differences are in its manufacturing and in its vertical integration: It uses Australian fabrics to craft each item individually so no two products are alike, and they only make their clothes for themselves.
These healthy brands, and many others, are doing well because they have a clearly defined niche product line.
In addition to having a clear point of difference, successful Australian fashion brands are also embracing their online presence; for example, by working with social media influencers and using social media accounts to target sales.
The online presence is crucial, according to CEO Consult. Although there is more competition online, there is, importantly, more opportunities for growth.
What’s been happening in the Australian fashion retail industry is neither new nor surprising. The trends have been in the cards for some time, and the retailers that have embraced the changes and used them to their advantage are the ones that are clearly doing the best.
