Understanding The Australian Retail Market

May 17, 2018

Yi Jun

The Australian retail market has become increasingly unpredictable over the past few years. Many local businesses have since closed their doors to the public, including Marcs, Payless Shoes, Oroton and Pumpkin Patch. Their demise were often contributed to the entrance of international fashion retailers.

A journal entitled “Challenges for Australian Fashion” explains the chronological time events of the Australian retail market, where initially, “most consumers were still obliged to buy local apparel due to industry protection policies”. However, when the policy was dismantled, the market fulfilled its intended purpose: to transform the scene into a marketplace with “competitive and globally positioned industries and economies”. Sales of the Australian retail scene plummeted, and many blamed the international players that flooded in.

But, there’s a twist.

After nearly 3 decades of operating in Australia, global fashion retailer Esprit announced that they will be withdrawing from the country’s retail market. Director of ANZ operations Stephen Newnham stated that it was an “unfortunate but unavoidable decision”, with Executive Director Thomas Tang adding that it was best for them to focus on Asian markets, even though there were “intensive efforts made by the team to turn around the business”. This revelation came as no surprise, as other international fashion retailers such as GAP and Topshop faced the heat of Australia’s “harsh market condition”. GAP pulled out of the market, while Topshop faced a $35 million debt, entering a “voluntary administration”. This leads us to wonder…

What Went Wrong With The Australian Retail Market?

To say that the fashion market  is completely stagnant here is not true, as it is reportedly an AUD 28.5 billion dollar industry. This indicates that consumers ARE spending on apparels & fashion. Granted, the country’s economic growth may have been slow, and an average household debt is relatively high, but the people of Australia still showed strong symptoms of growth in spending. In 15 years, the purchasing power of the average Australian saw a 43% growth. Clearly, expenditures weren’t, and aren’t, the issues here.

It is also clear that the arrival of international retailers was not a direct hit on traditional retailers. While there was increased competition, it seemed that both of these local and international retailers couldn’t quite grasp the market demands here. The struggle of Topshop has been a concern for the local scene, because as mentioned above, the fall of traditional retailers has always been blamed on tough competition.

So, where did the blame shift to?

Maybe It’s A Stocking Issue

Perhaps the most obvious reason is from the retailer’s end, especially for international players. An article by Sydney Morning Herald claimed that the failure of brands in Australia was because of a ‘disconnection’ with other parts of the world. In other words, Australians are tired of seeing clothing that are not of the latest trends.

Topshop Australia only carried old stocks that were ‘leftovers’ from its British counterpart. This means the clothes that were shipped across could be a season old. Similarly, the clothing sold in GAP were bland and old-fashioned. “People want what they want and they want it now, not in six months’ time,” and they did not deliver. These retailers kept the bestsellers to other more advanced markets, like the USA or UK, assuming that the people of Australia would not notice. Giving consumers what they want, when they want it, is extremely crucial. This goes a long way to suggest why e-commerce sites currently have the upper-hand.

Or Maybe It’s E-Commerce

E-commerce moves a lot faster than most traditional brands, with international brands like ASOS, Boohoo and Missguided running at a much faster pace. The Australian fashion sector is slowly catching up, and one of them is Zara Australia. While this high-street retailer is on the same rank as Topshop, the former fared much better. When Zara’s new website launched in March this year, it saw a 18900% increase in paid search traffic.

Source: Ragtrader

 

As depicted in the table above, Zara surpassed brands like Showpo and PrettyLittleThing by a whopping 10,000% in Q1 of 2018. It helps even more that online sales have been on a rise lately in recent years, outstripping brick-and-mortar sales by more than half of total retail sales growth. To properly gauge if the online market is a determining factor, it’s important to study the leading online platform in Australia.

In Comes ‘The Iconic’

The Iconic is one of the largest online fashion retailer in the country. The platform carries more than 700 brands and 45,000 products, including household names like Superdry, Nike and Calvin Klein. It “generates around 50,000 orders” on a daily basis, which Alex Linton, logistics general manager of SFG – the largest fashion specialty apparel retailer in Australasia – called “a sign of e-commerce demand”. In fact, Chief Executive Patrick Schmidt said that the retailer is set to reach sales of $1 billion in 3 years.  According to Omnilytics, however, there’s more than meets the eye.

australia the iconic sellout rates omnilytics

 

The top five most available categories for this retailer were tops, shoes, dresses, outerwears and bags, in that exact order. All sellout rates were between the ranges of 40-60%, which is somewhat above average. Outerwear – as shown in the small spike – received the highest sellout rate, while dresses had the least. A quick glance on the image above will show that the sellouts for the top five categories were just around the average benchmark. In fact, most brands sold in The Iconic, such as Atmos & Here, Amelius and Dorothy Perkins, needed a fair amount of discounts to achieve the same or higher number of sellouts.

performances top 3 brands the iconic

 

Of course,  some brands fared better. Three brands from the retailer, Superdry, Forever New and Politix, saw a decent amount of sellout rates without much influence from discounting practices. Superdry, a British retailer that infuses Americana style with Japanese designs, saw the best sellout amongst all, with a 72.6% sellout and a 35.5% replenishment rate. Additionally, Forever New, an Australian brand that sells trendy pieces, sold out half of its stock without releasing any form of discounts. Politix, a menswear brand in Australia, mirrored the two brands above in performance.

While The Iconic does not come across as a retailer that is performing as expected, the numbers told a different story when it comes to athletics apparels. Ultimately, the retailer does not market itself as just an online marketplace that sells basic apparels, but also sportswear, which saw better numbers.

the iconic sellout rate for activewear

 

The bar chart above shows a significant rise, in comparison with the top five most available categories. The sellout range here is from 55% to a near 100%, with sports bras seeing a 97% sellout. Of course, this may not come as a surprise, since The Iconic features sportswear powerhouses like Nike, Lorna Jane and Adidas. The data above also proves that their shoppers are more inclined to buy sports bras than activewear pants & leggings, but the latter were stocked at a higher number.

the iconic overall performance

 

Overall (basic apparel and sportswear apparel), The Iconic released 39.30% of discounts for the period of January to April of 2018, mostly within the range of 50-54%. The sellouts were slightly higher, with the retailer selling out half of its total SKUs.

After reviewing the data above, it is evident that The Iconic is doing much better than traditional retailers. However, if put on a larger scale, the performance of The Iconic doesn’t seem to be enough of a cause for the traditional retail’s downfall. The data obtained above pointed towards the fact that online retailers – in this case, The Iconic – could have seen higher returns if stocking was conducted better. Shoppers seemed to favour activewear, but the category only had ¼ of total SKUs for basic apparels. On the other hand, outerwear was the most out-of-stock category for basic apparels, but it wasn’t the most available.

So, What Gives?

In this tug-of-war scenario, the blame doesn’t seem to be equally dispersed, but focused mainly on the fact that Australian retailers don’t seem to know what the market wants. The common theme here is the supply side. While traditional players did not update their inventories, the online players also did not supply enough of what consumers wanted. The Iconic may still be in the game as they continue to supply the demand, but if they slip, they may face the same fate as their traditional counterparts. What’s more is that online retailers now face new competitors, as Amazon and Alibaba have opened their doors to Australia last year. Besides their ultra-fast speed, another one of their biggest advantage is that they don’t carry stocks in a warehouse like standard retailers do.

“With consumers being able to shop and buy from anywhere in the world, it is imperative that retailers behave in-kind and accommodate that ‘make or break’ appetite for the newest and the best”

In order for them to stay competitive, both local and international retailers need to fully understand what consumers are looking for. Matthew Lovett, Director of Retail in Omnilytics, stated that the key to this, is to look at the Australian retail market, or any retail scene, from a wider perspective. “Fashion retailing is in a state of flux. This is a vertical that has become increasingly subject to movements in social media, technology, political and social change.”

Consumers are not rooted and influenced from just where they are from. Lovett adds that “from AI and virtual reality to e-commerce demand, consumers are no longer consuming locally, but globally. With consumers being able to shop and buy from anywhere in the world, it is imperative that retailers behave in-kind and accommodate that ‘make or break’ appetite for the newest and the best.”

Just because Australians live on the other side of the world, that doesn’t mean they want to miss out on trending apparels. They want the right product, in the right season and at the right time.

Want to know how a market is performing in your country? Drop us an email at info@omnilytics.co and we’ll be in touch!

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The data above was obtained from Omnilytics, real-time market data platform. The numbers and statistics may vary, as the platform is updated every day. The time period of the information taken was between 1st January, 2018 to 30th April 2018.