A magnificent opera house, adorable kangaroos, legendary beaches and a tough cricket team: All these clearly give a cue about a country that has a long list of admirers, the world over.
Australia has earned an august reputation not only for its natural beauty and spot-on attitude, but also has emerged as a viable business destination. According to Australian National Retailers Association (ANRA), Australia's retail sector contributes approximately four per cent to the national economy and provides 1.2 million jobs. The textile and clothing industry of the country is the cynosure of all eyes. With growing investment opportunities in Australia's apparel retail sector, many international brands have flocked to Australian shores.
Yet, all is not seemingly well for this sector. According to Lauren Magner, IBISWorld industry analyst, "Prices have been driven lower by fierce competition and the high Australian dollar that prevailed over much of the past five years." Consequently, revenue growth has weakened amid a falling currency. But, in spite of the drab backdrop, Australian apparel retail still manages to look in good shape, riding on the back of consumers spending reasonable time on online apparel retail sites.
The Oz apparel story
Australia's apparel retail industry has come across umpteen challenges in the past few years. One of the major downsides is that clothing retail in Australia does not have widespread reach. The industry is fragmented and there are several small and independent operators, which has left significant percentage of businesses (approximately 43.3 per cent) to be operated by owners. According to an updated market research report by IBISWorld, an estimated 44.4 per cent retailers generate revenue between AU$ 200,000 and AU$ 2.0 million per annum, while a small section -- ie 5.9 per cent -- earn AU$ 2 million or more.
Economic slowdown has also hit the pace of customer spending and this cautious customer base has upset the industry's revenue. Also, with the Australian dollar sliding in value in recent times, rising prices of apparel are denting consumer pockets. Rising import prices of apparel have left retailers with little choice. Controlling apparel prices would mean a compromise with the quality and not many are willing to do so.
Rising apparel prices continue to cause concern, as apparel and clothing accessory imports to Australia have increased over the years. According to the Australian Bureau of Statistics, in October 2014, apparel imports stood at AU$ 646 million in comparison to AU$ 644 million in September 2014. In January 2014, Australia's apparel imports touched an all-time high of AU$ 765 million.
The apparel export scene is not very encouraging for Australia, either. There has been a significant drop in exports of apparel and clothing accessories. The Australian Bureau of Statistics reported that export of apparel and clothing accessories decreased to AU$ 21 million in September 2014 from AU$ 24 million in August 2014. Export of apparel fabrics has not altered noticeably either, staying put at AU$ 6 million in 2014.
The compound annual growth rate (CAGR) of apparel retail industry was 2.3 per cent between 2009 and 2013, with total revenue reaching AU$ 16.7 billion in 2013. Trade analysts are expecting an improvement in CAGR as the global economy has begun to stabilise. An anticipated CAGR of 2.8 per cent in the coming years is likely to make the apparel retail industry worth AU$19.2 billion by the end of 2018. Women's wear continues to remain the most lucrative segment in the industry. It generated revenue of AU$ 8.7 billion in 2013, equivalent to 51.8 per cent of the overall industry.
Australia's demand for imported apparel has encouraged developing countries like China and India to explore opportunities Down Under. Luxury apparel brands like TESCO, Zara, Mango, Marks & Spencer have set up units in India. These luxury brands have boosted confidence of the Indian textile and many players from India are now looking to reverse the trend by exploring opportunities in Australia.
One of the topmost luxury fashion accessory and handbag firms of Australia, Colette, has signed a ten-year franchise agreement with a Gurgaon-based retail start-up firm, Brand Access. India's woollen industry also imports apparel-grade wool from Australia. This inter-dependency between the two countries has yielded positive results for apparel retail firms based in India and Australia. Former chairman of Apparel Export Promotion Council said that India, which is the third largest exporter of garments to Australia, has the resources to take the business further. India has shown the grit to tap Australia's US$ 5.61 billion apparel market and is further working on improving apparel exports to Australia that were around US$ 111 million in 2012-2013.
Competition pushes local retailers towards e-tailing
While the general performance of apparel retail looks fine, it is the local apparel retailers who have been struggling to keep up with mounting competition from international brands. Global competition has changed customer expectations as well as preferences. Recent structural changes in apparel have shifted the focus from manufacturing basic clothes to producing innovative clothing, a step that lays emphasis on the technical aspect of apparel like performance and quality.
There is a surge in the market for luxury apparel brands and the chief reason for this is apparel brands are now in search of markets outside Europe and the United States. Australia's impressive economic growth and its strong resistance to deep recession have made it a profitable option. Local retailers have to maintain quality and offer low prices to consumers to compete with luxury brands. Local retailers are also finding it increasingly difficult to pay the rising rents of shops. Consumers are lured to buy luxury apparel, following brand consciousness and competitive prices that many international players offer. All these factors are taking a heavy toll on local retail shops.
Some local retailers have closed down brick-and-mortar stores and are working on online apparel retail business to make good the losses incurred in the past few years. Many local retailers view e-retail as a silver lining to the current crisis. A report from research firm Roy Morgan says that in 2014, customers in Australia spent an estimated AU$ 3.4 billion on online apparel shopping, which is AU$ 1 billion more than in 2013. Moreover, online retail giants like Matches Fashion and Net-a-Porter consider Australia one of their biggest markets. A number of local apparel brands are adjusting to this change and adapting to demand for online shops. A Melbourne-based technical sportswear brand, 2XU, is among the few that has built an excellent distribution network covering several countries.
Cricket fever grips Australian apparel
Apparel retail is no ball game and yet, you cannot discount cricket fever. The local apparel retail shops are now eyeing the Cricket World Cup. Sale of cricket merchandise including caps, teams' T-shirts and trousers is expected to perk up local apparel shops for a while. Footfall in apparel stores is also predicted to rise as tourists from 13 participating nations are expected to visit the country during the World Cup. Competition from international apparel brands during this event will not have much impact on local apparel merchandise, as tourists are likely to eye low-priced apparel that local brands can offer.
The Australian apparel retail sector is yet to realise its full potential. While competition from international players is inevitable, the local apparel retailers are required to offer novelty in design instead of backing regular, mundane clothing. The apparel retail hypothesis has transformed and the future is bright for brands that are ready to take on the competition.