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Defying ‘Retail Apocalypse’, Australian retail market continues to grow

ZARA store in Sydney

In the last few years, Australia has attracted many international retail players, and growth in the market has remained steadily upwards. According to a recent market report by Deloitte – Global Powers of Retailing, Australia retailers can expect further competition from global players this year. The report claims that as of now 38 Top 250 global retailers are already operating in Australia and in 2017, new players outside of the Top 250 list also made into the Australian market. “Ongoing population growth, a strong tourism market and improving wages, are all set to ensure that the overall retail market continues to grow in 2018,” says David White, national leader of Deloitte’s Retail, Wholesale & Distribution Group.

Australia’s apparel and footwear industry continued to post positive retail value growth in 2017, albeit at a lower rate than that posted in 2016. Sportswear saw the strongest growth, driven by the athleisure trend, especially in womenswear, driving growth across several categories, such as women’s leggings, sports-inspired footwear, hosiery and women’s underwear. What is obvious is that retail growth is now happening outside of the US and Europe. Retailers who were growing happily in these traditional strongholds are now looking at fresh markets. Zara, H&M, Topshop and GAP have been flooding into Australia to challenge local retailers and cash in on what they regard as a strong Australian economy and stable governance.

Every retailer wants a piece of the growing Australia retail landscape, threatening local players with their global exposure and new ways of providing customers with something unique. And this is the biggest challenge that local retailers are facing. Retail expert Brian Walker says that the middle-ground of Australian retail is quickly hollowing out and if brands aren’t careful, they could be caught in-between. “2018 will be less about store size and product price and more about remarkable experiences – expect data technologies to drive this,” he says. The threat is highest in the fashion-driven womenswear category.

2018 has already claimed its first victim with plus-size fashion label Maggie T falling into administration and footwear brand Diana Ferrari, part of Munro Footwear Group, consolidating, having recently announced the closure of its national physical network. Deloitte’s Australian retail lead David White expects brand consolidations; to remain on the minds of executives in 2018, following a swathe of administrations and brand mergers in 2017. “We’re going to see more consolidations; Christmas will have to be a pain point for a few retailers,” White says and further adds, “There will be restructuring within multi-brand retailers – that which will refocus on the strongest and most profitable parts of businesses.”

No doubt, the year gone by was a determining year for Australian retail, as two major retail movements heated up activities in the market. On one hand, French-owned retailer Décathlon opened its first bricks-and-mortar store in Australia in 2017 and the long-anticipated arrival of Amazon was realised. The arrival of Amazon is expected to shake up the market and give it new directions. “As Amazon builds out its infrastructure and services in Australia in 2018, we can expect its presence and influence on the market to grow significantly, particularly in the second half of the year and in the lead up to Christmas. We’ll have to wait and see the ultimate impact of Amazon’s onshore business in Australia, but it’s important to remember that this also creates opportunities for Australian retailers,” opines White.

Internet retailing has become an increasingly important channel for apparel and footwear retailers. In 2017, the channel continued to increase its value share in apparel and footwear, driven by Australia’s high mobile penetration and the growing number of consumers opting to shop and browse for products online. With e-retailing coming of age, Alibaba too opened its Australian headquarters in Melbourne, JD.com is expected to follow shortly, and Vipshop Holdings (VIP.com) opened its new distribution centre in Sydney.

In fact online retail spending in Australia is forecast to hit a double-digit proportion of total retail spending in 2018, currently sitting around seven per cent. The push has been accentuated with a wide range of retailers reporting strong online growth over Christmas 2017; moving forward in 2018, the focus will be on both pure online platforms and omnichannel retailers. In this quest, speed is emerging to be at the forefront of the fight. More so as Australia is a geographically challenging market for retailers and logistics providers.

The frontrunner in the race for speed is without doubt Amazon which is expected to launch its Prime and Fulfilment by Amazon programs locally in 2018, that will necessitate a significant investment in logistics capabilities, bringing in a new level of speed for thousands of its partners. Speed is also shaping up to be a focus for stores, as the likes of Woolworths and Super Retail Group invest in faster click-and-collect models and predictive data analytics software to better understand customer demand.

To keep up the retail business in the country, new laws are being implemented. In the past financial year, Australian customers spent about US $ 40 million to purchase low-value items (less than US $ 1,000) online, from offshore destinations. Since customers did not pay any GST on low-value items, nor any other taxes, duties or charges to bring the product into the country, it was a good deal. However, from July 1, 2018 GST will become applicable on items under US $ 1,000 also. According to retail analysts, this will ‘level the playing field’, as overseas retailers who are sending goods worth more than US $ 75,000 a year into Australia must collect the GST and pay it to the Australian Government, which could in fact mean more business for local retailers.