Apparel retailing – where to from here?

It’s probably not news to anybody about the parlous state of apparel retailing in Australia at the moment.

One look at the graph below shows exactly what’s been going on for the last three decades. In this chart, I’ve taken the annual ABS sales data for the three categories; Food, Clothing & Footwear and finally Cafes & Restaurants and then corrected them for Consumer Price Index (CPI) and population growth. In other words, it represents the sales in each year as if we had a static population and in 1983 dollars.

Sales

Both Food and Cafes have performed reasonably well with compound average growth rates of 1.5 per cent and 2.1 per cent respectively over the 33 year period. As the data is corrected for CPI and population changes, this is real growth. It is interesting to note how the food line has been leveling off in the last seven or eight years, no doubt as a result of Aldi and the “down, down” push at Coles and more recently Woolworths.

Although Apparel retailing has been making the headlines for all the wrong reasons in 2016/17 with several companies going into administration, the source of the problem can actually be tracked right back to the early 1980’s as this category hasn’t shown any real growth above CPI and population growth in all that time. To make matters worse for the local retailers, you also need to factor in the impact of the overseas retailers in the last five years.

As a share of wallet, we are spending substantially less on clothing and footwear than ever before and more on coffee!

sales, clothes, fashionSo what changed in the 1980’s and without any real growth, how have apparel/footwear retailers been able to survive at all?

The biggest single change was the move from local production to sourcing predominantly from China. It might sound odd, but in a way apparel retailers are a victim of their own success in driving down cost prices. Today we can buy a T-shirt or a pair of jeans for less than what we could in the 1980’s, whereas with CPI over that period of time, it should be selling for three times that price. Not only have we imported cloths, we’ve imported deflation.

A growing population has protected the local apparel retailers to some extent as more stores gives larger players a broader base to amortise head-office costs, but fundamentally the only way retailers have managed to survive in that time is by driving costs lower and lower and increasing margins. Sadly I suspect we are just seeing the tip of the iceberg when it comes to further casualties, as the room to move in terms of better cost prices and higher sell prices is progressively diminishing. Then throw in the ever-increasing intensity of competition from off-shore and it’s not a healthy picture.

However, while higher margins have saved the day so far, there is another sting in the tail.

More on this next week…

Graham Lack has over 35 years retail experience in senior management roles at Luxottica and Suzanne Grae, in retail operations, finance, IT, marketing, merchandise planning and logistics. Contact him via [email protected]theretailconsultants.com.au.

Comments

3 comments

  1. Peter posted on July 20, 2017

    Great analysis. Was recently in the award winning Pacific Fair and noticed a clothing store in a premium rent location with a sign on the locked door midweek at 11 am "Back in 5 minutes". This is a one staff shop and a true barometer as to the turnover of the enterprise. I predict a catastrophic Tsunami will shortly befall the conventional retail business in clothing and footwear. Then we will see the biggest wipeout happening to the avaricious landlords. It won't be pretty. reply

    • Evan posted on July 20, 2017

      Problem is the government not the landlords, dishonest greedy local councillors being paid horrific amounts of money they do not deserve, then look at the Federal government no matter who, Liberal or Labour both are absolutely rotten. reply

      • Jan posted on July 25, 2017

        Not sure what the Government has to do with high retail rents but anyway... i just know premium shopping strip Chapel Street Prahran/South Yarra in Melbourne has dozens of empty shops, some have been empty for 2 years. When they do re-open it is as a nail bar or cafe, definitely not clothing. Chapel Street used to be a magnet for young upcoming designers but now the rents are so high that many of the retailers are chains such as Witchery, Glassons, Country Road etc - obviously the only ones who can afford to rent their. Consequently, Chapel Street now resembles any generic shopping mall. Pity. Support your local shops everyone, or they will cease to exist. reply

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