The next step for Australian apparel

marcsIt’s been a tumultuous start to the year for Australia’s apparel and accessories retailers. A December period marred by heavy discounting has left analysts muted on the upcoming earnings season and hopes that the string of insolvencies witnessed last year may abate have been dashed by news that David Lawrence and Marcs are in the hands of administrators.

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If the headlines look familiar it’s because they are, it’s only been a few months since Pumpkin Patch and Payless Shoes found themselves in similar circumstances. Neither brand has managed to find a buyer, which doesn’t play well for the prospects of 2017’s first retail failures.

Adding to the sombre outlook are the likes of David Jones’ South African owners Woolworths Holdings and the Oroton Group, which both reported last month that various factors had affected December trading.

Oroton downgraded their half year earnings (EBITDA) forecast to between $4.5 and $5 million and Woolworths Holdings said the timing of boxing day negatively impacted DJS sales by 2.7 per cent – although the parent company still expects 4 per cent sales growth for the period.

Citi analysts don’t think they’re an exception either, with the investment bank’s head of research, Craig Woolford, describing January as “sluggish” and releasing a prediction that most of the large ASX-listed fashion brands will fall short of earnings forecasts for the half.

h&mMeanwhile, several analysts IRW spoke to expect international brands like H&M, Uniqlo and Zara to continue to ramp up their Australian efforts in 2017. H&M has already announced a new store in Queensland’s Westfield Chermside earlier this month, with more expected to come.

Consultant and Retail Doctor Group chief Brian Walker believes the international warpath means it’s only a matter of time before we see more insolvencies among Australian retail brands. He told IRW that the international players will “absolutely” start looking closer at suburban centres this year – which will bring them into even closer competition with Australian retailers.

“International brands have got huge competitive advantages on scale, but they need to feed the machine, so they tend to absorb the relatively high cost of expanding in Australia,” he said.

A spokesperson for Inditex owned retailer, Zara, didn’t reveal any specific expansion plans, but said that the company will continue to look for store opportunities that are consistent with the offer they have so far presented to shoppers Down Under.

Scale, differentiation – or both

The trap Australian brands are falling into, according to Walker, is “the swap in the middle” or the area between a boutique offering with a niche customer and a high volume low margin strategy that requires scale.

For Pepkor-owned Harris Scarfe, building scale has come in the form of their partnership with British department store Debenhams, whose range they are leveraging to tackle differentiation and cost-savings at the same time.

Harris Scarfe’s general manager of fashion, Nicole Naccarella, says that the department store has had a great reaction to the Debenhams lines it’s launched into six of their stores, revealing to IRW that it is rolling out the ranges into another seven stores this week.

Harris Scarfe “It’s given the consumer something new, something different – it’s a point of difference,” she said. “Their ranges are so huge that we are really able to pick things out and find what’s right.”

“We’ve been able to use Pepkor’s global sourcing to consolidate fabrics and styles, which has enabled us to get some really good cost savings in our business,” Naccarella added.

However, as Walker notes, many Australian brands simply don’t have access to that type of scale, pushing local brands to differentiation or the prospect of brand consolidation.

“There’s real vulnerability in the 40+ women area. I think we’ll see some brand consolidation in those categories […] shared services will help defray costs,” he said.

‘Live outside of the seasons’

For retailers looking to differentiate, Autumn-Winter 2017 remains crucial for ensuring a second half recovery. Naccarella says that lessons have been learned from last year, which saw retailers caught out by weather conditions that didn’t match expectations.

“Last year we went through a really hot winter, and then we went into a cold summer, so we’ve made a lot of changes to our ranges to be more weather appropriate,” she said.

“[Weather] really hurt a lot of retailers last year, so we’re investing in ‘buy now wear now’ and more trans-seasonal clothing rather than heavy winter ranges [customers] won’t need until later on.”

According to Naccarella, adjusting to the new seasonal paradigm is going to be crucial for the apparel and accessories categories moving forward. This year Harris Scarfe won’t bring out heavy winter wear until late March.

“Everyone has to do it. We have to look at things differently with warmer seasons and adjust buying patterns to suit that,” she said.

Christmas under-performer David Jones appear to have received the message, adopting the slogan “live outside of the seasons” for their Autumn-Winter range.

The high-end department store launched their new line last week alongside a fashion show and promotional video showcasing the versatility of the line in a variety of conditions.

David Jones CEO John Dixon was unavailable for comment, but group executive of merchandise, David Collins, said in a press statement that Australians were increasingly looking for trans-seasonal clothing.

“Australians increasingly appreciate the realities of unseasonable weather and David Jones’ AW17 campaign speaks to that,” Collins said.

For their part, Oroton’s Autumn-Winter range is being touted by the company as a “new beginning”, with a re-imagined shift in design and brand personality that’s honed in on an accessories range inspired by “signatures of yesterday”.

Oroton is working closely with influencers to launch their campaign, releasing a short film starring actress Rose Bryne to generate hype for the launch.

Oroton (ASX: ORL) is expected to update the market with their half-year results on March 28th.

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