Casualties in the retail war of attrition

Transcription

1 The changing landscape for Australian clothing retailers and wholesalers August 2015 Issue 15-03

2 Last month Myer notified about 100 men s, women s, children s, footwear and clothing brands they will no longer be stocked in its stores and launched a spring clean sale less than a week after closing its mid-year clearance. Myer s decision came just a few months after deleted about 180 of its 2,400 brands, with 80 alone in womenswear. 1 Beyond the attention grabbing headline, is this significant? Yes, and No. It is not unusual for there to be a changeover of brands at the end of the financial year. And whilst Myer and David Jones have declined to identify the deleted brands, industry commentators suggest some of them had minimal presence in their stores. 2 So are the headlines just a media beat up, stoked by Myer s PR department seeking to maximise media coverage of its sale? Number of brands recently de-listed Sales growth Perhaps, but only in part. The launch of a massive spring clean sale less than a week after closing a mid-year sale suggests this year s brand cull is more significant. Indeed, the volume of discounted brands made available in the latest sale was sufficient to crash Myer s website, as discounts of 30% to 50% attracted unprecedented customer demand Myer 1.7 % Myer 10 months to April % Year ending June 2015 Suppliers shocked as Myer and dump brands Sydney Morning Herald, 26 July 2015 Source: The Sydney Morning Herald Source: The Sydney Morning Herald 2

3 Private label brands The make up of the deleted brands is also significant. Whilst many of the deleted brands are small international and local designers, the Myer Exclusive Brands are also a significant component. Myer s private label brands, including Piper, Basque, Regatta, Chloe and Lola, Trent Nathan, Wayne by Wayne Cooper, Charlie Brown, Howard Showers, Miss Shop and L Lisa Ho, featured in the list of heavily discounted apparel and footwear brands. The private label brands have helped Myer differentiate its offer from and Target and have been a key driver of sales and margin growth over the past few years, with sales reaching $638 million, or 20% of group sales, in The retailer owns or stocks 66 Myer Exclusive Brands after buying several distressed brands, such as Trent Nathan and Charlie Brown, and developing in-house labels. 4 But the strategy clearly needs attention. Whilst David Jones sales rose 6.4% in the year ending June and more than 10% in the June half (the strongest rate of growth since 2007), Myer s sales in the 10 months ending April have risen only 1.7%. Taking into account inflation and store growth, in real terms Myer s sales are actually declining. 5 Over the past few years both Myer and have aggressively pushed private brands, which now account for roughly 20% of total sales for both department stores. appear to have taken a proactive approach. Since the Woolworths takeover last year, for example, chief executive Iain Nairn has removed more than 180 brands (80 in womenswear alone), replacing niche labels with larger mid-market brands such as Seed, FCUK, Marcs, Country Road and Witchery. Nairn s meticulous market research showed these were brands customers were buying outside doors. 7 Myer Myer, by contrast, appears to be playing catch up and the latest brand cull and heavy discounting appear more reactive than proactive. If Myer chief executive Richard Umbers, who took the helm from Bernie Brookes in March, had been hoping the new brands would be as successful in luring shoppers and generating sales growth as they had been at, then he clearly has had a re-think. 8 Proactive Reactive 3

4 What this means for Australian clothing wholesalers and brand owners? I think it s positive because one of my criticisms is they have way too many brands and don t have enough volume to do justice to some of the brands 9 [Department store clothing supplier] The new management at Myer and are placing much more focus on returns and productivity per square metre than we ve ever seen before, which is very positive 10 There will be winners and losers. The losers, clearly, are those brands that have been culled. Myer and are key distributors for many clothing brands, especially smaller brands without standalone stores. Department stores represent about 25% of total demand for Australian clothing wholesalers. 11 Given softness in the current retail climate, the prospects of finding new customers to replace Myer and are challenging. The winners, at least in the short term, are those brands that were not culled. With more focus on a smaller number of brands, the remaining brands should see an uplift in promotion and sales. Longer term structural changes will challenge both retailers and wholesalers The current challenges facing Myer and (and the retail sector generally) are not merely cyclical they are structural. 12 The landscape of retail in Australia is being profoundly re-shaped by external forces. This is forcing Australian retailers to reconsider how they do business. In turn, their wholesaler suppliers will be forced to do the same. The continued growth in online retail has opened up a Pandora s Box. Australian consumers are being increasingly exposed to the range and value offered by international retailers. And once they have a taste, they want and expect more from traditional Australian bricks and mortar retailers. [Department store clothing supplier] The recent entry of northern hemisphere retailers into the Australian bricks and mortar retail market has only served to accelerate this trend. Nearly five years after cult denim retailer GAP opened its first Australian store in Melbourne, a steady stream of international retailers have invested in Australian bricks and mortar. Their offerings compete directly with major Australian retailers (and, in some cases, surpass them). 13 To make matters worse, clothing prices are expected to rise across the board for the first time in five years as suppliers and retailers raise prices after a 17% slump in the Australian dollar. This will be challenging for both retailers and wholesalers given the current soft spending environment. 14 4

5 The war of attrition being played out between Myer and is in response to these structural changes and the impacts will reverberate through both the Australian clothing retail and wholesale industries. More than cyclical change this is structural Continued growth in online retail Invasion of northern hemisphere retailers Weak AU$ Battle of the giants Myer A changing external landscape demands an innovative response Retail bypass Wholesale bypass Weak retail sales Retailer consolidation Continued growth in online retail and loss of market share to northern hemisphere retailers will lead to further rationalisation in the Australian retail sector. The big will get bigger, with smaller niche players at the other end of the spectrum. The middle ground will prove a difficult place to trade for medium sized retailers. 15 In this environment, the biggest risk for clothing wholesalers will be wholesale bypass. With continued downward pressure on sales volume and profitability, larger retailers will increasingly purchase directly from local and overseas clothing manufacturers and cut out the wholesalers all together. There will continue to be wholesale demand from niche retailers who lack the size or reach to bypass wholesalers, but this will be cold comfort for those clothing wholesalers who are dependent upon demand from mid sized and larger retailers. 16 5

6 Endnotes Upcoming publication Next month we will be issuing an in depth publication that critically examines the issues raised in this paper. Myer and have responded to the changing external environment with broad ranging customer centric initiatives and are settling in for a long, drawn out battle. Given their dominant size, casualties will inevitably extend to other Australian retailers and wholesalers. But will the greater threat be from online and northern hemisphere retailers? Does Zara s radically different approach to supply chain management sound the death knell for clothing wholesalers? And is there a need for the entire economic model of revenue and profitability for retailers and their suppliers to be radically reassessed? 1. Suppliers shocked as Myer and dump 2. Myer clears out private labels as part of brand cull, The Australian Financial Review, 29, July Web 30 July clears-out-private-labels-as-part-of-brand-cull gimzin 3. Ibid 4. Ibid 5. Suppliers shocked as Myer and dump 6. Myer is My Disaster: can anyone save the ailing retail giant?, crickey.com.au, 8 October Web 29 July Tables turned on Myer as gears up for war of attrition, The Australian Financial Review, 25 July Web 30 July business/tables-turned-on-myer-as-david-jonesgears-up-for-war-of-attrition gijbq9 8. Suppliers shocked as Myer and dump 9. Suppliers shocked as Myer and dump 10. Ibid 11. Clothing Wholesaling in Australia, IBISWorld, May Worst yet to come for Myer and, The Sydney Morning Herald, 19 January Web 30 July to-come-for-myer-and-david-jones-says-expert sznp.html 13. Ibid 14. Clothing price rises inevitable as dollar drops, The Australian Financial Review, 28 January Web 29 July clothing-price-rises-inevitable-as-dollar-drops f3m 15. Tables turned on Myer as gears up for war of attrition, The Australian Financial Review, 25 July Web 30 July business/tables-turned-on-myer-as-david-jonesgears-up-for-war-of-attrition gijbq9 16. Clothing Wholesaling in Australia, IBISWorld, May

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