and events to bemoan cautious consumer spending, the invasion of foreign retailers and internet vendors and the battle against the rising costs of doing business. While the Melbourne Fashion Festival is outward-looking and encourages the local industry to look overseas for opportunities, much of the industry seems to have developed a siege mentality as overseas and online retailers expand their presence in Australia. Fashion is arguably the most difficult retail sector, buffeted by irregular weather patterns, tight supply chain disciplines, inventory management challenges and design misses that can be deadly. In difficult economic conditions, fashion retailers also have to contend with household spending priorities as mum will clothe the family and pay other bills before spending on herself. Unemployment and underemployment, as noted previously in IRW, have squeezed household budgets, ensuring women are more price-conscious than ever and more inclined to shop online or defer purchases until the sale signs scream from store windows. The surge of new overseas retail brands into Australia has added to the headaches for local retailers rather than actually creating them. The new brands have provided some stimulation to consumer spending with three of the leading retail brands, Zara, H&M and Uniqlo generating around $600 million in annual sales. The trio have lifted revenue levels as a result of expanding their store networks, although comparable store results indicate their spectacular early growth is tapering. This is no doubt, in part, because new stores are cannibalising spending from brand enthusiasts that were captured by the stores that launched the three chains in Australia. Zara reported sales of $222 million and profits of $15.3 million for the financial year ended 31 January 2016 and is yet to release the latest financial year results. The Spanish chain, which launched at Highpoint Centre in Melbourne in 2011, no doubt benefited from the experience of its local partner, Peter Lew’s International Brand Management, which has a 10 per cent stake in the Australian operations. Uniqlo is yet to turn a profit on its Australian operations, due primarily to investment in new stores, although it is understood the chain has also absorbed writedowns on inventory as it works to tailor its range for local consumers. H&M posted a profit on its 2015 sales but may have traded off earnings growth for the yet to be released 2016 year against expansion of the store network and in higher wages costs after the Fair Work Commission rejected an enterprise agreement it had negotiated with the Shop Distributive and Allied Employees Association. Working hand in hand In a bid to capture some of the consumer appetite for international retail brands, Myer and Harris Scarfe have both created alignments with British department store chains. At the same time, David Jones is restructuring its fashion ranges and building a stronger private label offer that draws on its South African supply chain. Myer launched the John Lewis homewares range in the chain’s new Warringah store in Sydney and will roll out the brand offer to five other locations this year in the Sydney, Perth and Melbourne city stores, Chadstone in Melbourne and Bondi Junction in Sydney. The John Lewis range will also be sold through Myer’s online store. Daniel Bracken, deputy CEO at Myer, said the alignment with the British department store brand fitted well with the “new Myer” strategy to “offer customers desirable and wanted brands”. While Myer is enthusiastic about the John Lewis alignment, recent experience with another leading brand from the UK shows that international brands are not all beer and skittles. Myer incurred a $600,000 loss on its 20 per cent stake in the fast fashion Topshop and Topman brands that chalked up a $3 million loss for the first half of the current financial year. Along with its investment in the local brand Sass & Bide, which shed $5 million in sales in the period, Myer is now undertaking another rigorous review of its brand portfolio. Myer last week delivered a 5.3 per cent increase in net earnings to $62.8 million for the six months to 28 January 2017, but the improved profit result was due to reduced costs in the business rather than trading. Myer sales declined by 0.6 per cent in the half to $1.78 billion, with the second quarter revenues falling by 1.3per cent as result of flat Christmas and new year trading. On a comparable store basis, allowing for store closures, Myer barely bettered the 2016 half result by 0.3 per cent this year, buoyed by revenue gains from concession stores, as sales of Myer Exclusive Brands weakened. Myer claims that its sales momentum was slowed by its strategy to reduce discounting, believing that it is counter-intuitive for a premium, top end, full service department store to rely heavily on promotional pricing. In bed with Debenhams The partnership deal between the South African retailer, Pepkor, and the British retailer, Debenhams, is an attempt to lift the profitability of the Harris Scarfe chain. Pepkor, owned by the Steinhoff International group, also owns the Best & Less chain. The Pepkor chains have been losing money and is hoping a Debenham’s range in Harris Scarfe stores and up to 10 freestanding stores under the UK brand will attract new customers and boost revenues and earnings. The UK department store trades out of more than 240 stores across 27 countries, and in the UK, it has a top three market position in womenswear and menswear. Debenhams also has a number two market position in premium health and beauty and is in the top 10 retailers of childrenswear in the UK. As well as the store development that Pepkor hopes will enhance customer perception of the fashionability of Harris Scarfe, the company is also keen to use the brand to drive sales on its online platform. A new private label strategy While Myer and Harris Scarfe attempt to fend off the international fashion brands that have entered the Australian market with the John Lewis and Debenhams alignments, David Jones is rethinking its initial private label strategy. The retailer still plans to leverage off its South African brands but is keen to ensure it achieves the right balance, after finding in the past year that some of the private labels had little appeal to Australian shoppers. David Jones’ galloping sales and earnings growth under the ownership of the listed South African Woolworths chain slowed in the latest half with growth easing from 10 per cent last year to four per cent in 2017. Total sales were $1.14 billion but, significantly, same store sales growth was just 0.5 per cent for the David Jones stores in the half year, while its specialty retail brands (Country Road, Trenery, Witchery and Mimco) reported a 0.9 per cent fall in revenues. Specialty Fashion Group posted sales of $430 million for the half year The future unknown Specialty Fashion Group, another multi-brand fashion retailer, has also reported a two per cent fall in comparable sales for the first half of the current financial year, but celebrated a timely 36.8 per cent lift in earnings to $12.1 million. Specialty Fashion Group posted sales of $430 million for the half year and is continuing negotiations with the Middle Eastern company, Al Alfia Holding WLL on a takeover proposal. The bid has been stalled as a result of the death of the father of the sole shareholder in Al Alfia Holding that has had implications for the funding of the acquisition which has been pitched at 70 cents, a premium to the trading price of Specialty Fashion Group’s shares on the Australian Stock Exchange. The general malaise in fashion retailing in recent months has also been confirmed by Premier Retail, which has assured investors of continued growth in sales and earnings for the first half, but with the gains from the expanding Smiggle and Peter Alexander chains, rather than its women’s apparel chains. Reflecting concerns about the longer term, the major retail landlords have all started to reduce specialty fashion retail space across their centres. While some centres are gaining firepower from the expansion of the international fashion retailers in Australia, the landlords are wary of the cannibalisation of sales in the specialty chains and the increasing threat to revenues of Amazon and Alibaba. Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.