Over the five years through 2013-14, revenue for the clothing wholesaling industry in Australia is expected to decline by an annualised 2.1 per cent to reach $8.1 billion, according to a new IbisWorld report.

The industry’s future is expected to remain flat over the next five years, with revenue forecast to grow at a meagre 0.4 per cent annualised to $8.3 billion in 2018-19, however, revenue is anticipated to increase by 0.8 per cent in 2013-14.

As the global reach of many clothing companies increases, wholesale bypass is becoming increasingly prevalent.

Low cost producers in countries such as China and Vietnam are becoming more accessible to retailers, selling products directly to retailers, and bypassing wholesalers in the process.

The clothing wholesaling industry’s weak performance can also be attributed to low underlying demand from the retail sector.

“The rise of online clothing stores has undermined demand for products sold through traditional retail channels, which has undercut retailers’ demand for products sold by wholesalers,” said IbisWorld industry analyst, Lauren Magner.

Although clothing manufacturers have been able to produce and sell at lower costs, wholesaling profit margins have declined.

“The struggling retail sector, which makes up a large portion of the downstream market, has forced wholesalers to offer lower prices, eliminating any profit that might have been generated by lower purchase costs,” says Magner.

To combat this, wholesalers are beginning to venture into the online sphere, setting up online stores and allowing consumers to purchase wholesale items directly.

By bypassing retailers, wholesalers are able to generate higher profit margins.

The industry has a low level of market share concentration, with only one company, Pacific Brands Limited, accounting for more a significant portion of total revenue.

While rising household spending and wage growth will boost demand for clothing, the performance of the clothing wholesaling industry depends on how it responds to growth in the online segment.

If recent trends continue, wholesale bypass and internet shopping will become more popular, stranding wholesalers outside of the supply chain.

On the other hand, the industry may recover if wholesalers are able to take advantage of the growth in the online segment and capture new markets through this channel.