Opportunities and challenges for local retailers
Trying to do what your competitors are doing but basically a little bit better is probably not going to be the winning strategy. The opportunity is finding what your competitors wouldn’t even consider doing.
Last month one of the UK’s greatest omnichannel retail giants, John Lewis, announced its plans to take its first steps onto Australian soil with six shop-in-shops in Myer later this year.
We are delighted to see our retail sector grow and diversify, but we find many home grown retailers asking us why now, and why Australia?
According to Deloitte, only 39 of the world’s 250 largest retailers (or 16 per cent) operate in Australia, meaning that there is seen to be plenty of ‘potential’ for international retailers to make their mark. Around 10 of those opened between 2012 and 2014 so retailers like John Lewis, who are exploring 2016 as their time to make the big leap, have strategically chosen to enter early enough to make an impression, but after others have proved the Australian markets viability.
H&M has revealed that sales in Australia rose to 449 million Swedish Krona ($A71 million) in the May quarter, a 61 per cent year-on-year improvement in Australian dollar terms. Meanwhile, Zara recently reported that sales at its 15 Australian stores soared by 24 per cent to $222 million for the year ended January 31. Earnings before interest and tax jumped to $23.6 million from $15.5 million, and full-year profit reached $15.26 million. It is no surprise that these figures are attractive to other international retailers.
As with other international entrants such as House of Fraser, John Lewis know they already have a good customer base in Australia, with the country sitting in its top five countries for online international sales. UK sites have proven popular with Australian consumers with a desire for quintessentially British designers and brands such as Jasper Conran, Barbour, Preen, Jaeger and Dorothy Perkins. House of Fraser chief executive, Nigel Oddy, recently reported Australian shoppers are the biggest international spenders in their online store, which generates sales of around £247 million ($456 million) a year or around 19 per cent of the retailer’s total annual revenues of £1.3 billion ($2.4 billion).
For British brands in particular, the Australian retail market is also extremely attractive due to the ultra-competitive British high street providing an often volatile playing ground. There is no doubt that the unexpected Brexit result, which is likely to disrupt the futures of many European supply chains and retail models, has had many British and European retailers questioning what the future may have in store for them.
As costs may rise to continue importing/exporting across Europe, options to invest in new markets such as Australia are now being considered, especially with barriers of entry such as sector competition seeming low with only a handful of key players dominating sectors such as mainstream department stores, and discount department stores.
Another attraction is the influx of Asian tourists that descend on Australia every year, bringing with them great spending power. Spending by Chinese tourists is forecast to jump to $4.1 billion in Australia this year as a growing middle class and appetite for quality goods and clothes spur spending, according to a report by CBM. Chinese tourists spent an average of $2499 per person in Australia in 2015, CBM said.
Finally, we are seeing that part of the popularity of British brands in particular is a result of the strong pull of British expats. With about 1.2 million Brits living in Australia, it can be seen that there is a ‘ready-made’ and often extremely loyal, market ready and waiting for these brands.
According to the most recent financial results, Zara, H&M and Uniqlo took about $502.7 million in sales, which represents about 1.2 per cent of apparel and department store sales in Australia. As we see the likes of John Lewis, Debenhams etc enter later this year, this figure is predicted to grow, which is likely to have implications for local retailers. However Australian retailers must also see this as a huge opportunity for potential growth. Expect to see Aussie retailers in many categories responding with strategies from consolidation to off shore expansion.
At a time of mass internationalisation of the Australian market, strategies around building brand awareness, loyalty and heritage/legacy through strong customer relations and instore experience will help our home-grown retailers grow ‘fitter’ and stronger, easily able to compete on a fair playing field with the international entrants.
Brian Walker is founder and CEO of Retail Doctor Group and can be contacted on (02) 9460 2882 or email@example.com. Vikki Weston, co-author of this column, is part of Retail Doctor Group’s Retail Insights team and can be contacted via email at firstname.lastname@example.org .
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