Australian retail coming of age as international players enter market

Max Mason
April 10, 2014
The Age
Once nothing but a second thought on the world fashion stage, big international players are now looking to tap into Australia’s lucrative, but under-served, retail market.
The $2.15 billion takeover offer for David Jones from South Africa-based Woolworths further highlights the growing interest in Australian consumers from international retailers.
Wednesday’s bid comes on the heels of Swedish fashion house H&M opening its first Australian stores and three years since Spanish powerhouse Zara came into the country.
A major part of the success of northern hemisphere brands has been on selling their own clothing labels and a fast supply chain that can bring fashion from the catwalk to the store in a matter of weeks.
At the same time, local consumers have shown little loyalty to brands considered Australian icons. David Jones and Myer have both suffered from their inability to adapt to the online world where shoppers can find a wider range of goods, cheaper and of higher quality.
”The northern hemisphere invasion will continue,” said Equity Trustees chief investment officer George Boubouras. ”It started because of the opportunity in a well-regulated, OECD economy, that hasn’t had a recession for some time. This is the place to be if you’re a high-calibre, best-of-breed, retailer. Zara, H&M are clearly that.”
Continued interest in Australia will only underpin further growth through the retail sector, but it will weed out those that are inefficient and unprofitable.
”Global capital is very very finite, so this is a positive development that they’ve come into Australia. It makes our broader retail discretionary market a much better proposition,” Mr Boubouras said.
For all its challenges over the past five years, the Australian retail market still has very healthy profit margins, Citi analyst Craig Woolford said. ”The challenge is the brand equity and appeal of those private-label products.”
Woolworths believes it can capitalise on the Australian market more adeptly than H&M, Zara, Topshop or Gap because it can take advantage of being based in the southern hemisphere.
”These guys are coming in and they’ll have a first flush of success and it’s very exciting,” Woolworths chief executive Ian Moir said. ”We’ve got real scale in the southern hemisphere, we’ve got same seasonality, so we’ve got a real competitive advantage over northern hemisphere entrants.”
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