Department stores have faced a difficult few years due to consumer uncertainty following the global financial crisis, as customers have become reluctant to part with their hard-earned cash.
The department stores industry will continue to face an uphill battle in 2011-12, as consumers remain cautious. Over the five years through 2011-12, industry revenue is expected to contract at an annualised 1.5% to $19.2 billion. Muted consumer sentiment and rising interest rates will limit industry growth to just 0.5% over 2011-12.
The industry is an important component of the Australian economy. In 2011-12, IBISWorld expects the industry to comprise about 1,118 establishments and employ approximately 111,277 people. Although many of its employees are casual workers, the industry is expected to pay wages of $2.63 billion.
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The industry is characterised by a very high level of concentration, with the top four enterprises accounting for over 90% of industry revenue. Although concentration is high, competition is intense and discounting is prevalent across many stores and product lines, particularly among the discount department stores.
Industry at a Glance
Future revenue growth is expected to be driven by new store openings for all major players. This will place industry participants in a prime position to take advantage of an upturn in the economy. The industry will face increased competition from online retailers and the entrance of international big box and clothing retailers over the next five years, which will temper industry revenue growth. Over the five years through 2016-17, industry revenue is forecast to grow at an annualised 1.0% to reach $20.2 billion.
Products and market segmentation
Clothing and footwear is expected to represent 38.9% of products, up from 37.9% in 2007-08. While discretionary spending by Australian consumers has been constrained, clothing prices are falling as designer labels and larger brands battle to compete with mid-market and high-volume, low-cost retailers. Clothing and footwear has increased its product share as department stores like Myer and David Jones use targeted discounts and introduce a wider range of mid-market fashion items to retain customers and maintain revenue.
The cosmetics and beauty products segment has displayed a minor increase in its share of revenue, accounting for about 7.9% of total revenue (up from 7.5% in 2007-08). Department stores were traditionally the largest retail channel for perfume sales, but pharmacies are now competing in this segment by stocking the same brands at a lower price. Perfume purchases from pharmacies, instead of department stores, represent a leakage of industry revenue. Despite this, cosmetics and beauty products increased its product share in this industry over the economic downturn. The downturn saw a trend towards consumers seeking products offering value for money, as economic uncertainty altered spending habits and tightened discretionary expenditure.