Rag trade’s steady outlook

Clothing retailers are hitting a period of falling consumer confidence, but there are reasons to be optimistic for the longer term. By ROBERT BRYANT of IBISWorld

By Robert Bryant

Clothing retailers industry trend

Clothing retailers are hitting a period of falling consumer confidence, but there are reasons to be optimistic for the longer term.

Consumer confidence hit a 15-year low yesterday, with the Westpac/Melbourne Institute Consumer Sentiment index sliding to levels not seen since 1993. The index has fallen a staggering 21.2% in the last three months, and was the latest batch of bad retail news to roll in.

It is not all gloom and doom however. Employment remains robust, the Australian dollar is strong and consumers have proved remarkably resilient in the past. There are opportunities for well run operators despite higher interest rates and living costs putting strain on wallets. Clothing retailers with a recognised brand, good market position and strong cost controls will thrive.

Last week Australian retail king Solomon Lew bid $898 million for clothing retail leader Just Group whose brands include Just Jeans, Portmans, Jacqui E, Jay Jays and Peter Alexander. He clearly sees a strong future for clothing retailers well positioned to ride out a shorter term slowdown. Further more, many believe his bid for the Just Group will be revised up.

The state of play

Key statistics

Industry revenue

$10.482 billion

Revenue growth (06-07)

4.6%

Number of enterprises

13,643 units

Employment

74,394 units

IBISWorld estimates

Major players

Retail entity

Market share

Just Group Limited

6.2% (2007)

Specialty Fashion Group

5.0% (2007)

Retail Holdings

4.9% – 5.0% (2007)

Pretty Girl Fashion Group

1.6% – 2.0%(2006)

Lowes-Manhattan

1.9% (2007)

IBISWorld estimates

The level of concentration within the clothing retailing industry is quite low, with no dominant players or barriers to entry. The industry is established and mature with competition quite fierce.

Breaking down the individual product segments we see that nearly half the market is accounted for by women’s clothing.

A breakdown of the demographics shows that the cashed up Gen-X has the highest market share.

Recent industry performance

IBISWorld estimates that the revenue for the clothing retailing industry revenue grew at an average annualised rate of 3.8% over the five years to 2007-08. Industry revenue experienced strong growth in 2002-03 and 2003-04 as consumers were optimistic and spending freely due to a low unemployment rate and strong economy.

By 2004-05 higher petrol prices began to bite into consumer discretionary spending. Growth was flat by 2005-06 as the slow down led to less store openings. Revenue rebounded in 2006-07 due to generous tax cuts at the start of the financial year, providing stimulus for clothing expenditure.

Industry revenue will grow in 2007-08 driven by a strong labour market. Real disposable incomes will be positively influenced by the low unemployment rate (4%). This will no doubt be tempered by the effects of interest rate increases.

Year

Revenue

Growth

2003

$9273.40 million

N/A

2004

$9760.30 million

5.3%

2005

$9965.90 million

2.1%

2006

$10,017.3 million

0.5%

2007

$10.481.9 million

4.6%

IBISWorld estimates

Looking forward

IBISWorld forecasts that industry revenue will grow at an average annual rate of 3.1% during the five year period to 2012-13.

The industry is estimated to experience growth in 2008-09 driven by an increase in store openings and higher household disposable incomes. Higher interest rates will bite in 2008-09 as the lag effects come into play.

Industry growth is forecast to slow in 2009-10 and 2010-11 due to the continued effect of higher interest rates. A significant depreciation of the Australian dollar is one risk that may loom for clothing retailers because most of their inventory is imported.

Competition is expected to remain strong during the five years to 2012-13, and although industry concentration is forecast to trend higher, it will remain at a low level in line with the diverse nature of clothing retail segments within Australia.

With internet penetration increasing, both small and larger industry participants need to assess their online presence. Technology is expected to play a major part in shaping stock control, industry profitability and customer service experiences during the outlook period.

Year

Revenue

Growth

2008

$11,170.9 million

6.6%

2009

$11,592.0 million

3.8%

2010

$11,847.1 million

2.2%

2011

$12,234.0 million

3.3%

2012

$12,678.2 million

3.6%

2013

$12,995.1 million

2.5%

IBISWorld estimates

Key sensitivities and risks

The performance of the clothing retailing industry could be affected by some of the following;

  • Competition – Substitutes such as department stores will be fiercely after squeezed consumers.
  • Consumer sentiment – Affects household spending, higher interest rates dampen confidence.
  • Population growth – Demographic changes as a whole will alter the type of clothing in demand.
  • Real household disposable income – When disposable income is high, consumers have more purchasing power for clothes. Disposable income affected employment, wages and taxes.

Key determinants of success

  • Adequate stock controls are needed to reduce inventory costs and increase stock turns.
  • Superior financial and debt management, cash flows controls must be in place.
  • Clear market position projects a distinct and consistent company image.
  • Establishment of brand names that are recognised and in-demand.
  • Offer goods favoured by market and perceived to offer value for money.
  • Experienced work force that ensures quality customer service.
  • Attractive product presentation via store layouts and stock displays will encourage customers to purchase and reinforce the company image.
  • Proximity to key markets – locations with high volume of passing traffic.
  • In general an excellent reputation with a strong brand, quality products, good value and superior customer service will ensure that customers keep coming back.

 

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au

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