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Foreign legion's switch from clicks to mortar

Global retailers such as Zara are eying the relatively lucrative Australian market.

Global retailers such as Zara are eying the relatively lucrative Australian market. Photo: Penny Stephens

The Americans are coming. And the Japanese and Europeans.

Australia is being invaded by a swathe of foreign retailers, piling pressure on a local industry already battered by weak consumer spending and ruthless internet competition.

US retail giant Williams-Sonoma is to open its first owner-operated stores outside of North America in Sydney early next year.

Japan's Uniqlo and US youth label Hollister are also scheduled to debut here in 2013, while womenswear store Zara, Britain's youth label Topshop and US lingerie chain Victoria's Secret plan to expand after recent flagship launches. Sweden's fast fashion chain H&M and makeup brand Sephora, owned by France's LVMH, are also interested.

The timing appears incongruous as Australians fret over the tail-off in a decade-long resources boom that made the country's growth a standout among its OECD peers in the wake of the global financial crisis.

Spending has stalled in the $260 billion retail sector, which accounts for around 18 per cent of Australia's economic output, and retailers are jittery about the Christmas season.

But the overseas entrants have their eyes on a longer-term prize in a country that has a relatively high per capita income and home ownership rate, and a love of shopping.

"There's a plethora of retailers looking at Australia at the moment. They see the opportunity, they see that in the future there are great gains to be made and that's why they're setting themselves up now," said Russell Zimmerman, executive director of the Australian Retailers' Association.

Australia is the only developed country that did not fall into recession during the global financial crisis. Australian growth is expected to slow to 3 per cent next year from a forecast 3.5 per cent this year. That still puts the country ahead of its rich world peers - US growth was pegged at 2 per cent and euro-zone growth at just 0.3 per cent.

That relative economic strength, along with the high Australian dollar, has spurred demand at foreign retailers' online stores. Saks, Macy's and Bloomingdales have all opened internet shops targeting Australia in time for Christmas.

But a number of foreign retailers are now focused on the next step - building up a physical presence in a nation where 85 per cent of purchasing is still done in shopping malls.

The road to Oz

Next up is Williams-Sonoma, the owner of furniture chain Pottery Barn, a brand that Australians recognise through namechecks on TV shows like Friends.

The company has signed a lease for 2040 square metres of retail space in Sydney to house all four of its brands - Williams-Sonoma, Pottery Barn, Pottery Barn Kids and West Elm - the first time the quartet will sit side by side.

While Zimmerman bemoaned the lack of people laden with shopping bags just weeks out from Christmas in Sydney's main retail strip, Pitt Street Mall, Williams-Sonoma isn't concerned.

"We definitely look at it as a long term play," Craig Nomura, senior vice-president of Williams-Sonoma, said from San Francisco.

"The performance by country is all relative, so when you compare Australia against the UK, it's still doing well in the retail world." Williams-Sonoma was enticed to Australian shores after opening up e-commerce sites in 85 countries just over a year ago. To the company's surprise, it was Australia, with its population of just 23 million, that was the standout revenue generator, beating out larger countries including Britain.

Nomura declined to divulge detailed figures but said the website provided key information on the demand for goods and seasonality factors.

"It's given us a real good insight in terms of product categories that work well for us," he said, explaining that Williams-Sonoma will adapt to seasonality by delaying the delivery of US product for six months.

Clicks to mortar

Other recent entrants, including Topshop and Zara, owned by Spain's Inditex, followed the same path.

"Foreign entrants now are able to do business in countries like Australia without putting a brick on the floor and when they gather that data and they know the market, they're ready to grow," Brian Walker, managing director of consulting firm The Retail Doctor Group, said.

"They have a much better understanding of us than perhaps our local retailers do." Topshop's first Australian store, in Melbourne, became the brand's best-ever franchise opening after it used data from its international online shop to pinpoint local demand.

"We did a lot of research, we understood what the market is," Hilton Seskin, chairman of Topshop Australia, said from the company's flagship store in central Sydney, as shoppers flocked round the pink denim hotpants and sequined shirts.

Seskin said he is planning to open 10 to 15 stores in Australia in the next few years, with two more already confirmed for Melbourne next year.

No more knock-offs

The entry of foreign competitors, along with their speed bringing products to market and price competitiveness from economies of scale, is an enormous challenge for the local market.

One of the toughest sectors is women's fashion and evidence of the seismic shift is apparent in a large airy warehouse in Sydney's east. Summer sun floods the space from high windows as a team of designers work on the autumn 2013 collection for Specialty Fashion Group's Autograph label.

The company, which encompasses seven brands, was among the few to quickly grasp that having Zara and Topshop next door, rather than half a world away, was a game-changer.

"These were the retailers who we would go to in Oxford Street in London, or in LA, literally copy their product, go via China, knock it off, come back and bring it to market months later," Specialty Fashion chief executive Gary Perlstein told Reuters.

"One, that's illegal; two, if everyone's copying a Zara shirt, there's no point of difference and everyone's just competing on price." Specialty Fashion now employs nine in-house designers and has an office in Shanghai where the clothes are manufactured. While that's a long way off the 150-plus designers employed by Topshop in London, the changes are pleasing analysts.

Specialty Fashion Group is also the best performer, based on analyst revisions among 67 companies in Australia's consumer discretionary sector tracked by at least three analysts, data from Thomson Reuters StarMine shows.

That contrasts with retail stalwarts Myer and David Jones, whose belated play for consumers by signing exclusive access deals with overseas brands is being undermined by their direct entry.

Retail Doctor's Walker said the only way forward for Australian retailers was to embrace the revolution.

"They can't have an island mentality. They have to be as prepared to do business in Alaska as they are in Arkansas or Adelaide."

Reuters

5 comments so far

  • Ephemera.

    Commenter
    The WA Watcher
    Location
    Perth
    Date and time
    December 17, 2012, 11:29AM
    • Who really cares what happens to retail. The "work" in retail consists of standing around at a checkout and stacking shelves. A chimp could do it. Hardly the kind of productive work Australia needs. We want people working in science/technology/medicine/engineering. Generating wealth and taxes for both themselves and the nation. If all shopping can be done online, that's good as the workers can retrain/upskill or go to uni and move into real, productive careers. I guess retail is a good stepping stone for kids while at school but in the future if Australia wants to maintain it's standard of living we need to be a value adding nation high up the production chain. Retail is not such an industry.

      Commenter
      JamesM
      Date and time
      December 17, 2012, 11:55AM
      • James, you are asuming anybody can be easily re-trained as scientist/doctors/engineers. We all know that is not the case.

        Commenter
        Jules
        Location
        Sydney
        Date and time
        December 17, 2012, 2:02PM
    • This can only be a plus for our retail market, maybe aussie retailers will stop charging us 4 times the price for everything we buy.

      Commenter
      Betty
      Date and time
      December 17, 2012, 12:37PM
      • Looks like Gerry and Sols days of the almighty gouge ($5000 TV and the $150) jeans are coming to an end, real retailers with close to world prices are coming to town.
        Did anybody else notice that "cry poor Gerry" is going to buy Nathan Tinklers horse racing stable! He says one thing and does another.

        Commenter
        Roy
        Date and time
        December 17, 2012, 5:57PM

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