A contradiction emerges when comparing the Australian economy with consumer sentiment in 2011. Despite the strong labour market and comparably solid financial position enjoyed by the nation, Australian consumers are still reeling from the global financial crisis of 2008-2009 and are pessimistic about their prospects. The rate of household savings is at its highest in two decades. This translates into reduced discretionary spending and marked changes in consumer behaviour. In apparel, value is a key consideration. Price points have lowered due to the strong Australian dollar, constant industry-wide discounting and availability of online price comparisons.

Shop-around-the-clock convenience and lower prices appeal to consumers

While bricks-and-mortar apparel retailers and department stores report difficulties in encouraging consumers to part with their hard-earned cash, Australian shoppers embraced internet retail in 2011. Australia may be a late bloomer when it comes to online shopping, yet the current appetite for e-commerce is certainly voracious. At present the market for online retail is still comparatively immature when viewed in light of the penetration and average transaction spend in the UK and US, but the potential for growth in both is turning heads both domestically and internationally.

Apparel Industry in Australia

Published: April 2012

Price: US$1900

Market leaders weather the recessionary storm

Reflective of the general retail malaise, market leader Pacific Brands posted a full-year net loss of A$132 million in the 2011 financial year, despite being in the midst of its so-called “Pacific Brands 2010” transformation strategy. This strategy aims to reset the company’s cost base and capability set for the future; however it has also included, amongst other measures, the controversial decision to close down all local production facilities and manufacture exclusively offshore. This move highlighted the difficulty of maintaining a competitive advantage while operating within the local apparel manufacturing industry. The company warned that its fiscal 2012 earnings were also likely to be affected by the current weak retail conditions. Given its poor trading performance and forecasts of falling revenues and earnings, Pacific Brands has been identified as a potential takeover target by US private equity firm KKR, as part of a deal worth an estimated A$600 million.

Internet retailing hits full stride after first tentative steps

Online apparel retailing experienced significant growth in 2011 due to increased confidence in and familiarity with the internet and online payment systems, the development of new retail platforms and on-the-go mobile capabilities, the availability of free shipping and enhanced user interface to assist the search and order processes. This growth comes at the expense of apparel specialist retailers and department stores, which have been forced to strategically reconsider their engagement with customers through various multi-channel shopper preferences.

Forecast fragility and future frugality will shape consumer spending

Australian consumers are coming to believe that economic fragility will be here for a protracted period and are shifting their spending accordingly, with basic bulk purchases at the cheap end of the market and more functional or durable items purchased at middle price points, such as with the quality credentials associated with sportswear and its capacity to be worn as leisurewear. A tendency to shop at lower price points or to favour the rapid in-store turnovers associated with fast fashion nevertheless lends itself to increased volume sales as the quality of construction and fabric selection may also entail speedy use cycles.