Published on 05/08/2016 by Punchmedia

Retail: David Jones Coming to Fashion Capital

Melbourne is set to become the country's department store capital, with retail veteran David Jones planning to move its headquarters from Sydney to Melbourne.

David Jones' owner, South African retail giant Woolworths, said Melbourne was the fashion and retail capital of Australia - and it was also cheaper.

David Jones' owners have outlined a new headquarters plan for inner-city Richmond for all its businesses, including David Jones, Trenery, Country Road and Mimco.

Woolworths Holdings will invest $240 million in Victoria with the new Richmond building and distribution centre in Truganina in Melbourne's west.

The State of Clothing Retailers in Australia

Clothing retailers have been embroiled in a turbulent operating environment over the five years through 2015-16. The industry struggled following instability in financial markets at the beginning of the period, with revenue declines attributed to the fallout from declining consumer sentiment and spending. However, IBISWorld expects industry revenue to increase at an annualised 3.3% over the five years through 2015-16, with the majority of this growth driven by surging online sales by bricks-and-mortar retailers in the latter part of the period. Further improvements to local economic conditions are expected to contribute to a 2.7% revenue rise in 2015-16, taking industry revenue to an estimated $18.7 billion.

Profit

Industry profitability has been shaped by new consumer spending behaviour, growing competition from online-only retailers and higher rental costs. Industry profit has fallen marginally over the past five years, and is expected to account for 3.8% of revenue in 2015-16. Rental costs have increased steadily over the past five years, while the comparatively high Australian dollar for much of the period kept purchase costs from overseas wholesalers and manufacturers down.

Growing Competition

Industry competition has intensified as international retail giants Zara, Topshop and Gap have all expanded their presence in Australia. Meanwhile, other large-scale international retailers have entered the industry, with Uniqlo and H&M opening their first Australian stores in early 2014. Many domestic retailers have struggled to compete with the scale and efficiency of these international retailers. For example, Zara’s international network allows it to reproduce and stock catwalk designs within just two weeks, while domestic retailers typically face a three- to four-month turnaround.

Innovation

In the wake of strong competition from the online space, industry firms have adopted various strategies to enhance consumer experience. The line between traditional retail and online retail has become increasingly blurred. While the purpose of retail stores has traditionally been to sell products, physical floor space is gradually becoming less focused on driving the sale of clothing instore and more on interacting and engaging with consumers. This includes the use of interactive displays, tablets, video content and television screens in stores to view and order products online. Retailers are also exploring other avenues to enhance the customer experience by introducing cafes, spas and salons to their stores.

Acquisitions

By increasing their share of the market, retail chain stores can take advantage of bulk purchases and pass on cost savings to consumers. Streamlined operations also give larger retailers additional flexibility to compete with international giants such as Topshop and Zara. A moderate level of merger and acquisition activity has occurred in the industry over the past decade. Specialty Fashion Group Limited acquired the Chain Reaction business in 2007 and the Rivers clothing brand in 2013. In 2008, Premier Investments Limited acquired the Just Group. In 2012, Country Road acquired clothing brand Witchery and accessories label Mimco for $172.0 million. Along with Country Road’s other label, Trenery, the company’s three apparel brands are part of a plan to form a retail powerhouse to rival the threat of other international players. The addition of Witchery to the Country Road portfolio allowed the company to streamline its sourcing, effectively reducing prices across all of its brands.

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Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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