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Fashion Merchants Head Down Under

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Retailers continue to seek out new markets to offset reliance on the more-saturated European and U.S. markets, and a raft of fashion brands are expected to open in Australia over the next two years, beginning with the launch of the first Zara clothing store in Sydney.

The three-story Zara outlet opened amid much media excitement and anticipation amongst Australian shoppers, many of whom believe that there is a big gap in the market for affordable, fashionable clothing in Sydney. Other foreign chains are expected to follow, which will mean that the clothing market in Australia will begin to transform from one in which home-grown labels dominate.

What has kept fashion retailers out of the Aussie market to this point? For one, the casual lifestyle and temperate climate in the populous Southeast portion of the country has meant that Australians spend far less on clothing relative to their counterparts in Western Europe. And the sparse population (and resulting high supply chain costs), coupled with the complications of offering a different product range due to the opposite seasonality of the Southern Hemisphere, has meant that Australia hasn’t been a priority target for the largest international clothing retailers.

More fashion retailers are operating supply chains from the East, however, which now makes it more cost-effective to ship to markets that were previously viewed as off the beaten track. Zara is confident that its supply chain is efficient enough to ship to Australia as it already does to Brazil and Argentina. In Australia, the store will receive new stock every two weeks, with deliveries flown in from manufacturing bases in Europe and Asia.

Demand-based ordering
A key issue facing foreign players looking to open retail outlets in Australia is finding suitable sites, as a large number of local players occupy prime sites in the major cities. Many are likely to look hard at the shopping center space freed up by the demise of the Borders bookstore operation, but in general it will be difficult for large global fashion chains to find the type of sales area typically suited for a flagship store. Another factor: Commercial rents are on the rise.

Historically, global clothing retailers would introduce their ranges to the Southern Hemisphere the following season, but the Internet has sped up trend awareness. According to Zara, the same Autumn/Winter line created for Argentina and Brazil will be sold in Australia, though it admits the collection will not be as up-to-date as the offering in the Northern Hemisphere. Zara designers will operate an ordering system based on customer demand, however.

It bears repeating that the majority of Australian shoppers prefer either casual clothing or more formal career wear, with much less demand for anything in between. While such a market will pose some challenges for foreign players, it will be the local retailers that will take the biggest hit from the additional competition and upward pressure on shop rental prices.

Department stores still account for a significant proportion of total clothing sales in Australia. This channel is dominated by two national chains, David Jones and Myer, whose offerings lean heavily towards Aussie and Kiwi designers. Both companies say they welcome Zara’s new store opening, because they believe it will increase foot traffic in the city. It is the specialty chains offering their own private label lines that are likely to be hurt most by the arrival of foreign fashion brands. Most of these firms tend to have a stable of multi-store retailer brands targeting different market segments, and their product ranges tend to be fairly conservative.

Australia represents an interesting challenge for foreign clothing retailers, but by venturing south of the Equator, merchants are likely to become more open to opportunities in other Southern Hemisphere markets like South Africa.