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Influx of foreign retailers puts price pressure on Australian market

 

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The Australian retail industry has had its fair share of bad news recently—most notably four major retailers entering voluntary administration in the first two months of this year—and it seems that the doom and gloom is set to continue.

According to a new report from ANZ Research,  intense competitive pressure around pricing is making trading conditions difficult and likely to remain so.

Foreign influx causing difficulties

The surge in foreign retailers opening bricks and mortar stores—including H&M, Uniqlo and Zara—continues to disrupt the retail landscape, said ANZ.

This will only intensify as more foreign retailers enter the Australian market. Just 16 per cent of the world’s top 250 retailers currently have a physical presence in Australia, but many more are being lured here by the market’s relatively high margins.

Supermarkets are already feeling the pinch. According to the report this pressure “has been intense and shows no sign of fading”.

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“Coles and Woolworths are already feeling the impact of Costco and Aldi. Woolworths has invested $1 billion in cutting prices while Coles has extended its ‘every day pricing’ promise to over 4,000 products.

“Coles’ average prices have recorded 23 consecutive quarters of deflation.”

More to come

With Germany’s Kaufland set to open in Australia this year, and speculation about Lidl (another German chain) and the UK’s Marks and Spencer entering the market, pricing pressure will get worse.

ANZ Research predicts that the current pressure will remain intense for the next year or two as more international retailers stake a claim down under.

“We expect foreign entrants to continue to inhibit retailers’ pricing power in consumer goods,” ANZ said.

The report pointed to the arrival of TJX, the ninth largest global retailer, through the acquisition of Trade Secret in the past year along with British department stores John Lewis and Debenhamns joining forces with established retailers.

“We expect to see more global retailers establish a physical presence in Australia this year across clothing, footwear, accessories, makeup and homewares,” said ANZ. “The ‘x’ factor this year is the rumoured opening of Amazon in Australia.”

There are also reports that American clothing retailers J.Crew and Banana Republic are looking for retail space, with the UK’s JD Sports chain and France’s Decathlon also expected.

Online also to blame

Online shopping is also contributing to the pricing pressure, despite still representing less than 10 per cent of sales in Australia.

“The expansion of the online marketplace is driving a convergence of retail prices across counties and is impacting retail inflation across the globe,” said the report.

 

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