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Why are so many prominent retailers entering administration?

 

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We’re all aware that over the past year many Australian retailers have struggled to stay afloat, with David Lawrence, Marcs, Payless Shoes, Pumpkin Patch, Rhodes & Beckett and others entering administration.

So what has caused so many prominent Australian fashion brands to fold?

According to IBISWorld, weak retail conditions, high wage and rent costs, and fierce competition from emerging online players are to blame.

The market research firm found that new competition in the market—including online retailers and international fast-fashion brands—and challenging economic conditions have changed the way consumers spend.

IBISWorld senior industry analyst Lauren Magner said heavy discounting has also done damage, with customers trained to expect a bargain.

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“Consumers have become accustomed to buying items on sale, as retailers have undertaken heavy discounting in recent years to clear excess stock and attract demand,” she explained.

“At the same time, weak consumer sentiment has encouraged bargain hunting, leading to price becoming an increasingly important aspect of competition.”

Fast-fashion bad for middle market

The conditions are particularly challenging for bricks-and-mortar retailers, which struggle to compete on price with online retailers.

“As online stores generally have lower overheads compared with their bricks-and-mortar counterparts, they can offer more competitive prices,” said Magner.

“Local bricks-and-mortar stores have struggled to compete as consumers, often armed with smartphones, can quickly compare in-store prices with those offered online, which are often cheaper.”

Middle market fashion brands are also in a tough spot as international retailers with stronger economies of scale and vertical integration continue to gain market share.

“Local retailers have also faced further competition from an influx of international retailers such as Zara, H&M, Uniqlo and Topshop,” said Magner.

“Fast-fashion brands can quickly update their ranges to target changing styles and trends, which is appealing to many fashion-conscious and price-sensitive consumers.”

 

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