Australia is set to remain an area of focus for many international apparel brands

Australia is set to remain an area of focus for many international apparel brands

Having long sat on fashion's sidelines, Australasia has generated significant interest of late. In particular, the region's relative resilience to the financial turmoil which has plagued much of the northern hemisphere has proved to be a key attraction for international retailers, according to Euromonitor International.

This resilience has been in part due to its ability to satisfy the growing demand for commodities in Asia Pacific. The region registered overall real GDP growth of 1% in 2009 at the height of the financial crisis compared to -2.8% for North America and -4.4% for Western Europe.

However, despite this relatively solid financial position, Australasia remains the world's smallest regional apparel market. Valued at US$24bn in 2012, it is well below one-tenth the size of North America.

Not only is the pie much smaller, but seizing a slice of it is much harder given the region's low propensity to spend on apparel. Pessimism is rife among Australian consumers, with some of the highest household savings rates seen since the 1970s.

International entrants invigorate the fashion scene
With frugality setting the tone for apparel spending, brands and products have had to have a certain "wow" factor to entice consumers to part with their hard-earned cash.

This has been greatly beneficial to the spate of international brands looking to enter the Australian market, attracted by its ready-made Western culture and attitudes towards dressing.

Zara and Topshop have already expanded to fill the gap in the market for "affordable European latest season fashion", with H&M set to join them in 2014. Australia's parallel lifestyles to California have also lured US brands with this heritage. American Apparel entered the market in 2011, while Abercrombie & Fitch has decided to launch its secondary brand Hollister in Australia ahead of its namesake brand.

There is evidently plenty of pent-up appetite for American and European mass-market fashion. But, with consumers keen to keep on top of prevailing northern hemisphere fashion trends, a key concern for these brands is adapting their current collections to Australia's diametrically opposite seasons.

Brands which have tried to use the market as a site for offloading unwanted or out-of-season stock have faced a significant backlash from shoppers.

Domestic brands feel the pressure
The arrival of international fast fashion brands is likely to have a halo effect on the overall market by feeding consumer appetite for fashion and encouraging spending on apparel.

But intensifying competition has put significant pressure on domestic players, which have been slow to adapt to contemporary shopping habits, namely the shift towards omni-channel retailing.

The struggles of local retailers are well illustrated by the poor performance of department store David Jones, once a leading institution in Australian apparel. In August, the retailer reported an annual sales decline of 1.2% on the previous year on account of weak consumer sentiment and a heavy discounting environment.

As a result, the retailer is investing heavily in rejuvenating its offering by further developing its multi-channel capabilities and opening certain city centre stores around the clock to encourage consumers to shop at their convenience.

The company also plans to introduce edgier and more youthful apparel brands at "accessible" prices, such as the new Australian brand Hunt No More.

Apart from remaining competitive on their home turf, some brands are going one step further and are taking on rivals on foreign shores. For example, ultra-feminine brand Forever New has capitalised on its geographical proximity to Asia Pacific and has made inroads in eight international markets, including China, India and Indonesia.

Internet retailing sees voracious demand
Australia's geographical isolation from major fashion hubs has made the internet an invaluable tool for local consumers.

The internet channel's share of apparel value sales has more than doubled over 2007-2012, from 1.5% to 6%. Not only has the internet made local consumers incredibly savvy in terms of fashion trends and prices available abroad, it has also enabled them to buy directly from these overseas brands, which have long lacked a physical presence in Australia.

Leading fashion e-tailer Asos launched its Australian platform in 2011, while British high street brand River Island launched online in 2013 as a means of testing the waters before opening physical stores.

The flourishing appetite for online purchases has been evident at all price points, with even luxury menswear e-tailer Mr Porter reporting that Australia is its third largest market following the UK and the US.

While international players are capitalising on the e-commerce boom, domestic brands have made a slow move to omni-channel retailing.

After a weak foray into internet retailing in 2011, premium department store David Jones relaunched its invigorated online operations in 2013, complete with a new mobile store, iPad app, Click and Collect, incremental delivery options, social commerce and social media strategy encompassing Facebook, Twitter and its Fashion Hub blog.

Sportswear sees winners and losers
Sportswear has emerged as one category in which consumers have been willing to loosen their purse strings. Apart from an overall consumer lifestyle which is highly geared towards outdoor activities, sportswear's resilience can be attributed to its association with quality manufacturing and its capacity to be worn as leisurewear.

Similar to other developed markets, the trend towards individual sports like running and yoga has been evident.

The appeal of yoga has been illustrated by the ascent of Lorna Jane, Australia's answer to Lululemon. This local brand has been one of the strongest beneficiaries in Australian sportswear, growing its share of the category from 1% in 2007 to 3% in 2012. The brand's success saw it expand into the highly competitive US market in 2012. 

The growth of Lorna Jane indicates that Australian consumers are still willing to trade up from "cheap chic" to fashionable and functional mid-priced women's sportswear that can double up as trendy everyday outerwear.

But sportswear has not been a level playing field. Lorna Jane's stellar performance stands in sharp contrast to the fate of other home-grown sports brands Billabong and Quicksilver.

The former recently reported an annual loss of over US$700m, reducing the value of its once cult surfwear brand to practically nothing. Its flailing performance was largely blamed on the brand losing sight of its core consumer base - surf-oriented youths seeking cutting-edge alternative brands. At the same time, there is the possibility that its core audience itself may have evolved given the faddish nature of surf culture and its extension, skate culture.

Weak progress ahead
Euromonitor International expects the Australasian apparel market to register a tepid 0.4% CAGR over 2012-2017.

The region will fare marginally better than North America and Western Europe, but will remain overshadowed by Asia Pacific with a 5.8% CAGR. The region's growth is intrinsically tied to the ongoing power shift to Asia, also making it vulnerable to the region's economic fluctuations.

Despite this relatively weak prognosis, Australia's long underserved market is set to remain an area of focus for many international apparel brands as they chart their course to becoming truly global players. Growth will be focused predominantly on the economy end of the market and on functional and durable products.

Click here for details of the Apparel in Australia report from Euromonitor International.