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Aussie rules: the battle for customers down under

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As UK brands seek to establish themselves in the Australian market, local players are raising their game to keep their customers on board.

The Australian retail market is an appealing prospect for UK brands eyeing expansion. Last month, womenswear retailer Mint Velvet launched into the country for the first time. Independent labels are seeking to expand there and it is one of Asos’s fastest-growing markets.  

The appeal for retailers is clear: consumers in the country have a relatively similar mindset as UK shoppers in terms of trends and cultural influences, and Australia is a wealthy country with a growing economy. Research agency Statista says the Australian apparel market is worth US$19.7bn in 2019 (£14.9bn) and is is expected to grow annually by 2.3% until 2023. In comparison, GlobalData said the UK clothing market was worth £46.3bn in 2018 – with a population almost three times as large as Australia.

However, it is no easy win. Australia’s land mass is almost 32 times larger than that of the UK, but it has a relatively small population of almost 25 million – a combination that presents logistical difficulties – and changes to tax rules mean overseas retailers are faced with additional expenses. Moreover, domestic players with high-quality offers have taught Australian consumers to demand the latest styles and top-notch propositions – those entering the market cannot expect instant success.

The ecommerce boom has opened up the retail sector in Australia. Local players are overtaking international names as services become increasingly sophisticated. Once-poorly connected communities are now able to access the same brands and stores via the internet as those based in cities with bricks-and-mortar stores. Top domestic ecommerce sites include womenswear retailers The Iconic, Showpo, Cotton:On and Forever New. Many offer swift delivery, free returns or click and collect with far more ease and fluidity than retailers based overseas.

“The [online] Australian fashion retail market could be said to be on a par with the UK now,” says Merline McGregor, general manager for Australia and New Zealand at ecommerce consultancy Practicology.

“Of course, not every retailer meets the same standards, but the best offer click-and-collect, same-day delivery, free delivery above a spend threshold, live chat, social customer service and more.”

She continues: “I don’t think that consumers in Australia are substantially different from the UK. They want to be inspired, they want shopping online to be intuitive, and they want fulfilment to be convenient and price-competitive.”

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The Iconic

Young fashion ecommerce site The Iconic, for example, offers same-day delivery in Melbourne, Adelaide and Brisbane, and three-hour or evening delivery in Sydney. As its operations are based in Australia, it can provide this swift delivery and services such as live chat for customer enquiries. In comparison, the fastest express delivery service to Australia from UK-based Asos reaches metropolitan area customers in two days.

And Australia-based sites are gaining popularity: launched in 2011, The Iconic now receives more than 150 million visits per year, and grew its market share from 9% to 15% between 2017 and 2018.

In Practicology’s research into the Australian ecommerce market, which compared 15 Australian and 10 UK retailers, 44% offered same or next-day delivery – all of which were Australian. No UK-based brands reviewed could guarantee next-day delivery.

Erica Berchtold, CEO of The Iconic, explains that Australian ecommerce sites are now pushing their offers beyond the “standard” delivery and product propositions to maintain growth: “Our growth has been phenomenal, and we are also now carving out our points of difference. It has to be more than just standard supply chains and delivery offers. Those are things that everyone will catch up with.”

“It’s about saying – what is our actual proposition? If you look at The Iconic, it is the sheer volume of brands, the delivery and supply chain efficiencies we give to our customer.”

It can be hard for people to achieve the scale that is required to make those costs affordable

Erica Berchtold, The Iconic

The Iconic is introducing tools such as fit finders, “Snap to Shop” visual search, and a “follow the brand” feature, which will allow shoppers to create a “playlist” of labels to keep track of.

“We’re able to hold our own against international online retailers,” Berchtold continues. “With the features we’re developing, I don’t see us as being on the back foot, and there is a lot more in the pipeline that we’re working on.”

Berchtold explains that international names entering the Australian market can face unexpected challenges of scale and costings for both bricks and mortar retail and ecommerce: “Two points that make it quite tough are that the cost of real estate and cost of wages, which are quite high in retail. When you couple that with the fact that we only have a population of 25 million, it can be hard for people to achieve the scale that is required to make those costs affordable.

“The geography is just so enormous and to have a consistent message out there can be difficult. The cost base is more expensive in Australia than overseas. To set up your own supply chains and employ people is more expensive.”

McGregor adds that since July 2018, the goods and services tax (GST) (equivalent to VAT) applies to imports valued up to A$1,000 (£537.60), as well as domestic goods: “Overseas retailers that would have avoided GST must now include this 10% levy in prices, levelling the playing field with local brands.”

Last week, Anglo-Australian flash Sale site MySale said the changes contributed to its EBITDA loss of A$5m (£2.7m) for the six months to 31 December.

Keep it local

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Some international retailers have invested in localised distribution facilities to keep capitalise on demand from the market.

“Our business opened in the UK in 2002 and we noticed, over time, that we were fulfilling customer orders in Australia, which made us realise that there was an engaged market Down Under,” explains Rob Godwin, director and head of Australian operations at lingerie and sex toy retailer Lovehoney. “In 2016, we opened our warehouse in Brisbane to ensure that we were offering people buying from Lovehoney in Australia the same customer service and speedy delivery promise that we have in our other markets.”

Following the opening of the warehouse, Lovehoney revenues in Australia rose by £31.6m for the year to 31 March 2018 – it declines to reveal further details.

Other retailers are seeing similar growth in the country – despite the challenges.

“We’ve had really strong online sales growth from the Australian market, for the past three years we have seen 25% year on year increases,” says Paul Hayes, CEO of Seasalt. “It’s great to see that a little bit of Cornwall is making its way across to the other side of the world.”

Australian customers are clearly eager to shop, and investing in infrastructure and delivery capabilities is key for new brands and established names alike.

In response to increased Australian demand, Royal Mail International launched its first ever tracked returns service for Australian customers returning items to UK retailers in February this year.

The company’s research indicated that 30% of Australian shoppers purchase from UK websites, and 12% of those want to return items. The service aims “to increase customer confidence and peace of mind, alongside giving retailers greater visibility of their stock”.

British knitwear brand Hades has been selling in Australia since it was founded in 2015. It does not follow traditional seasonal “drops”, and experienced a 30% rise in website hits from Australia between its first and second collections. Swift delivery to the Antipodes is now a key focus.

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Hades

Shipping from the UK via DHL, Hades can get products to Australian shoppers in three days. In bid to build the brand’s presence in Australia, Cassie Holland, the brand’s founder, explains that Hades is working to reduce shipping costs, even if it means taking a financial hit.

“We place Instagram marketing for the area, and then reduce shipping rates for a certain period,” she says. “Shipping from the UK is £20, but it probably costs us more than that to actually ship it. It’s a market that we’re looking to target, so we’re happy to take a hit on that to make sure it’s as affordable as possible.”

British womenswear brand Rixo is opting to focus on growing a stockist base in the market to raise awareness for the brand and gain an understanding of the Australian customer.

It launched there in 2017 with stockists such as Elle Boutique in Perth, and Mode Sportif in Sydney and Melbourne. It is now also stocked by retailers such as department store David Jones, Filly’s Stable in Albert Park and Calexico in Perth, and the country is one of Rixo’s top five global markets.

 

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“With new wholesale territories, we always like to work with independent retailers, as they know their customers inside out – often by name. It’s great to learn about the shopper in more detail,” explains Henrietta Rix, co-founder and creative director. “Orlagh [McCloskey, Rixo co-founder] and I do all of our own wholesale appointments and get to know the boutique owners personally. They dedicate their lives to their store and know their shoppers so well, so it’s a great way for brands to reach new markets and customers on a local level.”

“Having a major retailer like [department store] David Jones allows brands a bigger reach nationally,” she adds. “They are renowned and do amazing brand and social events. We launched in their Sydney store in 2018. They really do help support new emerging brands in the market.”

Many UK brands are still not addressing the counter-seasonality issue

Merline McGregor, Practicology

For some brands, including Hades, part of the appeal of Australia as a market is “reverse seasonality” – for example, Australian demand for knitwear peaks as UK temperatures warm up and demand here is weaker.

“We are looking at markets that can counteract a seasonality slump that we get in the summer months,” says Holland.

However, Practicology’s McGregor explains that international retailers are often undone by their failure to localise assortments.

“Many UK brands are still not addressing the counter-seasonality issue, and merchandise the exact same stock on their UK and Australian sites,” she says. “Australia has just had its hottest summer on record. If you were an international brand trying to sell autumn ranges during that time, I expect your sales will have suffered.”

It must also be acknowledged that, despite a great deal of potential, the market in Australia is facing similar issues to those heavy on the shoulders of UK players. Rising rents, increasing discounting, crumbling consumer loyalty and increasing competition in the market mean that retailers must have a strong, solid offer to survive.

Profits at big-name Australian retailers are stuttering. For example, operating gross profit at upmarket department store Myer, which has 64 stores across the country and stocks brands such as Jil Sander and Tommy Hilfiger, fell by 2.9% to A$1.18bn (£630m) for the year to 28 July 2018. Total sales declined by 3.2% to A$3.1bn (£1.67bn) in the same period.

International retailers such as Asos, which counts Australia as one if its fastest growing markets, are also acknowledging its complexities – in its 2018 annual report, it flagged the country’s “more challenging” backdrop for growth compared with other growing territories such as Russia and the US.

Nevertheless, Australia remains an enticing prospect for brands that are hunting to expand their reach. But even those that are able to work around the vast distances – and related costs –  will need to keep a close eye on emerging and thriving Australian competitors to avoid the risk of being left behind.

 

 

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