It’s impossible to ignore that the local retail environment is struggling to make ends meet, as local consumer behaviour shifts and retailers look to international suppliers in an effort to circumvent local wholesalers and manufacturers.
Desolating growth within the local retail environment has exerted pressure on the retail supply chain, and according to IBISWorld, economic uncertainty, declining consumer confidence, wholesale bypass and increasing competition from cheaper imports have contributed to the strain.
The shift in contemporary consumer behaviour from boutique shopping to bargain hunting has pressured retailers to lower prices.
“Consumers have become accustomed to price reduction and now expect to buy items at sale prices- whatever the time of year. They are now also becoming increasingly savvy in the use of price-comparison websites, as well as buying items directly online from both domestic and international retailers,” IBISWorld Australia General Manager Karen Dobie said.
In an effort to compete in the modern retail environment, clothing retailers are cutting costs in order to provide savings to customers. For Australian wholesalers and manufacturers, this has resulted in steady declines in revenue as retailers cut wholesale intermediaries and source products directly from international manufacturers.
“International manufacturers face significantly cheaper operational costs than are possible in Australia- making it cheaper for retailers to source items offshore,” Dobie added.
According to IBISWorld, strained industry profit margins are expected to fall from 7.9 percent of revenue in 2006-07 to 7.2 percent by mid next year. The company is anticipating a volatile road ahead for the industry, as the disorderly global financial markets continue to contribute to low consumer sentiment and spending cutbacks.
“While the high Australian dollar will provide some protection to retailers’ profit margins, it will also encourage retailers to source more clothing from overseas, forcing more clothing manufacturers to close or to move offshore to competitive low-cost countries such as Vietnam, Pakistan and India,” says Dobie.