Why Aussie fashion firms are tanking

Why Australian fashion brands are tanking.

Someone recently asked SIA why so many Aussie fashion firms are struggling to survive.

Remember Covers, Dinnigan, Colorado, Brown Sugar, Satch, Ksubi, Bettina Liano, Lisa Ho and others.

She also asked how firms can go into administration when they manufacture overseas? Implicit in this comment is that manufacturing overseas is relatively cheap so profits must be healthy.

Protection

In Australia, the relevant developments began about 10-15 years ago.

Up until that time, Aussie firms were protected from competition in two ways.

Firstly, there were tariffs (taxes) on imports which made those imports considerably more expensive & encouraged the Aussie consumer to buy local.  The textile, footwear and clothing industry was the recipient of hefty tariff benefits. 

Secondly & more importantly, Australian firms were protected from competition because:

·        Australia was geographically remote from the ROW

·        The Australian masses did little traveling to shop overseas

·        Australia wasn’t seen as an important market for foreign companies to supply goods to

Finally, 10-15 years ago was no internet to allow Australian consumers access to the global market.

Internet

Then something which would forever change the industry happened. The internet & now social media.

It meant Aussie consumers could now also go directly to the overseas brands to buy and avoid, not just GST, but import duties.

Shopping starved Australian meant that Australia has become a very important market for foreign brands.  Sites like net-a-porter and asos report huge growth from Australia. Fast fashion like Zara, Topshop, H&M are only the first of many to set up stores here.

So, the local brands now have more competition. A lot more competition.

Innovation

This means that unless they innovate, the local firms will be struggling to maintain profits. Sales will go down and unless costs also decline, the struggle is very real.  To make it worse, its been a discounting culture for a long time now. Stores are permanently on sale. So it gets even harder to maintain margins. 

The profit equation is made up of sales & costs. So even if you manufacture overseas (implying your costs are low – however that is questionable…), if you’re being hit on the sales side, life wont be all rosy. You are still getting squeezed.

I mentioned innovation. In this context, what is innovation?

·        Improvements in technology (online platform, social media etc)

·        Identifying new niche markets (youth, petite, plus size, resort etc)

·        Overhauling the supply chain so that costs reduce

·        Anything that we haven’t thought of yet that improves that bottom line

Innovation that the customer has seen may include the pop up store concept, spend & saves, celebrity promotions, VIP events, ipads in change rooms, collaborations with artists, rats on the catwalk (Ksubi) & limited edition output…

Business issues

Australian brands were slow to innovate – David Jones is a good example, which about a year ago, was at the dinosaur stage with its online processes.

Australian brands also haven’t done themselves any favours – most of the creatively innovative brands have no idea about business & the cash flow & profit issues that go with it. This has contributed to these businesses tanking.

There is no point in making fabulous clothes if your suppliers are unreliable & you cant deliver the finished product on time to the stores.

There is no point in making fabulous clothes if the extravagant marketing events you host are blowing the bottom line.

There is no point in making fabulous clothes of your computer system keeps glitching & you cant view what is selling on a daily basis – let alone on line shopping glitches.

In summary, the business and IT issues may be boring, but absolutely necessary.

Our Aussie brands have been slow to appreciate this. Part of it is that these brands started small & their growth has taken them by surprise. Even Dion Lee was recently quoted with saying people expect him to have a marketing department & a production department and an accounts department. And all it is, is him & a few assistants.

I am not suggesting they need to know the business side – but they need to hire someone who understand business the business issues.

The ones growing really fast are a sign of danger ahead. Fast growth tends to mean debt funding. When times get tough and you cant service your debt, the problems begin.

Collette bowed out without debt. Every other brand which has closed had debt & loads of it. Which means they has cash flow/profit issues & that means either not selling enough and/or costs are too high – despite the fabulous merchandise.

The $A

You cant have a discussion like this without mentioning the $A. For anyone importing or exporting anything, the dollar is important.

Apart from the GFC, the overall trend has been for the $A to increase in value over the last 10+ years. Yes its gone down in the last few months, but overall the trend has been upwards. Strong dollar means exports are cheaper and imports are more expensive.  When you manufacture overseas & buy product overseas, no guesses what the upward dollar will do to your bottom line. There is a possibility that some of these firms were hedging against movements in the dollar, but the way I understand it, the majority of them, being small players, were not.

Costs

On the costs side, a number of factors are worth mentioning.

Take cotton for example – prices are at their highest at the moment. In fact the market has been quite unstable & at times over the last few years, the cotton price has doubled.  That’s why brands are looking at substitutes, namely rayon.

Made in China

As a location to manufacture, as the standards of living in China have gone up over the last 20 years, the cost of manufacturing has also gone up.  Firms have been looking at other alternatives for the last 10 years at least….Vietnam, India, Indonesia. This is a huge & costly exercise to change factories and go to a whole different country. This is one of the “supply chain” changes I always prattle on about.

GFC/Asian flue virus etc

Factors like GFC (2007/2008), Asian flu virus (early 2000) and 9/11 are all factors which caused demand to contract as people became more cautious with their spending.  It caused Aussie firms to pull in the reins (eg: closing overseas stores) but these issues still had a negative impact overall given the wobbly business expertise.

Summary – skip reading the above, this is the 5 second version

1. Ten years ago. the internet freed Australian consumers from the stronghold which Aussie fashion firms had as a result of Australia’s geographic isolation.

2. Competition (from international brands) sky rocketed & Aussie brand sales went wobbly.

3. Further, the Aussie firms were slow to innovate to keep up with the issues being faced.

4. Despite the fabulous merchandise, the business side was neglected. Tanking was inevitable for a lot of these firms especially those (most) funded with debt.

Country Road SS 13/14 - The pieces you disliked

Last year I posted “It’s in the clearance sale cos no one wants it”

http://styleintoaction.blogspot.com.au/2013/06/its-in-clearance-sale-cos-no-one-wants.html 

The thrust of that post was that if it’s on the clearance rack, there is generally a good reason for it. So be alert & check yourself each time you find yourself wanting something on that rack. 

Basically, the good stuff sells way before clearance time.  That's code for classic and flattering. Clearance racks essentially have all the problem children.

Issues which love the a clearance rack may include:

* unflattering colours (eg: neon? super brights?)

* extreme cuts eg: very directional runway looks

* unflattering shapes eg: items that look great on the fit model but not so great on a “real body”

* inappropriate pieces for that store’s look eg: suits in a casual store or vice versa

Today I went to the Country Road outlet store in Sydney’s Birkenhead Point and I decided to do little exercise.

Rather than dive in & look for loot (OK, I did that after the exercise), I stepped back & observed what was in the store.  I didn’t pull anything off the hangers, I just looked & took in the looks which were hanging there.

The point of this is to figure out what didn’t sell well from their SS 2013/14 women’s collection. I would then see if there was any logic to why the clearance items were left over. 

It was also good timing because the main stores are starting to fill up with winter & have now pushed a lot of summer to the outlet.

My exercise may produce different results in Melbourne or Perth, but overall there is no reason why big picture, it wouldn’t produce representative outcomes for any Aussie city.

As I was looking, this is what jumped out in spades:

1. Slim skirts with deep ruffle hems – lots of fabrics & prints, the common denominator was that the ruffles were at least 20 cm deep.

There was so many of these, I couldnt keep up. 

What this means: Deep skirt ruffles disrupt a look & can look out of messy or whack (pardon the very technical fashion jargon) with a jacket or top.

I didnt think the ruffles were particularly "fattening", but when a store is carrying so much of this look as it was, there is a flattery issue with the look. 

I think the flattery issue is in the length. The ruffle tends to add length & the average Aussie woman (who is on the short/petite side), may be swamped by that length. 

2. Tops with giant ruffles (at shoulder line & sleeves). 

What this means: This trend is too directional & makes it impossible to wear a jacket/cardi.  It’s too fashion-y for the typical CR customer but may have been perfect for the Gucci customer, for whom it was originally produced & which inspired CR. Interestingly, CR seems to have done a lot of these ruffles, again for AW 2014…watch this space.

3. Boxy sweaters with no indentation at the waist

What this means: Let’s add bulk to our waist because it’s trendy. Thankfully CR customers don’t agree.

4. Batwing or dropped shoulder sleeves 

What this means: Let’s add bulk to our arms & torso because it’s trendy. Thankfully CR customers don’t agree.

5. Really bright colours – emeralds, yellows, oranges & these were in dresses in particular

What this means: Super brights don’t flatter most complexions. You need very deep/dark colouring to be flattered in these.

6. Neon colours – dresses in particular

What this means: See “really bright colours” at #5.

7. Body con knit dresses in small sizes 

These were usually simple styles but included tiers of fabric (like a bandage dress), twisty fabric around the tummy, a cut out here or there but essentially knit body con dresses with vertical lines.

What this means: This one is interesting.

CR makes its dresses long in the body & it’s particularly evident in its small sizes. As far as I can work out, they have been doing this for ages – its not a new thing for them.

But let’s think about the typical size 4, 6 or 8 friends we have. None of mine are tall. They are all short – ie: petite.  So why would they buy these dresses which would typically have a surplus 5 cm+ in the torso? The answer is they wouldnt & that's why the small sizes (XXS, XS, S) were in clearance. Don’t forget too that knits like these cant be altered.

8. Metallic gold tones in sweaters & wovens

What this means:  I don’t think gold (clothing) sells as well in summer as it does in winter & I think silver sells better in summer than gold. Yes, metallics were around for SS 2013/14, but there was nothing silver on the clearance racks – it was all gold. So CR either didnt do any silver, or if they did, it sold well. Either way, the gold was a bad move. 

9. Suiting

I saw alot of clearance suiting, compared to what was in the collection – I am not suggesting that there was alot in clearance compared to the outlet as a whole. The outcome though seems to be that the suits didnt sell well. 

What this means: The CR customer does not look for suiting. That’s why they do very little of it and that’s why most of that small potion of the collection ends up in clearance anyway.

Back in the late 80s/early 90s CR’s specialty was suits.  They deliberately changed their strategy about 10 years ago to go for a more relaxed look & a more youthful customer.

10. Creams & nude was the most common colour by far. 

There was considerably less of anything in monochrome navy, black, white, pastels & mid range hues.

What this means: Creams/nudes were huge for SS 2013/14 and CR didn’t sell anywhere near as much as it had hoped.

Frankly the vast majority of things in that store today were items that don’t flatter the average Australian woman.  I am not at all surprised by what I saw in the outlet being the things that no-one wanted.

The average Australian woman is on the short side, on the plump side & at least a size14 (in CR sizing). Whatever the target market of Country Road, the average Australian woman customer of Country Road certainly didn’t adore the styles of items I have listed above for SS 2013/14.

If you want to think about it differently - try this. An average RRP at Country Road/Trenery may be $100 - $150.
At the outlet, the average price, store wide may be in the vicinity of $30-$50. If an item is that fabulous, at that kind of discount, why is it still on the clearance rack?  The answer is because its not that fabulous at all. Understatement. 

1. What do you think of these items?

2. Did they appeal to you over the summer?

3. Are you tempted to dash over the outlet store and top up your wardrobe?

On the plus side, I noticed that the children’s area was quite compact (code for small). I was told that they cant unpack the children’s stuff fast enough.

Disclaimer: Please dont use these photos as hard core evidence of the outlet's inventory as at today. What I am saying is dont go over there tomorrow looking for these - call the store & ask whether the identical item is there before you go on your trip. The photos are examples of what I saw in most cases, but I am not guaranting identical stock numbers in all cases. 

10 Wearable Ways with Jeans

1. That 70s vibe

2. Preppy 

3. Always black

4. Chambray classic 

5. Right on the white shirt

6. Fairest maidens

7. Plaid city

8. Colour

 

9. Coats 

A camel coat is a classic

Animal is always a classic

10. Fur

TIPS:

Don't suit boyfriend jeans?

Wear them straight/skinny or boot cut.

Big bum?

Keep the wash dark without any horizontal slashing or crease marks. 

Take it up a notch?

Add heels and a jacket.

Don't wear jeans?

Swap for a pant, remove the slashes & away you go.