Wednesday, February 19, 2014

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.


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.


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.


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.


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.

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