Is Australian Retail Doomed?

Everything is down, down, down in Australian retail.  It’s 50% off here, closing down sale there. And the news seems to be filled with company statements to the tune of ‘we just couldn’t hack it here’.

Overall, the retail landscape has never looked bleaker.

In the midst of these harsh conditions, global fashion retailer Esprit Holdings Limited [HKG:0330] is the latest to fall victim to the cutthroat competition in the Australian market.

As the company announced on Thursday, they will be pulling out of the Australian and New Zealand markets, shutting over 60 outlets and leaving 350 employees without jobs.

Esprit has been operating in Australia since the 1980s. But as the business has been unprofitable for some time, they had to make the ‘unfortunate but unavoidable’ decision to leave Australia. As the executive director of the Hong Kong Stock Exchange listed Esprit group, Thomas Tang, confirmed:

In order to strengthen our foundation, the group intends to withdraw from these markets and this will allow us to concentrate efforts and resources to develop other markets in Asia.

Esprit isn’t the first international retailer to bow to the ‘unavoidable’ pressure of Aussie retail.

American fashion retailer GAP announced last year that they would be shutting their doors in Australia due to harsh market conditions. And British retailer Topshop fared even worse — last year collapsing under the weight of their $35 million debt and entering voluntary administration.

Esprit also joins Australian businesses like David Lawrence, Oroton, Marcs, Payless Shoes, Pumpkin Patch and Rhodes & Beckett which have all shut up shop in the past two years. And with giant retailers like Myer, The Good Guys and JB Hi-Fi all downgrading their earnings forecasts as their share prices plummet, conditions don’t look set to improve.

Perusing this long list of flops, it looks like the traditional retail model is limping along sluggishly while digital retailers soar with ease.

Digital dominance

The success of retailers like Amazon has demonstrated that the digital experience is the way of the future when it comes to retail. How we shop and consume has been completely revolutionised, and the walk in-and-buy model is struggling to compete.

Although Amazon had a soft start in Australia, the capacity it has to dominate our retail market is ever increasing. They are still yet to roll out the complete online experience that is available in the US, including the Amazon Prime membership service that allows for free delivery.

So in a move that even has digital giants like eBay Australia worried, Amazon has announced their plan to open a second Australian warehouse in Sydney in the latter half of the year. As this will allow for a broader product range and widen the delivery option for third party sellers, this could be the stoke that sets Amazon’s business ablaze.

This will add to the advantage that international retailers like Amazon already have. As research firm Morgan Stanley found, Amazon’s products are significantly cheaper than most Australian retailers — making their business ultra-competitive. So as Amazon pushes further into the local market, this will only add to the crushing pressure retailers are under.

If Aussie retailers want to compete, they’ll need to advance the digital consumer experience and spend more time improving their technology. Whether that’s through cloud services, apps, blockchain or cryptocurrencies, 2018 is the year that the digital economy will thrive. 

So as shoppers and investors, it pays to be savvy when it comes to the virtual world of data and consumerism. If you want to reap the benefits of the bourgeoning tech revolution, and all the latest in business innovation, you’ll need to keep your finger on the pulse to stay ahead of the herd.

One of our long time editors, Harje Ronngard, has just launched his new service which has this exact purpose in mind. It’s called Wealth Eruption and you can access it right here.

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Until next week,

Katie Johnson,
Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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