IBISWorld senior industry analyst Lauren Magner whips over the year ahead for wholesalers. This is part of a 36-page 2017 special in Ragtrader magazine - to subscribe, head here.
The fashion wholesale industry has suffered over the past five years, as wholesale bypass has become increasingly prevalent. The global reach of many clothing companies has grown, resulting in low-cost manufacturers in countries such as China and Vietnam becoming more accessible to retailers.
Consequently, many large clothing retailers purchase products directly from foreign manufacturers, shutting wholesalers out of the supply chain. Most demand for clothing wholesalers now comes from smaller retailers that do not have the scale to source directly from overseas.
The trend of wholesale bypass is anticipated to continue during 2016/17, as advancements in technology and online systems provide clothing retailers with greater scope to place orders with foreign manufacturers.
IBISWorld forecasts clothing wholesaling revenue to decline by 1.8% over 2016/17, as consumer sentiment weakens and affects expenditure on clothing at the retail level.
A difficult and changing retail environment has also negatively affected wholesalers over the past five years. Instability in financial markets has caused significant volatility in consumer sentiment, and many households have reined in discretionary spending by either postponing purchases or opting for cheaper alternatives.
Consumers have been reluctant to purchase products at full price, and a growing trend towards bargain hunting has emerged. This has placed pressure on clothing retailers to discount stock more frequently to boost sales.
The rise of online shopping has also impinged on retail sales as customers have become increasingly comfortable using websites to compare prices and purchase best-value items from both domestic and international retailers. Consequently, clothing retailers have demanded lower prices from wholesalers to compete more effectively with online competitors.
This has eroded profitability for clothing wholesalers, and is expected to continue affecting margins throughout 2016/17.
Despite the prevalence of wholesale bypass, and pressure from retailers to lower prices, wholesalers have some opportunities for growth.
Technological advancements in the form of computerisation have supported the industry. Many industry activities have been redefined due to technological advancements in cloud information storage and online shopping. Operators can now manage inventories using software that allows them to access information from multiple warehouses in different locations with ease.
Cloud storage improves the speed and reliability of data and information flow, allowing operators to efficiently allocate inventories across different warehouses.
Online shopping has helped the industry innovate. Clients are better connected to their suppliers than ever before. Downstream buyers can now easily place orders through online systems, minimising the need for complicated and time-consuming paperwork.
Furthermore, some wholesalers have begun to use online channels, setting up websites that allow consumers to purchase wholesale items directly. This enables wholesalers to effectively bypass retailers and generate higher profit margins. This trend is anticipated to continue during 2016/17, alleviating some pressures faced by wholesalers.
The industry is highly diverse and fragmented, and is dominated by numerous small, independent operators. However, the share of non-employing businesses has declined marginally over the past five years, with an increase in smaller wholesalers that hire between one and 19 employees.
The prevalence of wholesale bypass has forced some wholesalers to expand operations and distribution networks across Australia to remain viable. As a result, large industry players have increasingly become vertically integrated, enabling them to control a large portion of their supply chain, from production to the retailer or consumer.
For example, industry player Pacific Brands manufactures its products overseas and then wholesales to private retailers or sells directly to consumers through its own retail operations. In 2016/17, IBISWorld anticipates vertical integration will continue.
Building up niche markets represents another opportunity for wholesalers to reinvigorate the industry. For instance, OCC Apparel manufactures, wholesales and retails organic cotton clothing products.
Due to growing demand for organic cotton clothing, the company has increased imports of raw materials from countries such as Turkey and India. OCC Apparel has been quickly claiming market share using a different approach.
As consumer and business interest in sustainability increases, IBISWorld expects more manufacturers and wholesalers to enter this niche market in 2016/17.