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IBISWorld industry analyst Kim Do looks at a small, but powerful, spending category.
In August this year, online disruptor The Iconic announced its expansion into the $3.7 billion childrenswear market.
In the same month, fast fashion chain Decjuba Kids launched in New Zealand following “unprecedented demand” and activewear brand Running Bear announced the debut of RB Girl.
Despite overall turbulent retail conditions, the infants’ and children’s clothing retailing industry continues to trade strong, having performed well over the past five years.
The industry has increased at an annualised 2.3% over the five years through 2018-19, outperforming the consumer goods retailing industry, which has grown at an annualised 0.3% over the same period.
This strong performance in comparison with the wider retail sector, has led a number of fashion retailers and brands to extend their product lines to include children’s clothing in recent times.
One of the main factors driving the industry has been growth in the population aged 14 years and under. Over the past five years, this population has trended upwards.
The number of people in this age group was bolstered by strong increases in the birth rate between 2004-05 and 2007-08.
These individuals have continued to fall in this demographic, while the number of people exiting the age group has grown at a slower rate. In addition, an overall increase in net migration over the past five years has also contributed to growth in the population aged 14 and younger, as many workers and migrants that arrive in Australia have young families.
While price can be a prominent basis for competition, specialised retailers of infants’ and children’s clothing are increasingly positioning themselves at the premium end of the market, as they are often unable to compete on price with low-cost department stores.
In particular, a rising number of industry retailers are marketing themselves as eco-friendly infants’ and children’s clothing retailers, stocking products made from materials such as organic cotton. As children have greater access to social media, it is playing a more active role in influencing children’s style and clothing choices in comparison with previous generations.
Children are increasingly demanding the latest styles and trends, this allowing some brands to command higher prices, assisting with industry revenue.
As the infants’ and children’s clothing retailing industry has demonstrated growth over the past five years, this has made the market an attractive opportunity for adult clothing retailers to diversify and expand their revenue stream. However, adult clothing retailers are not included in the industry as they primarily sell adult clothing and therefore, represent a threat to the industry.
Adult clothing retailers are increasingly leveraging premiumisation trends in the children’s apparel market, offering the latest styles in children sizing.
As consumers increasingly demand value-added services such as convenience, adult clothing retailers have offered their own range of childrenswear. Brands are increasingly targeting parents that are shopping for themselves, offering items for their kids to minimise the need to go out of their way to a store that only sells kid’s clothing.
This expansion indicates that the collapse of Pumpkin Patch in 2016, where it folded under $76 million in debt prior to its acquisition by Catch, has not discouraged new players from the market, and is rather a reflection of changing shopping behaviours.
Despite positive trends in the children’s wear market, retailers of children’s clothing are expected to face fierce competition from online-only retailers and department stores.
Department stores such as Kmart and Big W stock a range of infants’ and children’s clothing and using their economies of scale, can often source products directly from manufacturers at discounted prices. These large retailers can then pass the cost savings on to consumers through lower prices.
The lower price points offered by these retail chains provide value-conscious families with cheaper alternatives when buying apparel for their children. Although premiumisation trends exist, price will continue to remain a strong basis of competition, especially as infants and children quickly outgrow their clothing.
Over the next five years, the infants’ and children’s clothing retailing industry is anticipated to continue growing, albeit at a slower pace than the previous five-year period. Industry revenue is forecast to increase by an annualised 0.7% over the five years through to 2023-24, to $3.8 billion.
A forecast increase in household disposable income is likely to increase expenditure on children’s clothing over the period. In addition, consumer sentiment is anticipated to be positive over the period, further indicating increased demand for industry products.
Despite these positive trends, growing competition from online-only and department store operators is anticipated to limit industry growth. General adult clothing retailers are anticipated to become a growing source of competition over the next five years, as many of these retailers are expected to introduce children clothing lines to be sold alongside their main product offerings.
In particular, the industry will continue to face intensifying competition from online channels. Advancements in technology will allow online retailers to develop more sophisticated websites and improve navigation. A significant proportion of Australian consumers already use the internet to compare prices and products, and this is anticipated to become more common over the next five years.
Consumers are expected to increasingly use mobile phones to make purchases over the next five years, further driving the popularity of online shopping. Traditional retailers are likely to continue developing multichannel strategies to better compete against online-only retailers over the next five years.