The rise of global fast retailing businesses like Shein, Temu and Amazon in the Australian market may sound like they've got a secret recipe for success, but the real truth is likely not based on how well these brands are marketing themselves here, but how tight the purse-strings of most everyday Australians are.
This is according to Roy Morgan's head of retail research, social and consumer trends Laura Demasi, who says that Kmart is also winning in what she calls a "trading down" boom. This is where customers are forgoing premium price items for cheaper alternatives.
However, Demasi adds that Kmart's growth is a likely contributing factor as to why Australian fashion group Mosaic Brands is exiting five of its fashion subsidiaries, closing up to 200 stores in the process.
Alongside the trading down boom is a surge in Australian consumers buying less, with the Australian Bureau of Statistics data showing that retail volumes have been falling for some time.
“The big winners have been the online marketplaces - Amazon, and of course the ultra cheap platforms Shein and Temu,” Demasi says. “All have experienced strong growth over 2024 at a time when most other retailers have struggled.
“Amazon added one million shoppers to its customer base in the year to June 2024, while both Temu and Shein increased their shopper numbers by around 30 per cent since the end of last year.
“Kmart has also massively benefited from this trend - they reported a 6.3 per cent increase in sales for FY24 - as people spent more of their shrinking discretionary incomes at Kmart to make those precious dollars stretch as far as possible.”
And this is not a trend coming from just lower-income households, according to Demasi, but even across middle Australia.
“As much as some of the more premium retailers don’t want to admit it - the likes of David Jones, Myer and The Iconic - Kmart, Temu, Shein and Amazon have all been chipping away at their sales,” she says.
“Initially, these retailers did not believe they had the same customer, and that was probably true a year or 18 months ago - especially Kmart, Temu and Shein - but that’s changed, there’s lots of cross over now.
“As cost of living pressures mount and there’s literally almost nothing left at the end of the fortnight or month, all sorts of people are trading down, whether you’re in a $250,000 income household or an $80,000 income household. The full spectrum of people are swapping out the $80 white t-shirt from David Jones or The Iconic for the $10 one at Kmart or the $5 one from Temu.”
While the trading down trend has been affecting most retailers, Demasi says that Mosaic seems to have been hit especially hard, which forced the fashion conglomerate to announce a winding down of five of its subsidiaries - Rockmans, Autograph, Crossroads, W.Lane and BeMe brands.
Citing Roy Morgan data, Demasi says Kmart has particularly eaten into Autograph’s market share.
“Overall there’s been a big increase in the number of Autograph shoppers also buying from Kmart across all categories - now 8 in 10, up from 60 per cent two years ago.
“And when we look at women’s clothing specifically, the picture is startling. Year on year, there’s been a 42 per cent increase in the number of Autograph customers also buying women’s clothing from Kmart.
“This has resulted in a big increase in Kmart’s share of wallet: among Autograph shoppers, Kmart has doubled its share of wallet of women’s clothing - from 5 per cent to 10 per cent in just one year.
“This is a clear cut case of trading down. A women’s dress at Kmart cost around $35; at Autograph it’s more like $120.”
But why are all consumers struggling? Is it really just the rising cost of goods? Demasi says it more than that.
A recent OECD report shows that Australians have experienced the biggest drop in discretionary incomes in the OECD - down by about 8 per cent in the last two years to March 2024.
“To cope, Australians are spending everything they earn. The ABS Household Savings ratio is at a 17 year low - households are saving just 0.6 per cent of their incomes; it’s normally between 4-5 per cent.
“Not surprisingly, consumer confidence remains low. While it’s better this year than 2023 it’s still stuck around 80, normally it sits around 110.
“So with this all happening in the background, it’s a no-brainer as to why people are trading down to Kmart, Temu, Shien and Amazon.”
But it’s not all doom and gloom. Demasi says that all this trading down is a reaction to all the above, with much of it driven by high interest rates. Once those rates start to go down, consumers will have the opportunity to trade up into their once-favourite brands.
This perhaps explains why Mosaic Brands held onto its higher-revenue and more profitable brands including Millers, Noni B, Rivers and Katies, with the aim to claw back the customers who have deviated towards cheaper alternatives recently.
Demasi says it clearly makes sense to consolidate a business in this current economic climate, but adds that the future will be challenging considering the way consumers have embraced this ultra-cheap cultural phenomenon.
“This really is a new landscape where ultra-cheap has truly become ultra-cheerful,” the retail researcher says.
“There is no stigma now to wearing the $10 t-shirt from Kmart or the $15 dress from Temu, in fact it’s a sign of savviness and even a little bit cool now. People are proud of themselves for saving money on items where there’s little differentiation other than the brand name on the tag.
“So in this environment, for the remaining Mosaic brands - being really clear on who the customer is will be vitally important in helping them to refresh those brands and create distinct shopping experiences that resonate with their customer.”
It is also important to focus on product quality and design. As Demasi says, Mosaic Brands will need to prove to the customer why that Katies button down shirt is worth $80, when Kmart sells something similar for $20. “Especially now that more of their customers have started buying bits and pieces from Kmart in the last year out of necessity and have been pleasantly surprised.
“The real test will come when the rate cut cycle commences and we see discretionary incomes start to come back. With more money back in their pockets, will shoppers go back to their old favourites? Probably, but to what extent will they claw back their share of wallet from ultra cheap retailers - only time will tell.
“It’ll all come down to how good a job they do at refreshing and positioning those brands.”