Clothing wholesaling in Australia is tipped to decline by 2.2 per cent through to 2029, according to research by IBISWorld.
This comes off the back of a 3 per cent fall in revenue for the market from 2019, hitting a new low of $6.9 billion in FY24.
So how did we get here?
The latest IBISWorld report into clothing wholesaling in Australia claims that much of this is due to clothing retailers circumventing wholesalers by leveraging their global reach, and instead directly tapping into countries like China and Vietnam, known for their low production costs.
“Small-scale manufacturers have also started using ecommerce channels to sell directly to consumers, completely bypassing the traditional wholesale route,” the report reads.
“Weaker demand from retail outlets, particularly department stores, has further pulled down industry earnings.
“A stronger Australian dollar is influencing consumers to buy overseas in 2023-24, as are recovering supply chains and improved shipping times.”
The drop in revenue is also joined by a decrease in profit margins across the industry, with a 1.9 percentage point fall in margins to 7.1 per cent. IBISWorld cited a high base year and rising price-based competition as the root causes.
Total profits were also down by 7.5 per cent between 2019 to FY24, hitting $487.1 million overall, with the average profit per business hitting $195,900.
Amidst all the challenges causing headwinds for Australian wholesalers, there was a silver lining during the COVID-19 pandemic, when some large retailers localised their supply chains amid global disruptions. This was also buoyed by an increase in government aid, raising disposable income and consumer sentiment in 2020-2021.
“This created a surge in demand for clothing retailers, ultimately boosting orders for wholesalers,” IBISWorld continues. “Industry wholesalers who had online platforms or catered to smaller retailers executing omnichannel strategies saw some profitability from this trend, which helped cushion overall losses in the industry's bottom line.
“Industry revenue is projected to decline at an annualised 2.2 per cent over the five years through 2028-29, leaving the industry worth an estimated $6.1 billion.
“Factors like disposable income and consumer sentiment are set to improve, supporting demand at the retail level.
“Yet, the rise in online shopping and bypassing of wholesalers is to continue, challenging wholesalers.”
Insider gives deeper perspective
There is more to unpack on how we got here, according to Garland & Garland Fashion founder and industry advisor Phoebes Garland. According to Garland, inflation and sluggish retail conditions are a huge factor to the current slowdown in retailing.
“Shein is also taking a huge amount of money out of the Australian market in the fashion category which would also be impacting,” she says.
“Prior to the pandemic, we did see a slowdown in retailing, and during the pandemic there was government money that boosted retail in several fashion categories such as knitwear and leisurewear.
“Event wear suffered badly during the pandemic and is still a category that is very niche for boutiques.”
Garland adds that independent retail boutiques are saying they are finding less traffic out the front of their stores, as if the consumer “doesn’t want to be tempted” and therefore is visiting fewer shopping precincts.
“What we are also seeing is many independent retailers clearing stock later in the season due to these sluggish retail conditions and being left over with quite a bit each season which impacts their buying,” she continues.
“Many are still trying to clear summer in February, whereas years ago they would have cleared it in January ready to do a new season and buy with confidence.
“We are also seeing the same in August with them still trying to sell off winter, which in the past would have been normally cleared in July. Now they are still clearing in August when they have to buy next season which is denting their confidence and making the buying very conservative.”
With discretionary spending down across the board, Garland says this affects the wholesale market with small boutiques affected by discounting led by the majors and inflation.
“Summer has become a difficult season with weather tending to break late, stock not necessarily matching weather conditions, and then with the whole month of November being a discounting month with Black Friday sales and Cyber Monday. This has impacted Christmas spending and the month of December drastically,” Garland says.
“For an independent retailer, they are unable to compete with majors during these sales periods due to lack of margins.
“Cost of living pressures has impacted the consumer’s wallets, so the consumers tend to be more value-driven and price-pointed.
“Independent retailers are seeking a strong point of difference in fashion ranges, seeking more quirky trends not found in major chains.
“In fashion, prints tend to do well in this category, as does knitwear with detailed knitting techniques.”
Double trouble: The wholesale leaders
According to IBISWorld, there are no dominant entities in the clothing wholesaling industry in Australia. “Wholesalers often duplicate each other's inventory and discounting strategies, reducing their opportunities to monopolise the market.”
The two leading businesses in Australia’s wholesale market are Sunshine A Pty Ltd and Brand Collective.
Sunshine A is an indirect wholly owned subsidiary of PVH Corp operating in Australia as PVH Brands Australia, which manages the distribution of global fashion brands in the local market, including Calvin Klein, Tommy Hilfiger and Van Heusen.
Brand Collective is an Australian-based business managing the distribution of local and international fashion brands such as Reebok, Black Pepper, Superdry and Canada Goose.
Sunshine A and Brand Collective hold just 4 per cent and 3 per cent of the total market share respectively.
In the 2023-2024 financial year, Sunshine A scored revenue of $274 million, while Brand Collective accrued $205.8 million - each according to IBISWorld research.
In the second quarter of 2024, PVH Corp recorded a 6 per cent fall in revenue compared to the same time last year. Its international businesses decreased 4 per cent, “primarily due to the challenging consumer environment in Asia Pacific, particularly in China and Australia, and the continuation of the company’s planned strategic reduction in sales in Europe to drive overall higher quality of sales in the region.”
The total fall in revenue was driven by a US$91.9 million (~A$135 million) fall in its wholesale arm, hitting US$948 million, with DTC sales down US$48.2 million to just over US$1 billion.
Meanwhile, IBISWorld believes that Brand Collective’s market share in Australian fashion wholesaling is set to rise in the coming years following its merger with The PAS Group in 2022.
After going into voluntary administration in May 2020, PAS Group was acquired by Queens Lane Capital (QLC) in October of the same year.
PAS Group International then ran several brands, including Yarra Trail and Marco Polo. PAS Group ceased trading on the Australian Securities Exchange (ASX) in February 2021 following QLC's complete buyout.
Then, in April 2022, the company expanded significantly by merging with Brand Collective Holdings Pty Ltd, “bolstering its portfolio of fashion brands and warehouse networks” according to IBISWorld.
“Post-merger with Brand Collective Holdings, the newly formed entity is expected to become one of Australia's most prominent fashion groups.
The combined group's portfolio now includes brands such as Elka Collective, Superdry, Mossimo, Elwood and ELWD.
“PAS Group's market share is set to rise in the coming years once the two entities consolidate under a single financial report.”
Solving the wholesale headwinds
“My advice to anyone wholesaling is to be on top of your game with your product,” Garland says. “The independent retailers seek a strong point of difference from the chain stores.
“Value for money price points and natural fabrics are still key, with great quality.”
Garland adds that price points tend to do well under $350RRP, but says it must have quality and natural fabrics with a strong fashion component.
She says it is also really important for wholesalers to look at what’s happening with competitors and undertake market research.
“Brands really need to look at what the independent boutiques are buying, to ensure they have provided a commercial product that suits the boutique market,” Garland says. “The boutique market can be quite specific to their customer’s needs, particularly in terms of easy fitting and larger sizing.
“Quite often, what will work in a vertical retailer won’t always work in independent retailers as also many independent retailers are in regional areas. Lifestyle brands and heritage brands tend to do well.”
While it is tempting to abandon wholesale, Garland says the wholesale market is lucrative for many brands out there if they have the right product offering and price point. She then cited Country Road and Witchery which have reverted to a wholesale strategy, particularly targeting regional areas.
Ragtrader also reported in late 2022 that bag brand Mimco had also pushed into regional wholesale.
“It’s mainly their homewares, lifestyle and casual wear that they buy,” Garland says. “If you don’t have a product suitable to regional markets and at the right price point you will struggle in this area.
“Larger brands tend to be tempted to abandon wholesale when retail conditions get tough. However, it tends to swing in roundabouts; brands tend to abandon wholesale only to set up and expand more vertically to realise how expensive it is and a lack of sales and then want to turn back to wholesale to find it’s too late.
“Be careful with going up against your independent retailers with a vertical strategy. They are unforgiving after investing in a brand, and if it doesn’t work for a vertical format and you want to go back to wholesale, there is no going back.
“Wholesale can still be highly lucrative, it’s a case of being adaptable.”