What impact will Zara, H&M and Uniqlo have on Australian department stores Myer and David Jones? IBISWorld analyst Tommy Wu crunches the numbers. For more IBISWorld analysis, pick up Ragtrader's January 2014 edition.
International retailing giants H&M and Uniqlo are joining the ranks of Zara and Topshop in setting up shop in key locations in Australia, intensifying competition for Australian retailers Myer and David Jones.
The international retailers enter the Australian market during a tough period for retail trade.
Consumer sentiment has remained weak since the global financial crisis, and shoppers have moved to online international retailers in response to a strong Australian dollar over the past few years.
Despite major renovations and marketing campaigns, Myer and David Jones have struggled due to the difficult trading conditions.
IBISWorld forecasts that revenue generated in the department stores industry will contract at an annualised 1.9 per cent over the five years through 2013-14.
Myer Holdings Limited is a publicly listed company and major player in the department stores industry.
The company was part of the Coles Myer Group until it was sold to private buyers in 2006, and in the years following, the company expanded before being listed on the ASX in 2009.
The company’s revenue has since declined, falling from the high of $3.4 billion in 2007-08 to $3.1 billion in 2011-12.
This contraction was despite $300 million renovations to its flagship Bourke Street store in Melbourne in 2010 and the opening of new bricks-and-mortar stores.
The company has reduced the size of segments such as whitegoods and gaming and has moved higher margin fashion and clothing retail into the space left behind by the struggling segments.
This has led to higher profit margins for the company.
Furthermore, Myer has expanded into Hong Kong, with an online site and office space, in a bid to reduce purchasing costs and compete with the influx of online and international retailers.
David Jones Limited, another publicly listed company, is also a major player in the department stores industry.
The company is one of the oldest department stores in Australia and currently houses a large portfolio of over 2,500 luxury and high-end brands, many exclusive to David Jones.
The company report revenue of $1.9 billion in 2011-12 and is declining at a rate that is consistent with the overall industry.
David Jones unveiled $250 million in redevelopment to its Melbourne CBD stores in 2010.
The company also relaunched its previously abandoned online business, but this has not yet resulted in any significant growth in revenue for the company.
David Jones completed a revamp of its online store to pursue a multichannel retailing strategy and reached an agreement with Dick Smith to manage its electronics segment, focusing on its core business of fashion retailing.
The future looks gloomy for both Myer and David Jones, as moves by international fashion retailers into the Australian market are expected to dent their core businesses.
Zara and Topshop have already established a physical presence in Australia, and H&M and Uniqlo will open stores in Melbourne’s CBD next year at the GPO and the new Emporium Melbourne, respectively.
These stores will directly compete with local retailers Myer and David Jones, given the proximity of their store locations.