Will Myer, David Jones, Kmart and Target live on?
A new report by IBISWorld confirms the tough retail environment department stores have been operating in over the past five years as a result of weaker than expected consumer sentiment and the rise of e-commerce.
IBISWorld forecasts slim industry growth for the forthcoming five years at a time when more players are expanding online offerings in an attempt to remain relevant – and competitive.
IBISWorld expects tighter growth of 0.7% per year until 2022, when industry revenue will reach an estimated $20.2 billion.
IBISWorld senior industry analyst Lauren Magner said recent trade figures have highlighted the struggle.
"The relatively lacklustre results in the Australian department stores sector in recent years has been exacerbated by disappointing results for Christmas retail spending – a result which was forecast by IBISWorld in December 2016.
“With consumers opting to pay down debt and boost savings, rather than discretionary spending, department stores have had to be content with annualised revenue growth of just 1% over the past five years.
"Uncertain economic conditions, growth in online retailing and the arrival of major international fashion brands are tipped to continue to challenge the traditional department stores model in the next few years.”
"There are some bright spots in the industry, however, with dynamic online shopping portals and recent restructuring bringing renewed hope to the sector."
Online investment
According to IBISWorld, the top four players account for 93.1% of industry revenue, and David Jones and Myer account for almost 30% of overall department store sales.
As a result, competition among department stores is intense, with discounting prevalent across stores and product lines.
“Major players will continue to invest in their online platforms as new avenues for revenue growth, with multi-channel retailing becoming increasingly important in the coming years as department stores look to grow their share of the online retailing market,” Magner said.
Recent restructuring
Restructuring has been significant in the industry in recent years, with most major players undergoing structural change to address mounting competition, IBISWorld research indicated.
“We have seen Wesfarmers restructure Kmart by streamlining operations to focus almost entirely on value products,” Magner said.
“The 2014 acquisition of David Jones by South-African-based Woolworths Holdings Limited has seen the brand concentrating its efforts on winning – and holding – the premium end of the market while developing its own private label clothing lines."