If domestic trade shows and press clippings are anything to go by, then there’s no shortage of Australian womenswear labels on the market. Fresh-faced graduates from fashion academies, or experienced industry practitioners seeking to broach out on their own, mean a steady stream of designer brands launch into the circuit each season.
Then there’s existing stalwarts such as Scanlan & Theodore, Ginger & Smart and Lisa Ho, which produce clothing for a network of boutique retail stores. It’s easy to assume that with all these independent players sourcing onshore, the local womenswear manufacturing sector must be booming.
But this industry has faced a difficult few years. Increasing import competition is a major factor behind strong declines in industry revenue, as domestic firms shift from manufacturing women’s and girls’ wear locally to sourcing these products from overseas locations. Imports from countries with lower production costs have increased over the last five years to 2010/11, often at double-digit rates, accounting for over 75 per cent of domestic demand. Despite growing cost pressures in China, the country continues to be a major source of clothing imports into this market. China accounted for 82.5 per cent of imports in 2008/09, up from 72 per cent in 2000/01. Other sources of imports include India and Hong Kong, although these regions account for less than three per cent of imports each.
The most significant impact on import levels has been from a spate of tariff reductions over the past five years. When clothing tariffs wound down to 17.5 per cent in January 2005, the value of imports rose by 14.4 per cent over the year; significant when you consider that in the previous 12 months, there had been a 3.7 per cent decline in imports. Exports fell by 19.1 per cent over 2004/05, further reflecting the implications of this tariff reduction.
As a result, industry revenue fell by a steep 22.4 per cent during this period. This represented the strongest rate of revenue decline over the past decade through to 2010/11. Tariffs were again lessened to 10 per cent in 2010, however IBISWorld gauges that the effects were not as strong as in 2004/05 as imports already account for a large share of domestic demand. An increase in the value of the Australian dollar over much of the last five years, with the exception of 2008/09, also allowed importers to purchase foreign goods at a relatively lower price. Will there be a massive surge in import levels when the tariff rate falls further in 2015? This is likely to cause a further increase in imports but not to the extent of previous years.
In contrast to these import figures, ABS trade data indicates the value of exports fell at an average annual rate of 8.1 per cent over the five-year period. Clothing manufacturers from developing countries have simply flooded the market with cheaper clothing. The economic downturn in 2008/09 also constrained demand for locally manufactured women’s and girls’ wear, with factors such as disposable income, consumer sentiment and unemployment rates coming into play. ABS data, converted to constant 2010/11 dollars, reveals retail sales of clothing in general fell by one per cent over this period.
The implications of these market forces will see a change in the number of manufacturing firms operating in Australia. Based on ABS data and IBISWorld estimates, the number of establishments declined by an average of 2.8 per cent annually over the last five years, to 1011 players in 2010/11. The number of employees in the industry has also fallen at an average annual rate of 5.5 per cent to 2930.
Another factor affecting the industry is rapidly changing fashion trends and seasonality. Seasonality is, of course, a key feature of the clothing retailing industry. Demand peaks in the December month – in the lead up to the Christmas and Boxing Day sales – while demand is at its lowest in August. This seasonality therefore affects manufacturers of clothing, as business and cash flow is staggered throughout the year. Fashion trends are now changing rapidly, partly due to increases in the speed of communication made possible through the internet. This trend affects the entire clothing supply chain – from manufacturers to retailers.
One notable trend is fast fashion, where clothing is designed and manufactured quickly and is in stores for only a few weeks. Highly fashionable products can be manufactured within four to six weeks and are then in retail stores for approximately six to 12 weeks before prices are reduced. Indications are that fast fashion and lower priced apparel have become increasingly popular in Australia. Supre is an example of a fast fashion designer and retail company and some of its products are manufactured in Australia. Over the five years through 2008/09, the company’s revenue grew by 5.4 per cent (in constant 2010/11 dollars).
So where is the demand locally? Clothing manufacturers in Australia generally focus on niche products, and produce apparel such as formal wear, uniforms and other apparel. Based on data from the ABS expenditure survey, the largest segments in terms of expenditure are women’s blouses, shirts and t-shirts (approximately 31 per cent of revenue); and trousers, jeans and skirts (at approximately 31 per cent). As Australian manufacturers place a greater focus on higher valued-added, niche products, demand from export markets may increase.
Adoption of technology by those who remain in the industry, such as machinery that can manufacture seamless clothing and 3D whole garment knitting machines, is starting to gain traction and is expected to continue over the next five years. Additionally, there are government programs aimed at improving Australia’s competitiveness in overseas clothing markets. However, the forecast rise in the value of the Australian dollar over much of the five-year outlook will likely constrain export growth.
The inability to compete against cheaper overseas manufacturers has been a major factor in promoting export growth in recent years. Australia is not price competitive against Asian imports due to major differences in labour costs. Australia is also far away from many overseas markets and the small size of the local domestic market often results in small production runs and, when compared to many European operators, is not as sophisticated as its international counterparts. However, several domestic companies produce women’s and girls’ apparel for foreign markets, with New Zealand accounting for approximately 67 per cent of exports of women’s and girl’s wear. These are generally clothing items that are high in design quality and have greater levels of technology within the materials and production.