It's time to toughen up. Raghu Rajakumar discovers how intimate apparel brands are standing up to international competition and battling the spending slump.
With increasing international competition and lower tariffs, the intimate apparel industry has maintained high profit margins by focusing on the creation of highly 'value added' products. It is successfully moving father away from price competition with less expensive Asian substitutes.
A key reason behind the industry?s relative success has been its largely female customer base. According to business information firm IBISWorld, women?s and girl?s intimate apparel make up approximately 68 per cent of the industry.
Women look at lingerie as part of fashion, not as just than just a necessity. The emotions involved with intimate apparel purchases will make the industry quite resistant to the economic downturn expected in 2009. Our research shows that historically, woman cut spending on discretionary apparel less then men during economic downturns. In fact, often there will be rise in the sale of mid to high-priced intimate apparel as women forgo expensive treats like jewelry or dresses.
While Australian branded women?s intimate apparel products may not as yet have the same name as European brands like La Perla, they have a reputation for high quality. This provides a competitive advantage over lower 'value added' Chinese brands. This makes it harder for smaller companies to outsource quality women?s intimate apparel, compared to the relative ease of outsourcing a basic pair of men?s underwear overseas.
Players in the Industry
The industry is more competitive than most clothing categories in Australia. There are many brands and companies all competing domestically and internationally for a limited market. There are no large intimate apparel manufacturers that produce predominantly in Australia.
The undisputed leader is Pacific Brands. With group revenue of $2.13 billion in 2007-08, it owns some of Australia's most prominent brands like Bonds, RIO, Antz Pantz, Formfit, Playtex, Hestia and Wonderbra and Holeproof. IBISWorld estimates it controls approximately 50 per cent of all the intimate apparel in Australia. That said, the group does faces tough 2009 - it has been severely affected by the fall in the Australian currency, with a large proportion of its products sourced from China.
The Gazal Group is another leader in and includes brands like Kookai, Oroton, Calvin Klein, Trent Nathan and Lovable. It controls approximately 23 per cent of the industry.
Bendon, one of New Zealand's oldest lingerie brands is also very influential in the Australian market
Preparing for Tariff Cuts in 2010
The tariff rate for intimate apparel items decreased from 25 per cent to 17.5 per cent on January 1, 2005. This saw a 7.4 per cent boost in imports and a dramatic 9.4 per cent fall in revenue. While intimate apparel manufactures have a right to be nervous about tariffs dropping to 10 per cent in 2010 and 5 per cent in 2015, the direction of the industry has changed since 2005.
Over 2008-09, imported corsets, foundation garments, men's and women's sleepwear and underwear should make up about 56.6 per cent of all domestic demand, down from 59.9 per cent in 2004-05. This shows that investment in design and product development is seeing local industry hold fort against the Chinese global apparel manufacturing juggernaut. This is better than related apparel sectors. For example, IBISWorld expects imports to make up a dramatic 82 per cent of the Australian men's and boy's apparel market and 68 per cent of women's and girl's market in 2008-09.
While Chinese imports make up a staggering 80 per cent of imports in this industry, they are not expected to increase by much, even when tariffs are lowered. The impact of government's structural and innovation programs, as well as innovative Australian companies, is seeing the Australian intimate apparel competing in completely different markets to Asian exports.
Innovation ? The Key to Success and Profit Margins
Innovation refers to differentiation through fashion, designs or technology. These are needed to avoid competing on price with less expensive Asian substitutes and further create international demand for Australian brands. Innovation examples in 2008 included the use of new fabrics, improved cutting precision through laser and ultrasonic technology as well more improved moulded bras for 'plus size' woman. Most intimate apparel consumers search for items that fit and support them properly as well as look fashionable. With surveys showing that a majority of woman in Australia are wearing the wrong sized bra, technology, designs and fabrics that further allow better fitting present an opportunity.
Innovation is also the key to exports. New Zealand is the largest export destination with approximately 74 per cent of exports in 2007-08. The United Kingdom and Singapore follow with 4.5 per cent and 3.4 per cnet respectively. Despite this, growing demand from affluent classes in developing countries, especially in China and to a lesser extent in India, is expected to boost demand for innovative Australian intimate apparel in the future.
Rising urbanisation, brand awareness, and rapid retail growth are attracting consumers to branded intimate apparel fueling the growth of an organised lingerie market. This presents an opportunity for Australian operators.
Raghu Rajakumar is an industry analyst with global business information firm IBISWorld.