Unlike most Western regions, the Australian apparel landscape is dominated by local companies, making it a daunting task for foreign players to enter the market. The supportive attitude of the Australian government towards its apparel industry, illustrated by recent funding offered to apparel manufacturers, may explain why it has been so difficult in the past for foreign brands to make their mark.
Australian government offers at least $250,000 to local manufacturers: The Australian government recently announced that it recognises the importance of apparel to domestic manufacturing. Subsequently, the government opened applications for apparel manufacturers demonstrating, ‘innovation, collaboration, market access, business improvement, skills development, environmental sustainability and ethical practices’ to receive a minimum of AU$250,000 in funding. This support from the Australian government clearly links the success of the apparel market to the creation of jobs. The top nine apparel retailers in the country are Australian, and it is one of the few countries to have this number of domestic players in leading positions. The dominance of Australian companies may have discouraged some of the leading international apparel players from entering the Australian market but the world’s number three and four apparel companies, Inditex and Gap, have recently built up the courage to take a risk and launch in the country.
Foreign entrants in a sluggish market: The Australian apparel market grew by just one per cnet in 2010, so there seems to be no obvious reason for leading international players to be scrambling to launch in the country. However,
Gap has embarked upon a massive expansion plan as it is aiming to reduce its reliance on its home market, the US, which has experienced a weak economic recovery since the official end of the recession in 2009.
Operating stores in Australia also has the huge advantage of being close to the manufacturing base of most leading apparel companies, including Gap and Inditex. Whilst Inditex (owner of the Zara brand) manufactures a large proportion of products in Spain, it nevertheless has a large manufacturing base in Asia Pacific. This means that both Inditex and Gap can benefit from shorter delivery times, which is particularly important to Zara’s fast fashion model.
The maturity of the Australian apparel market when compared to other fast emerging markets may be one of the main reasons behind the small number of international brands already present there. The sluggish market even made it difficult for domestic players to achieve strong growth in 2010 and no company experienced a significant increase in its market share. This begs the question of whether new entrants Gap and Inditex’s Zara can succeed in the market.
Gap launched its first Australian store in Melbourne in August 2010, followed by stores in Sydney in October. The company stated that it believed Australia was a suitable market as consumers are inclined towards a similar, classically American, casual style. Zara, on the other hand, has a very different style to Gap, as its ranges are inspired by the latest catwalk trends rather than being based on casual and basic fashions. The majority of leading Australian companies provide a mixture of casual and fashion-led styles, so both Zara and Gap will need to work hard to differentiate themselves and also adapt to the Australian market.
Inditex’s Zara may have the upper hand as the company already has experience in operating in a wide range of countries across most continents, but the company has already stated it will change its Australian offering to suit the warm climate by, for instance, using lighter fabrics. In 2011, Zara owner Inditex also became the first international apparel company to have a range specifically designed for the southern hemisphere, and entering the Australian market will widen the exposure of this new collection. Leading international fashion brands usually struggle with providing appropriate collections for their global store portfolio if it extends over countries with opposite seasonal patterns in the northern and southern hemisphere, but Inditex has taken major steps to overcome this problem.
However, it will also need to gauge major trends specific to Australia, such as the strong presence of surf and beachwear. The company stated that colour will be key to its latest collections, and even for its winter products, as this is expected to continue as a major trend.
Opportunities in children’s clothing and footwear: Gap and Zara would be wise to capitalise on the fastest growing categories in the Australian market. This has been the approach of US footwear retailer Collective Brands, which plans to launch its children’s footwear chain, Stride Rite, in Australia in the latter half of 2011. Children’s footwear was the category to achieve the second highest level of growth in the Australian apparel market in 2010, so the company has made a clever strategic move. Childrenswear was also one of the fastest growing apparel categories in 2010, so Gap and Zara could overcome the sluggish nature of the market by offering large children’s ranges. Whilst the leading childrenswear specialist, Pumpkin Patch, had a static market share in 2010, its share more than quadrupled over the review period, which indicates that this could be an area for new entrants to achieve sustainable growth.
Success in Australia will be a difficult feat: Australia will no doubt be a difficult country to conquer, as even the world’s leading apparel company, Nike, only just made it within Australia’s top 10 apparel companies, ranking 10th. Furthermore, the government support of the apparel industry may pose an additional barrier to foreign entrants and the poor state of the market will also not help. However, there are opportunities for companies to capitalise on fast growing areas such as childrenswear, so it remains to be seen whether Gap or Zara will take significant steps to focus on this area going forward.
Zara: Expanding Down Under.
