Margin pressure is emerging as the single biggest force shaping Australian fashion retail heading into 2026, as businesses grapple with intensifying price competition, structural cost disadvantages and outdated operating models ill-suited to today’s consumer.
This is according to long-standing fashion executive Paula Mackenzie – the former managing director of Sass & Bide and former CEO of Topshop.
“The price competition is real,” Mackenzie tells Ragtrader. “The small sub $5 million businesses popping up and nibbling at market share will continue. The behemoths of Temu and Shien and others are here to stay.”
Mackenzie says the challenges across product pricing and business costs appear to surround one particular area. She believes the traditional business models of 70 per cent full-margin, requiring negotiating prices down and often taking higher minimum order quantities to avoid surcharge or subbing for cheaper fabrics, needs to change.
“Buying product in line with gross sales, as we have always done, which leads to over-purchasing and blowing a good portion of that full-margin due to inefficient legacy systems, needs modernizing,” she says. “This all leads to higher markdown activity and brand value erosion.”
Mackenzie adds that the Australian fashion industry has been buying too much for years. With that, dead stock, heavy markdowns, and margin erosion with high CODB costs have been killing businesses for years.
“Added to that, consumer buying habits have become unpredictable and will stay that way,” Mackenzie says. “The days of understanding the retail cycle with the seasonal changes, and the sale cycles being written in the yearly calendar, are over. The consumer dictates what they want and we can’t predict that.”
All this comes as fashion brands across Australia strive to keep margins in line while trying to claw as much money from budget-stricken consumers.
Some are succeeding, like Michael Hill. The New Zealand-born jewellery group recently reported a bump up in sales and earnings in the first half of FY26, with margins holding steady at 61.3 per cent despite surging costs of gold and silver.
The group – which also manages Medley, Bevilles and its high-end brand TenSevenSeven – is expecting a double-digit lift in its comparable earnings before interest and tax (EBIT), projected to hit between $27 million and $30 million.
Michael Hill has also reported a 3.1 per cent lift in total group sales to $370.3 million. All three of the group’s key markets, being Australia, New Zealand and Canada, lifted sales over the first half.
Others are winning at the cost of sales, like Honey Birdette. The lingerie brand’s focus on full-price ranging may be dampening the sales flow, but this has driven up its gross margins by 700 basis points
The brand’s US-based parent company Playboy Inc. reported a direct-to-consumer slip of around US$200,000 to US$16.4 million (~A$25 million) in the third quarter of 2025.
According to Playboy, the decrease was due to a continued focus on full-price products and $400,000 in the third quarter of 2024 that did not recur due to the closing of seven stores at Honey Birdette. Following store closures and the focus on full-price, the brand’s gross margins increased from 54 per cent to 61 per cent.
Comparable store sales were up 22 per cent and full price sales were up 15 per cent in a continued initiative to improve the perception of the brand.
And there are some that are targeting sales at the cost of margin, like Rebel, the sporting retailer under Super Retail Group.
Group managing director and CEO Paul Bradshaw told investors in January that trading conditions remain competitive, with elevated promotional intensity across the market impacting realised gross margins, most notably within Rebel.
“Super Retail Group traded well, albeit with an elevated level of promotional intensity impacting realised gross margins, most notably in Rebel,” Bradshaw said.
Rebel delivered like-for-like sales growth of 3.8 per cent for the half, with total sales up 4.8 per cent, cycling a strong Christmas trading period in the prior year.
The sporting goods chain generated first-half revenue of $741 million and normalised profit before tax of $53 million.
However, profitability was pressured by increased promotional activity and an active store program during the period. Rebel undertook seven store openings, six closures and three refurbishments or relocations in the half, with associated costs weighing on earnings.
According to Mackenzie, the only way to future-proof fashion businesses today is to manage cost pressures, reduce SKUs, focus on a quick to market strategy and stop doing things that don’t add value.
“Trying to compete on price is now a lose/lose. Australian businesses with high rental costs, high labour costs and a reliance on China cannot compete.
“Being Australian businesses with an understanding of the consumer, the climate and the culture, with closer infrastructure to deliver quickly and efficiently, needs to be our secret weapon.”
But not everything is shifting. Mackenzie expects spending habits will stay the same as it was in 2025 for 2026, which also likely means continued slow spending growth following the Reserve Bank of Australia’s cash rate lift to 3.85 per cent this month.
Despite that, the fashion executive says the impact on the industry is not the dollar amounts that people are spending, but the level of competition available to the consumer, diluting individual market share.
To Mackenzie, businesses and brands across all segments will be impacted unless they evolve.
“There is more choice than ever, so being a ‘brand’ needs to be redefined and fully understood,” she says. “Less discounting, more innovation, a unique offering, better retail experiences focused on the consumer and valuing the customer. Be it experiential, event based, super charging your environmental credentials or reigniting your VIP program keeping the customer front and centre is essential.”
It is a customer-led environment, Mackenzie added. Today, the consumer can search for what they want across thousands of brands at all levels of quality and price. The only way to survive in this uber-competitive environment is to understand your customer.
“Those brands that trade on generic product and price competitiveness will struggle,” she says.
"Doing what you did last year doesn’t work anymore and those legacy businesses that are struggling to change will fall behind. Making cheap product and hanging it on a four-way in a department store is not going to cut it.
“Customers are savvier, more aware and do more research before purchasing, than ever before. It is what your brand stand for, the values of your business and the emotional connection that wins.
Mackenzie added that the businesses that run lean teams, that are not burdened with high CODB and stock build, will flourish. It is now about being nimble with purchases and speed to market.
“The consumer demands value for money and a high level of service – quick deliveries and in-store support, with less constant markdowns. Brands that put that first and devise strategies to support it will win," she says.
"Those that won’t have huge support teams and loads of physical stores demanding big stock purchases, each trapped in the old merchandising strategy of buying the markdowns and constantly going on promo to clear stocks.
“Unfortunately, this means a lot of the large legacy brands will struggle unless they take an innovative entrepreneurial approach, and do it quickly.”