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The emergence of luxury and fast fashion

​Australia has consistently had a strong business environment, an enviable economic position and exceptionally robust consumer spending trends.  But in more recent times, the Australian retail landscape has changed, and international retailer brands have been knocking down the door to get a foothold in the market.  So what has piqued their interest? 

JLL retail leasing and advisory works closely with many of these retailers in supporting their entry into Australia.  As Cameron Taudevin, national lead for retail leasing, describes “The industry has always recognised the strong underlying fundamentals of the domestic economy with solid population growth and high levels of discretionary income for many Australians.  But more recently, this has been enhanced with an awareness of the rapid growth occurring in the lucrative Asian tourist market, particularly for luxury brands, that has really stirred the interest of many international brands”.  As a result there has been an influx of international retailers seeking to capitalise on this opportunity through entering, or expanding their presence within, the Australian market.

But with limited space in premier retailing locations across Australia, these international brands have in effect been leading a new wave of urban renewal activity.  Many high-profile international tenants are directly influencing the upgrade of old and underperforming spaces within our capital cities. Rowes Arcade and Broadway on the Mall in Brisbane are two prime examples of such urban renewal which are both currently undergoing major repositioning to attract these types of brands.

Drilling down to the next level of detail highlights some interesting trends that are influencing the structural level of competition in the Australian retail market, with a new model for globally competitive retailing being brought to our shores.  Through sophisticated supply chain integration and well-established brands, many international retailers have a significant strategic advantage compared to domestic retailers with regard to price, retail experience, range, quality and speed of bringing new product to market. This strategic advantage and level of consumer demand for such brands is evident in the sales performance of many new international entrants.  This has been particularly strong for fast fashion and luxury goods markets.

“Several weeks ago, Zara opened its first Australian store. 80%, or $1.2 million of stock was sold on the first day of trade.”

The Age,  2011

“Around 250 shoppers … queued up overnight to be the first to get a piece of the Topshop action in Melbourne yesterday.”

The Telegraph, 2011

One of the most dramatic examples of the changing retail landscape has been the extent to which Australian consumers have embraced fast-fashion. Retailers such as Zara and Topshop have opened to huge receptions, and have recorded exceptionally strong performance.  Zara, for instance, generated $68.0 million from its operations in its first year in 2011. By 2012, sales revenue had increased to $106.8 million with an estimated gross profit margin of 66.7 percent.
In a globally connected environment, Australians are increasingly familiar with overseas brands well before their domestic arrival and this growing brand awareness, coupled with record levels of disposal income and solid consumer sentiment, has driven very strong demand for fast-fashion retailing.  In addition to Zara and Topshop, retailers such as Forever 21, Uniqlo, H&M and Gap are all at various stages of executing their entry strategies for the Australian market. 

Not to be left behind, the luxury retail market is undergoing a boom all of its own. A recent Citibank study concluded that within five years, there could be 130—140 new luxury stores in Australia. 

There is no doubt that luxury fashion brands have greatly benefited from the booming Chinese market and a swelling middle class, with the likes of Burberry, Gucci, Hermès, LVMH, Ralph Lauren, Prada and Richemont recently reporting double-digit sales growth or even record annual sales, led largely by growth in Asia. By 2015 China may well emerge as the world’s largest market for luxury goods. Interestingly, over one-third of luxury goods bought by Chinese, Japanese and other Asian markets are done so while travelling overseas – which represents a significant opportunity for luxury retailers in Australia.

China is Australia’s fastest growing and highest spending inbound tourism market. From September 2012 to September 2013, Chinese tourism expenditure grew 16 percent to contribute $4.7 billion to the Australian economy. On current projections, this expenditure will grow to between $7.4 billion and to around $9.0 billion by 2020.
These growth drivers, plus further expected growth in disposable incomes and solid consumer sentiment locally, position the luxury market within Australia in an exceptionally strong state.

As these two markets continue to gather momentum within Australia, we can expect that the wave of international retailers will continue. In turn, the on-going hunt for adequate space and floorplates in premier locations by these retailers is likely to become even more competitive.  Without doubt, this will underpin an accelerated pace of urban renewal activity and the re-positioning of many major CBD retail assets, and indeed entire precincts.  The ability of landlords to attract and engage these international operators will become increasingly important. Successfully leveraging this demand will enhance asset values for landlords, and drive the renewal of old and underutilized CBD space in Australia’s capital cities. 

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