Australia / Analyst Insights
Pumpkin Patch loses out to cheaper retailers

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by Lauren Magner
Nov 29 2016

Pumpkin Patch Limited went into receivership on 26 October, and 27 of its 124 Australian stores will close by 15 November. The children’s clothing retail chain was founded in Auckland, New Zealand, in 1990. However, the bulk of its revenue has come from its Australian operations. Pumpkin Patch had previously expanded into the United Kingdom and United States. However, weak retail conditions following the global financial crisis forced it to close its retail operations in both countries.

The collapse of Pumpkin Patch has occurred despite infants’ and children’s clothing retailers generally performing well over the past five years. Industry revenue is expected to have increased by an annualised 3.1% over the five years through 2015-16, to total $3.3 billion. Revenue has been supported by increases in the population aged 14 and under, and government initiatives such as the Baby Bonus. Increased immigration has also expanded the target market, as many immigrants are families with young children. However, financial market instability and concerns regarding individuals’ financial positions have prompted many households to scale back unnecessary expenditure, making consumers increasingly price-conscious. Many retailers of infants’ and children’s clothing have struggled to adapt to this change, particularly companies such as Pumpkin Patch, which are positioned at the premium end of the market.

Pumpkin Patch has lost market share over the past five years. The company’s industry-specific revenue is estimated to have fallen by an annualised 3.1% over the five years through 2015-16. Pumpkin Patch prices its products at the upper end of the children’s clothing market. Weak retail conditions reduced company demand, as customers sought cheaper products from discount department stores such as Big W and Kmart. Pumpkin Patch and other children’s clothing retailers have been losing market share to these department stores, which offer more competitive prices. Price is a strong basis of competition, especially as infants and children quickly outgrow their clothing. Many department stores source products directly from manufacturers, using their size and economies of scale to achieve discounted prices. Pumpkin Patch has struggled to compete against discount department stores, as the company’s products can easily be replicated and sold at lower prices, providing value-conscious families with cheaper alternatives.

Competition from online retailers has also intensified over the past five years, as consumers have become more comfortable with internet shopping. The proliferation of online clothing stores has given consumers more choice, enabling easy product comparison across different websites. Online-only retailers typically have lower wage and rent costs, and therefore greater pricing flexibility, which can be difficult for traditional retailers to compete with. Pumpkin Patch has had some success with its online business, and expects that online sales make up approximately 16% of its retail sales in Australia.

Revenue for children’s clothing retailers is anticipated to increase by an annualised 1.3% over the five years through 2020-21, to $3.6 billion. However, the collapse of Pumpkin Patch is likely to prompt the remaining children’s apparel retailers to re-evaluate their market positions and product offerings. Retailers unable to differentiate their products from discount department stores and compete based on price will struggle, especially given the weak consumer sentiment and cautious discretionary spending anticipated over 2016-17 and 2017-18. Competition from online channels will also intensify, as online retailers develop more sophisticated websites and improve navigation. Children’s clothing retailers will need to keep prices low to compete with department stores and online retailers, constraining profitability over the next five years.

Relevant industries:

Infants’ and Children’s Clothing Retailing

Clothing Retailing