Australia / Analyst Insights
Retailers are finding new growth opportunities

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by Sylvia Lay
Sep 27 2016

Australian retailers have battled difficult trading conditions over the past five years. In particular, clothing retailers have been negatively affected by subdued consumer spending and mounting competition from the entry of foreign fast fashion retailers, such as Zara and H&M, into the Australian market. Overall, the clothing retailing industry is expected to have grown by 2.7% in 2015-16. Other retail industries have fared similarly or worse. However, some local retailers have bucked these weak growth trends. According to IBISWorld’s Top 500 Private Companies List, fast fashion retailer Cotton On has been successfully competing with foreign retailers by appealing to price-conscious consumers. Other local retailers, such as Lux Group Limited, have found growth opportunities in newer retail industries, such as daily deal websites, which sell short-term discount coupons redeemable at bricks-and-mortar locations.

Cotton On Clothing Pty Ltd (trading as Cotton On Group) rose a whopping 66 places in the 2016 list, to 16th place, after reporting revenue growth of 20% over 2015-16. For the first time, the company revealed both its domestic and offshore revenue publicly, putting total revenue for 2015-16 at $1.8 billion. While other retailers have struggled to report positive results, Cotton On has continued to expand. The retailer has focused on increasing its online presence to appeal to tech savvy consumers. The company has also launched several initiatives to help it compete against fast fashion giants like Zara and H&M. These have included opening a two-storey flagship store in the Melbourne CBD, and incorporating most of its lifestyle brands such as Cotton On, Rubi and Cotton On BODY under one roof. Other flagship stores in prominent locations are also expected to be rolled out across Australia. Cotton On has also acquired other fast fashion brands, such as Supre, over the past five years. Although Supre recorded losses over the past few years, the acquisition contributed to Cotton On’s overall revenue growth in 2015-16.

E-commerce operator Lux Group Limited is another private retailer that grew strongly in 2015-16. The company operates 14 retail websites offering accessible luxury travel, fashion and homeware deals. Lux Group reported revenue growth of 39.3% in 2015-16, to $298 million, making it 188th in IBISWorld’s Top 500 Private Companies List. This represents an outperformance of other daily deal websites, with the broader industry expected to have grown by 1.5% in 2015-16. Lux Group has pursued a strategy of aggressive growth, and aims to appeal to a wide demographic. The company has made numerous acquisitions over the past five years, including Cudo (a holiday and shopping daily deal website), Brands Exclusive (a fashion and accessories website), and The Home (an online homewares and furniture website). IBISWorld expects that Lux Group’s revenue growth will slow as the daily deals sites industry becomes saturated, which may force the company to become more innovative.

Although Australian retailers have struggled through difficult and competitive trading conditions over the past five years, the strong performance of some of Australia’s top private retailers, such as Cotton On and Lux Group, has shown that companies with the right strategies can find growth opportunities.

Relevant companies:

Cotton On Clothing Pty Ltd

Lux Group Limited