The tough retail environment for Australian department stores, with weaker than expected consumer sentiment and the rise of digital players, is expected to continue for another five years.
Forecasts by industry analysts IBISWorld show slim growth of 0.7% a year over the next five years to $20.2 billion as the main players expand online in an attempt to remain relevant and competitive.
“The relatively lacklustre results in the Australian department stores sector in recent years has been exacerbated by disappointing results for Christmas retail spending,” says Lauren Magner, an IBISWorld senior analyst.
“With consumers opting to pay down debt and boost savings, rather than discretionary spending, department stores have had to be content with annualised revenue growth of just 1% over the past five years.
“Uncertain economic conditions, growth in online retailing and the arrival of major international fashion brands are tipped to continue to challenge the traditional department stores model in the next few years.”
IBISWorld says the industry is expected to face increasing competition from online retailers and international fashion giants, such as H&M, Forever 21 and Uniqlo, over the next five years.
The top four players account for 93.1% of industry revenue with and David Jones and Myer between them covering 30% of overall department store sales, according to IBISWorld.
“Major players will continue to invest in their online platforms as new avenues for revenue growth, with multi-channel retailing becoming increasingly important in the coming years as department stores look to grow their share of the online retailing market,” says Magner.
Restructuring has been significant in the industry with most major players undergoing structural change to address intense competition.
“We have seen Wesfarmers restructure Kmart by streamlining operations to focus almost entirely on value products,” says Wagner.
David Jones, acquired in 2014 by South-African-based Woolworths Holdings, has concentrated on winning and holding the premium end of the market while developing its own private label clothing.
Myer, which reports its half year results later this month, is expected to see a return to profit growth this financial year.
The major players and their market shares (Osiris is the parent of David Jones; Wesfarmers includes Target and Kmart):
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