Fashion

and Textile Merchandising Management

FFa

Assessment 1

Retail Survival and Growth

Strategies.

Requested by MKTG1250 F & T Merchandise Management

Brief:

There are many Australian Fashion Retailers that are struggling not only to
grow, but just to survive in the current economic conditions that are impacting
the Australian business environment.
The brands that are battling for survival are not limited to SMEs, with many
large organisations (e.g. Department store retailers and big fashion Groups)
continually having to downgrade their sales and profit forecasts which send
disappointing messages to shareholders and force share prices to plummet.

Written by Desiree La Fontaine

Student number - 3505764

Submitted 17th August 2016

EXECUTIVE SUMMARY

This report was requested by as part of assessment for Fashion and Textile
Merchandise Management course. It focuses on the highly saturated Australian
Fashion Retailer Market and the economic conditions that impact the overall
Australian Business environment. Four Australian Retail brands have been
highlighted for analysis: Cotton On Group, Country Road Group, Myer and
Billabong.
A comparison has been drawn between Cotton On Group, Country Road Group, two
brands proving to be successful in the current conditions and Myer and Billabong who
have struggled to adapt to changing marketplace.
Relevant Content Outcomes (listed in appendix) have been factored into analysis of
company strategies and noted as factors enabling success or downfall of brands
growth.
The report concludes with an overview of the four above-mentioned companies, their
current strategic priorities and summery of potential future outcomes.

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CONTENTS

Table of Contents
EXECUTIVE SUMMARY ..................................................................................................... 2
CONTENTS ............................................................................................................................ 3
1.0 INTRODUCTION ........................................................................................................... 4
2.0 MARKET ANALYSIS ................................................................................................. 6
2.1 CURRENT MARKETING SITUATION/OVERVIEW .................................................. 6
3.0 BRAND OVERVIEW ..................................................................................................... 7
3.1.1 COUNTRY ROAD ............................................................................................................... 7
3.1.2 COTTON ON ........................................................................................................................ 7
3.1.3 MYER .................................................................................................................................... 7
3.1.4 BILLABONG ........................................................................................................................ 8
4.0 STRATEGIES FOR SUCCESS ...................................................................................... 8
5.0 CONCLUSION .............................................................................................................. 11
REFERENCES ..................................................................................................................... 13
APPENDICES ..................................................................................................................... 15

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1.0 INTRODUCTION

Australia has a very saturated market as far as Fashion retail segments. With a

very small population in comparison to European and US markets the market

share of even the best performing retailers is quite low. This saturation is

further heightened by the influx of international retailers entering our local

market. We have many fashion retailers that are homegrown and have become

a household name, entities that have become our destination of choice

because they have survived 40 plus years in our market. Shes got a front like

Myer or strike a Country Road Pose are phrases that empower the

Australian iconic fashion label. In an industry that used to be predominantly

design, manufacture locally and sell to locals without international threat or

competition or innovation for that matter, our domestic fashion retail industry

was simple

Then came the digital age, trade barrier changes and the entry of a worldwide

market. Manufacturing could be achieved off shore at a considerable saving

and the pinnacle high fashion trends from designer brands in Europe and US

were available within seconds of launch.

Some long term Australian fashion retail companies were quick to embrace the

changes, some relied on If it aint broke dont fix and they missed the boat.

Some were in infant stage of development and jumped on the bandwagon,

embracing and learning as they went. Some did not do their research, opting

for the wave of international growth but ended up wiped out by the enormity of

a market they could not relate to.

As our Australian retail companies embarked on international acclaim and the

potential benefits involved, so too did the foreign competition enter our

borders to take whats on offer. So Australian fashion consumers embark on a

double edged sword, our love affair with the brands we have grown up with

and trust or the brands we can connect with as they give us choice,

differentiation and many other desired attributes.

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Some Australian fashion retail companies have thrived and grown over the

past few years, Cotton On Group and Country Road Group are true reflections

of companies that embrace change and rise to the challenge. Myer and

Billabong are household names and managed to succeed for decades as a

preferred shopping destination, however, they have not managed to prosper in

recent times.

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2.0 MARKET ANALYSIS

2.1 CURRENT MARKETING SITUATION/OVERVIEW

The Australian population is currently around 24 million with a labour force of 12.2

million.

Currently the Australian Clothing Retail Market is valued at 28.5 billion Australian

dollars on the domestic market, with annual revenue of 18.7 billion Australian dollars.

(Ibisworld.com)

Due to economic uncertainty from 2011 to current consumer confidence has been

soft creating a need for businesses to lower product prices. Due to the industry

having low market share and fierce completion. Some companies have

strengthened their market share via mergers and acquisitions of competitors with

similar target markets. This, along with the period of high value Australian dollar,

enabled larger companies to improve their economies of scale.

The industry is expected to grow 3.3%, assisted by the growth of online sales and

companies that have effectively launched this sales platform.

Figure 1

3.0 BRAND OVERVIEW

3.1.1 COUNTRY ROAD

As at September 2014 Woolworths International Australia, PTY LTD completed

its acquisition of Country Road and now trades as Country Road Group.

The retailer continues to gain strong market share (currently 4%), with Country

Road, Trenery, Witchery and Mimco under the groups trading umbrella. (Ibis

world,)

The Country Road Group has continued to grow in revenue and deliver relatively

stable profits.

3.1.2 COTTON ON

Cotton On Group holds an estimated 2.6% of Clothing Retail Share. (Ibis world) The

group consists of 8 brands and trades across 1300 stores globally. It has continued

to show impressive growth in revenue with a 120% increase in 2015 and 20%

increase at 30th June 2016. Cotton On purchased fashion retailer Supre in October

2013, taking ownership of the chain's 157 stores across Australia. In 3 years the

Group has strengthened Supr s market position and online presence.

3.1.3 MYER

Myer is a household name in Australia, operating 67 stores across the country and a

heritage of over 100 years. Family owned for many years it was listed on the

Australian stock exchange in 2009. The company faced difficult trading conditions at

the start of the period due to increased costs and volatile consumer sentiment

brought on by economic uncertainty. (Ibis world)

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The companys profit margins have suffered over the past five years, however they

have a strong future vision to evolve and become profitable.

3.1.4 BILLABONG

Billabong International Limited is an Australia-based company engaged in

wholesaling and retailing of surf, skate, snow and sports apparel, accessories and

hardware, and the licensing of the Companys trademarks to specified regions of the

world. The Companys brands included Billabong, Element, Von Zipper, Kustom,

Palmers, Honolua, Xcel, Tigerlily, Sector 9, DaKine and RVCA. It also has online

retail primarily trading on the sites www.swell.com and www.surfstitch.com.

Founded in 1973, the company continued to rise over the course of 25 years,

peaking in 2007 valued at $US3.45 billion. Billabong, in 2013 had to write their brand

value down to zero. (Janda, Michael, 2015)

As at 30th of June 2015 it still shows signs of under performing, with profit margin -

1.9% and a return on revenue at .4. (Ibis world)

4.0 STRATEGIES FOR SUCCESS

Country Road Group, Cotton On Group are proving to be Fashion Retailers that are

on the rise and Myer and Billabong have been struggling to capture profitable market

share for several years. What enables the success for these companies, and, what

have Myer and Billabong been missing?

Product offering and supply chain management are paramount in the highly

competitive fashion retail environment of Australia. The modern consumer has an

open market of choice in bricks and mortar stores and a global market offering

through online stores. Cotton On Group (COG) has a strong focus on their supply

chain business. They bring quality products to the market at the cheapest possible

price and their supply chain and sourcing strategies are critical to them being able to

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offer value proposition and remain profitable. (Ratcliffe Alison, 2016) This speed to

market appeals to its target market and encourages quick sell through. COGs

management of both supply chain and merchandise management, through planning,

purchase and promotion is paramount to its success, proven by its continued profit

margins and growth. (Week1_RC1, RC2, RC4)

Country Road Group (CRG) remains focused on their core customer and, perhaps,

this service based movement has attributed to their catchment of solid market

share.

Country Road managing director Darren Todd: "The aim is to get the balance right

between modernity and diversity but not lose sight of our heritage values of style and

quality." (Sydney Morning Herald, August 1st 2016). Country Road is an iconic

Australian brand with a 42-year relationship with its loyal customers. The CRG has

been able to maintain this following by its continued communication to core

consumers and maintaining brand integrity. This is shown in the groups acquisition

of Witchery and Mimco, retail brands with similar brand attributes and brand appeal.

In October 2012, Country Road acquired the Witchery Group, including the Witchery

and Mimco retail brands with the strategic rationale of creating one of Australias

largest specialty fashion retail groups and the Country Road Group was formed.

(Countryroad.com) This branding strategy strengthened the group and they have

slowly re-positioned, previous market competitor Witchery, to add value to both

brands. Future strategies that remain faithful to the values of its target customer,

along with innovative online development, currently acquiring 18-20% of sales,

should enable continued survival in the future. (Week 2_RCO1, RCO2, RCO4,

RCO5)

The poor performance of Myer over recent years could be attributed to many factors.

The first could be its slow movement to embrace technology and create an online

store. (Alberici, Emma, 2013) Myer did not take ecommerce seriously until it was

listed as a strategic priority in it 2015 Annual Report. Online sales were creating up to

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20%(refer CRG) revenue for competitors by this time accounting for a loss of

potential market share for Myer. The iconic Australian department store has not

adapted to the speed of retail change, almost resting on its laurels. Despite the entry

of international retail giants, Zara, Topshop and the like entering the Australian

market with their proven retail model genius, Myer continued to shun the importance

of service and lost their way with product offering. Its consumers taking advantage of

global market place, choice and variety. Zara, H & M and Uniqlo had combined sales

of $460 million last financial year and it is predicted they will double their market

share next year. (Heath, Patrick, 2016) (Week 3_RCO1 RCO3)

In 1973, Gordon and Rena began to make board shorts under their flat in Burleigh

and from there Billabong was born. Over the course of 25 years, the company

peaked in 2007 valued at $US3.45 billion falling to zero in 2013. (Lobello, Carmel

2013) The humble beginnings are important to note as, they may explain to a large

extent, the downfall of the huge empire these two free-spirited wave hunters built.

When brands grow and take on a corporate enterprise it goes against surf culture

and brand integrity. Surf culture is all about going against the grain, think

independently, be free. The key consumer of Billabong does not want to enter a

department store; they want to be wearing independent, scarce, and faithful to the

culture labels. When this value is lost other independent labels step in. Billabong

followed the modern day attempting to appeal to mass market and in the process lost

their core customer and credibility.

The second element of Billabongs downfall was the companys failure to keep up

with its rapid expansion. The company was listed in 2000 and business planning

influenced by responsibilities to shareholders and investors, not by historical

company values. Quick to follow was a massive spending spree on surf retail outlets

and brands such as Element and Nixon watches. The investment in bricks and

mortar was at a time when other fashion brands were investing in the new world of

online shopping, this as in Myers case, proved to be a significant oversight.

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The US recession hit Billabong hard, poorly timed expansion leading to drowning in

debt and failing retail returns. Billabong neglected its founding consumer and made

no real attempt to capture the new rising market. (Week 2_RCO3, RCO4

Week3_RCO2, RCO3

5.0 CONCLUSION


So what is the future of the four Australian Fashion retailers noted in this report? All

have very detailed strategic future plans in place, however are they directed to

encompass current issues and, more importantly looking further ahead to potential

road blocks before they become a problem?

Cotton On Group continues to rise as the further develop their international retail

presence aiding their supply chain and create a viable, profitable logistics vision.

Proof in their ability to sustain and gain market control is in their acquisition of failing

brand Supr and put in place company dedicated strategies to enable the brand to

turn into positive within a small period of time. Through effective merchandise

management parallel with an astute understanding of direct consumer and their well-

managed supply chains, COG appears to be well placed to continue to thrive.

Country Road Group and Country Road the brand continue to survive the highly

saturated Australian Fashion Retail market. Newly appointed Managing Director

Darren Todd appears to be going back to brand roots and appealing to the ethos

that the brand developed many years ago. Merchandise management is paramount

here and clearly he values brand attributes and brand integrity to continue to take on

market share.

Myer have been privy to necessary shake up. New CEO and strategic focus on Omni

Channel development and customer focused experiences. The new Werribee Plaza

store looks to reflect some merit in the strategic priorities noted in their 2015 annual

report. The fusion between physical and digital retailing (Myer 2015) may be

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delayed, but hopefully they are looking beyond technology now and planning for the

future.

So what is the strategic vision for Billabong? The CEO Neil Fiske and his reshuffled

Senior Management team began the process of bringing Billabong back to its former

glory in 2013 with new strategic vision.

The first step appeared to be simplifying and streamlining the company, and focusing

on its top 3 global brands, allocating resources appropriately. Selling off assets to

create some financial freedom to assist in rebuilding these brands was necessary.

Nixon was one of the many brands to be offloaded.

Merchandise planning was also streamlined and simplified, culling excessive styles

and products by as much as 30% and working with its design team to create ''fewer,

bigger, better styles'' that sold faster, delivered better margins and drove top line

sales growth.

(Neil Fiske 2013)

Focusing more towards mono-brand stores rather than multi-brand stores, sold

West 49 retail in 2014, 51% of SurfStitch, and its 100% ownership of Swell allowing

the company to narrow its strategic focus (Billabong.com)

Billabong also plans to direct increased spending on marketing campaigns,

particularly digital marketing, social media, and customer relationship.

Supply chain stream has also altered, global sourcing and logistics improvements

are said to save the company $30 million in profit. This includes reducing the number

of suppliers and sourcing supply chains in countries other than China.

The infant stages of Billabongs new strategic vision have proved to show a possible

silver lining for the brand as a modest annual profit of $4.2 million was posted in

August 2015.

With such a prestigious and historical status hopefully all four of these Australian

Fashion Retailers can overcome economic conditions and continue to be present

and grow within our small and increasingly saturated market.

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REFERENCES

au.fashionunited.com/trends (viewed on 08/08/2016)


Australian Retailers are losing the Online Race, ABC. Net 2013, 17th June, viewed

14/08/2016 www.abc.net.au/news/2013-06-17/alberici-online-

shopping/4760168

Billabong cuts back from large loss to small profit, 2015, ABC news, 27th August,

viewed 7th August 2016

www.abc.net.au/news/2015-08-27/billabong-swings-from-large-loss-

to-small-profit

Dude What Happened to Billabong, 2013, The Week, 27th August 2013 viewed

16/08/2016 www.theweek.com/articles/460687/dude-what-happened-

billabong

Cotton On Buys Supr, 2013, News.Com.Au, 2nd October, viewed 9th August 16,

2016 www.news.com.au/finance/business/cotton-on-buys-supre/story-

e6frfkur-1226731879178

Cotton On puts Focus on Supplier Relations, 2016, Supply Management, 22nd

March, viewed 15th August 2016 www.cips.org/supply-

management/news/2016/march/cotton-on-puts-focus-on-supplier-relations/

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Country Road Boss Darren Todd Well Stick to What We Do Best, Sydney

Morning Herald, 2016, 1st August, viewed 16th August 2016

http://www.smh.com.au/lifestyle/fashion/country-road-boss-darren-todd-well-

stick-to-what-we-do-best-20160728

Zara H&M and Uniqlo to Keep Steamrolling Locals, 2016, 11th April 2016, viewed

15/08/2016 www.smh.com.au/business/retail/zara-hm-and-uniqlo-to-keep-

steamrolling-locals-says-macquarie-20160411-go3gny.html

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APPENDICES


RCO1 - The modern consumer
RCO2 - Challenges for retailers
RCO3 - Key Factors for Success
RCO4 - Merchandise Management (definition & explanation)
RCO5 - MM strategies (diffusion lines)

From Week 2:

RCO1 - The emotional economy

RCO2 - Marketing in the emotional economy
RCO3 - Desired Brand attributes
RCO4 - Brand integrity
RCO5 - Branding strategies

From Week 3:

RCO1 - The Global Economy

RCO2 - Challenges of Global interdependence
RCO3 - Technology and globalisation
RCO4 - The new global era
RCO5 - Global trade

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