Footwear Wholesaling in Australia Industry Report (1)

Finding its feet: Slow feet: Slow revenue growth will be driven by the shift to premium products

IBISWorld Industry Report F3714

Footwear Wholesaling in Australia August 2013

Claudia Burgio-Ficca

2

About this Industry

15 Internat International ional Trade

28 Regulation & Policy

2

Industry Definition

16 Business Locations

28 Industry Assistance

2

Main Activities

2

Similar Industries

18 Competitive Landscape

29 Key Statistics

2

Additional Resources

18 Market Share Concentrat Concentration ion

29 Industry Data

18 Key Succes Successs Factors

29 Annual Change

18 Cost Structure Benchmarks

29 Key Ratios

3

Industry at a Glance

19 Basis of Competition

4

Industry Performance

20 Barriers to Entry

4

Executive Summary

20 Industry Globalisation

4

Key External Drivers

5

Current Perf Performance ormance

22 Major Companies

7

Industry Outlook

22 Pacific Brands Limited

10 Industry Life Cycle

30 Jargon & Glossary

23 Nike Australia Pty Ltd 24 Adidas Australia Pty Ltd

12 Products & Markets 12 Supply Chain

26 Operating Conditions

12 Products & Services

26 Capital Intensity

13 Demand Determinants

27 Technolog echnologyy & Systems

14 Major Markets

27 Revenue Volatility

www.ibisworld.com.au | (03 03)) 9655 3881 | [email protected]

WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.A U

Footwear Footwe ar Wholesaling in Australia August 2013

2

About this Industry Industry Definition

Industry operators primarily purchase a range of footwear products from manufacturers and sell these goods to retailers, generally with minimum or no further development of the items. Most wholesalers in the industry undertake

Main Activities

The primary activities of this industry are

sales and administrative activities, such as establishing relationships with manufacturers and retailers to ensure the reliable supply and demand of stock, marketing and advertising their products, and storage and transportation of stock.

Men’s footwear wholesaling Women’s footwear wholesaling Children’s footwear wholesaling Work-related footwear wholesaling Unisex footwear wholesaling

The major products and services in this industry are Children’s shoes Men’s shoes Other footwear Women’s shoes

Similar Industries

C1352 Footwear Manufacturing in Australia

Footwear manufacturers produce footwear. G4252 Footwear Retailing in Australia

Industry participants sell boots, shoes and other forms of footwear to customers.

IBISWorld writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www to www.ib .ibisw isworl orld.c d.com. om.au au


For additional information on this industry www.ausindustry.gov.au AusIndustry www.tfia.com.au Council of Textile & Fashion Industries of Australia Limited www.ragtrader.com.au Ragtrader



2

About this Industry Industry Definition

Industry operators primarily purchase a range of footwear products from manufacturers and sell these goods to retailers, generally with minimum or no further development of the items. Most wholesalers in the industry undertake

Main Activities

The primary activities of this industry are

sales and administrative activities, such as establishing relationships with manufacturers and retailers to ensure the reliable supply and demand of stock, marketing and advertising their products, and storage and transportation of stock.

Men’s footwear wholesaling Women’s footwear wholesaling Children’s footwear wholesaling Work-related footwear wholesaling Unisex footwear wholesaling

The major products and services in this industry are Children’s shoes Men’s shoes Other footwear Women’s shoes

Similar Industries

C1352 Footwear Manufacturing in Australia

Footwear manufacturers produce footwear. G4252 Footwear Retailing in Australia

Industry participants sell boots, shoes and other forms of footwear to customers.

IBISWorld writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www to www.ib .ibisw isworl orld.c d.com. om.au au


For additional information on this industry www.ausindustry.gov.au AusIndustry www.tfia.com.au Council of Textile & Fashion Industries of Australia Limited www.ragtrader.com.au Ragtrader



3

Industry at a Glance Footwear Wholesaling in 2013-14

Key Statistics Snapshot

Revenue

Annual Growth 09-14

Annual Growth 14-19

Profit

Wages

Businesses

$2.0bn -1.1% 1.1% $128.4m $80.0m 177

Demand from footwear retailing

Revenue vs. employment growth

Market Share

Pacic Brands Limited 13.7% NIKE Australia Pty Ltd 6.3% adidas Australia Pty Ltd 5.7%

e g n a h c %

4

12

2

8 e g n a h c %

0

−2

−4

0

−4

−6

Year

4

−8 06

08

10

Revenue

12

14

16

18

Year

20

07

09

11

13

15

17

19

Employment SOURCE: WWW.IBISWORLD.COM.AU

p. 22

Establishments

2.3% 0.4%


6.5%


TAS

ACT

SA

0.3% NT

10.3%

Demand from department stores

WA

32.4% NSW

Real household disposable income Trade-weighted Tr ade-weighted index inde x

16.8% QLD

Consumer sentiment index

31% VIC

p. 4

SOURCE: WWW.IBISWORLD.COM.AU


Industry Structure

Life Cycle Stage Revenue Volatility

Decline Low

Regulation Level Technology Change

Light Low

Capital Intensity

Medium

Barriers to Entry

Industry Assistance

Medium

Industry Globalisatio Globalisation n

Low

Concentration Level

Low

Competition Level

High

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 29

Medium

WWW.IBISWORLD.COM.AU


Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Executive Summary

The Footwear Wholesaling industry has struggled over the past ve years, with revenue expected to contract by an annualised 1.1% through 2013-14. Trading conditions across the industry have been affected by declines in the price of shoes and an increase in wholesale bypass activity. Fluctuations in retail demand for footwear along with variations in disposable income, consumer sentiment and the trade weighted index also inuenced industry performance during the period. Industry protability has suffered due to strong competition between players and declines in product margins. Industry revenue is expected to post weak growth of 1.0% to reach $2.0 billion in 2013-14. Footwear prices over the past ve years have been negatively affected by continued growth in the number of imports from low-cost producing countries. The resulting decline in the average price of footwear hindered revenue growth and constrained protability for operators. The collapse of global nancial markets led to a deterioration in economic conditions, rising unemployment and weak consumer sentiment. Despite government stimulus payments, sales

were affected by the changing domestic climate. Price discounting tactics by most major footwear retailers and department stores eroded product margins and industry protability. Falling prot margins encouraged some industry participants to exit the industry, demonstrated by the signicant contraction in establishment and employment numbers. Industry revenue is forecast to post weak annualised growth of 1.1% over the next ve years, reaching $2.1 billion in 2018-19. While consumer expenditure on footwear is set to increase, footwear retailers are expected to continue bypassing wholesalers in preference to buying directly from manufacturers. Industry import volumes will be inuenced by an anticipated decline in the trade weighted index, making imports more expensive. Continued competition across the industry will lead to further consolidation in enterprise and establishment numbers during the period. Despite this, industry protability is forecast to post slow growth over the next ve years due to a shift in focus by wholesalers from low-cost imports to premium products and services.


Demand from footwear retailing Demand for footwear at the retail level inuences the level of new orders received by footwear wholesalers. As retail demand for footwear increases, there is a corresponding rise in the level of new footwear orders for wholesalers. Demand from footwear retailing is expected to increase in 2013-14 due to an upturn in retail trading conditions.

in 2013-14 due to continued caution in consumer spending. This is a potential threat to the industry, as it may hinder revenue growth.

Demand from department stores Along with footwear retailers, department stores are key suppliers of footwear products. An increase in demand for footwear across department stores creates new orders for footwear wholesalers to ll. Demand from department stores is expected to decline

Real household disposable income Trends in real household disposable income inuence demand for footwear at the retail level. As disposable income rises, consumers are able to spend more on discretionary purchases such as footwear, boosting new orders for wholesalers. Disposable income is expected to increase over 2013-14. This is a potential opportunity for the industry to boost sales through higher retail orders. Trade-weighted index The value of the Australian dollar,

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Key External Drivers continued

compared with its major trading partners, affects the Footwear Wholesaling industry. An increase in the value of the Australian dollar boosts the affordability of imported products, making overseas footwear items more accessible for wholesalers. The trade weighted index is expected to decrease in 2013-14 due to fears regarding the strength of the domestic economy.

Consumer sentiment index Fluctuations in consumer sentiment inuence the level of retail spending by consumers. An increase in sentiment reects a rise in optimism among consumers, leading to higher spending on discretionary items such as footwear. Consumer sentiment is expected to increase in 2013-14 due to an upturn in economic and political stability. Real household disposable income


e g n a h c %

12

10

8

8 e g n a h c %

4

0

−4

4

2

−8

Year

6

0 07

09

11

13

15

17

19

Year

08

10

12

14

16

18

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Current Performance

Footwear wholesalers have struggled over the past ve years, with revenue expected to contract an annualised 1.1% through 2013-14. Revenue has been constrained by declines in the price of footwear, wholesale bypass and the impact of the nancial crisis. Protability has suffered, with wholesalers reducing product margins in a bid to maintain their competitive edge.

Trading conditions for wholesalers have also been inuenced by the performance of the industry’s key external drivers including demand from footwear retailers and department stores, trends in real household disposable income and consumer sentiment and uctuations in the trade-weighted index. Industry revenue is expected to grow 1.0% to reach $2.0 billion in 2013-14.

The economic downturn

The demand for goods provided by this industry is dependent upon footwear consumption levels at the retail level, and this is affected by factors including consumer sentiment, household disposable income and unemployment. The Australian economy suffered a downturn in 2008-09, narrowly avoiding a recession. Consumer sentiment declined sharply for the year,

constraining discretionary spending as nervous consumers put their money into savings. However, household disposable income increased over 2008-09 due to the Federal Government’s two economic stimulus packages, low interest rates and petrol prices, which supported retail spending for the year. Expenditure on footwear at the downstream retail level weakened during

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The economic downturn continued

Falling profitability

this period, which owed on to wholesalers. Based on Australian Bureau of Statistics (ABS) data, retail spending on clothing, footwear and accessories fell 1.0% in 2008-09. This followed growth in the previous two years. IBISWorld expects that these factors combined caused industry revenue to contract by 1.7% for the year. The overall economy improved over 2009-10, and consumer sentiment increased during the rst part of the year. Consumers were generally encouraged by relatively low interest rates, rising house prices and the news that Australia had avoided a recession. However, consumer sentiment fell several times in the second half of the year, following a series of interest rate rises by the Reserve Bank. In the absence of further government scal stimulus payments, household disposable income growth weakened, which constrained spending by households. Retail growth weakened as 2010-11 progressed, and consumers remained concerned over economic uncertainty overseas and increased their savings. The country reached its steepest savings rate in half a century. According to ABS data, retail spending on footwear and associated products posted weak growth

(in nominal terms) during the year, reecting the shift on consumer consumption patterns towards savvier product choices. Retail spending on footwear and associated products continued to decline in 2011-12, leading to a second year of successive declines in revenue for industry wholesalers. Footwear consumption patterns rose over 2012-13 and this trend is expected to continue into 2013-14. Industry revenue during this period has been driven by continued growth in disposable income levels and an upturn in consumer sentiment.

Industry operators have struggled to remain protable over the past ve years. The continued trend in wholesale bypass, coupled with the ow-on effects of the global nancial crisis, led to lower prot margins and capital difculties. Wholesalers and retailers were forced to implement a wide range of strategies to boost their bottom lines. Many operators overhauled their supply chains and implemented cost-saving measures during the economic slowdown. The effects of government stimulus payments to consumers peaked in the June quarter of 2009, but did little to alleviate the tough trading environment in which textile, clothing and footwear retailers and wholesalers operate in the longer term. Over the past ve years, wholesaling

margins have reduced as demand grows for retailers to discount footwear. Discount retailers have grown solidly, while department stores have struggled. Wholesale margins are expected to narrow further as fewer or cancelled orders from retailers lead to more aggressive retail price markdowns. Wholesalers have been forced to become low-cost providers to remain protable. This means that the majority of licence agreements that wholesalers held previously are now controlled by manufacturers based in foreign countries, where labour costs less and environmental regulations are less strict than in Australia. Overall, protability among major players within the industry is steadier

Industry revenue 2

0 e g n a h c %

−2

−4

−6

Year

06

08

10

12

14

16

18

20


6




Falling profitability continued

than for smaller players. The Footwear Wholesaling industry is still expected to maintain a low concentration level due to the large number of small players in the industry. Although industry concentration remains low, trends in other parts of the wholesaling division suggest that concentration may rise in the future. This is despite the number of small operators with limited nancial resources to merge operations. Rising concentration in retailing means that more retailers are ordering on a national

scale. Independent footwear wholesalers and internal wholesaling divisions of footwear manufacturers are expected to benet from improvements in inventory management, distribution systems and logistics over the period. These efciency gains are expected to ease cost pressures generated from footwear manufacturers and retailers. Retailers and footwear manufacturers dominated much of the increased import purchases, and wholesalers did not benet much from tariff reductions.

Participation and customers

Over the ve years through 2013-14, industry enterprise and establishment numbers are expected to have contracted, as players chose to exit due to falling prot margins and difcult trading conditions. Enterprise numbers are expected to fall at a faster rate than establishments, which suggests the industry has undergone a period of rationalisation. Meanwhile, the number of employees per establishment has fallen as establishments struggled to remain protable. Many footwear retailers are undertaking wholesale bypass and contacting manufacturers directly rather than using the services of wholesalers, in order to improve prot margins and maintain a competitive edge.

International footwear retail chains including Aldo and Novo are increasing competition due to their economies of scale, giving them the ability to control operations from the manufacturing level through to retail. Effectively, these types of companies are increasingly bypassing the services offered by the industry. In addition, department stores and supermarkets have started to offer a wider selection of footwear. Big W and Myer have started aggressive store expansions in recent years, thus increasing competition for smaller retailers, which are the main customers of the industry. Again, these department stores are large enough to undertake wholesale bypass, placing further pressure on industry operators.

Industry Outlook

Footwear wholesalers are expected to face further difculties over the next ve years, with revenue forecast to post weak annualised growth of 1.1% through 2018-19. Trading conditions will be inuenced by changing retail demand patterns and continued pressure on product margins, which will suppress

protability. Industry performance is also expected to be driven by variations in key external drivers including trends in real household disposable income, consumer sentiment and uctuations in the trade weighted index. Industry revenue is expected to grow 1.3% in 2014-15 and reach $2.1 billion by 2018-19.

Revenue and profit

Industry revenue is forecast to post weak growth over the ve years through 201819. Despite a rise in disposable income levels, volatility in consumer sentiment

will soften spending on footwear at the retail level. As a result, new wholesale orders for footwear will be hindered by uctuations in retail activity. Continued

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Revenue and profit continued

growth in retailers bypassing the wholesale function and sourcing products directly from manufacturers is also expected to suppress revenue growth. Industry trading conditions are likely to be inuenced by continued growth in import penetration, albeit at a considerably slower rate than the ve years through 2013-14. Imports already dominate the Australian market, aided in part by a tariff reduction introduced in 2010. Import growth is expected to plateau over the next ve years as the market reaches capacity. Import levels are also expected to be inuenced by an overall decline in the trade weighted index, which will decrease the value of the Australian dollar, making imports more expensive. Footwear wholesalers will nd it hard to compete with cheap footwear imports during this period, due largely to footwear manufacturers and retailers attempting to control price and product margins. Industry protability is projected to rise marginally over the ve years through 2018-19. Footwear wholesalers are

Competition

Industry competition is expected to industry operators. increase as a result of rising import levels Variables in long-term forecast and continued growth in wholesaler conditions include changes in fashion bypass. As a result, further trends. A new style can potentially boost consolidations across the industry will industry revenue through effective lead to a contraction in enterprise and marketing or product innovations. establishment numbers during the Discretionary spending on footwear period. Employment levels are also could be materially reduced in periods of forecast to decline over the next ve economic uncertainty or during periods years, leading to fall in wage costs for of pessimistic sentiment. Rising internet operators. Major industry participants purchases from manufacturers overseas have engaged in acquisition activity to represent a leakage of industry demand. increase market presence and Specialty footwear wholesalers will protability. The sports and leisure continue to face strong competition from footwear segments will experience traditional department stores that are slightly stronger growth, as participants able to offer a broad selection of brandsuch as Adidas and Nike are subsidiaries name shoes right across the price of global companies with the advantage spectrum. A strong international supply of economies of scale and large infrastructure also provides a marketing budgets. This will cushion the competitive advantage in global impact of decreasing prot levels, which sourcing. Department stores have strong will be a pervasive trend for other buying power and are able to get

expected to move away from competing with low-end imports and to invest more resources into developing premium products and services. This is consistent with similar trends in other textile markets. Logistics and supply-chain management will be critical factors affecting the competitiveness of the industry. The Australian market will more readily embrace prints and designs once they have already been proven in the European and North American markets. Customers are also demanding a faster turnaround of these designs, as fashion websites instantly inform consumers everywhere of the new developments in fashion capitals. Given this, the success of a wholesaler in this new market environment is dependent on its ability to make these designs available in the shortest time frame and at the cheapest price. Many textile wholesalers seeking to bring products to market more quickly will need to invest resources into their logistics systems in order to remain competitive in the medium term, and to improve protability.

8




Competition continued

discounts on bulk purchases. However, this is also a weakness, as they tend to stock a broad range of shoes and to avoid niche areas. This represents an

opportunity for footwear wholesalers at the high end of the price spectrum, where the exclusivity of fashionable brands will ensure strong margins.

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Footwear Wholesaling in Australia Industry Report (1)

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