Thursday, July 28, 2011


I’m just back from my second visit to my hometown of Fremantle in Western Australia in the past year. I still have trouble believing just how much the cost of living in the Perth metropolitan area has skyrocketed since I left there in early 1995. I realize that more than 16 years is plenty of time for things to change. However, the ensuing boom in the mining and resources sectors has pumped the state so full of jobs and cash that prices for everything (except wine, thankfully) are such that I’m not sure how people make ends meet but they seem to be happily throwing down. It has the feeling of a boomtown.

So when I heard about how retail was struggling when I was there for last Christmas, it just didn’t square. Having lived through the US downturn over the past 3 years, it looked fine to me. I was back in Sydney for the Rosemount Australian Fashion Week in May. Again, I heard the grumblings about what a mess that retail was in. I spent plenty of time roaming the streets of downtown Sydney and scouting stores in trendy inner-city suburbs like Surry Hills and Paddington; I didn’t see the signs of distress that usually comes with retail slumps – few empty storefronts and the whole place wasn’t on sale.

This most recent trip opened my eyes. Where disposable income in the States has dwindled because nobody has any money, it looks like disposable income in Australia is dwindling because there is too much cash flying around. Too much cash in an economy equals higher interest rates and higher prices. People are pocketing their money. This is always bad news for retail in general, and disastrous for fashion retail in particular. As I detailed in my blog, Where to from here?, disposable income is the lifeblood of the fashion retail world.

Serendipitously, the Sydney Morning Herald (SMH) article, Premier retail empire finds spending is out of fashion, appeared online just as I was starting this blog. It neatly outlines the troubles Down Under. It made me think of some interesting insights that I picked up from fashion retailers and savvy shoppers whom I spoke to over the past month.

In Where to from here?, I talked about the Santee Alley effect. This refers to fashion buyers going off the beaten track in Los Angeles to cut-price suppliers in search for better margins. Apparently, Hong Kong is the place to go for Australian contemporary buyers. It doesn’t sound like a pleasant experience to visit those dodgy back alleys; the description of the amenities used by the buyers was particularly memorable. But the results are the same – size runs of contemporary styles to be sold at fat margins.

Technology now allows buyers to see samples being shown or modeled live from anywhere around the world via Skype. Orders and reorders can be emailed or completely automated using websites like Buyers are no longer restricted by when and where they can meet sales agents. You can get your price point wherever you can find it.

Store cash flows have taken a huge hit over the past few years. Instead of money in the bank and all bills paid, the comments I heard about the amount of unpaid-for stock that was on the store floors and already on sale were scary. As one boutique owner put it, “The Good Old Days are definitely over.”

Those Good Old Days also didn’t have to compete with so much online spending. The SMH article goes into the exponential growth of Internet shopping. A very good male friend of mine who has always been a natural clotheshorse revels in buying leather jackets, cowboy shirts and Levi’s from the US and Canada with his strong Aussie dollar at a fraction of Australian retail prices. And he’s 52 – hardly the usual demographic.

The increasing dominance of online shopping has led traditional retailers to adopt new tactics to keep up. In Australia, they have started charging try-on and fitting room fees. Another SMH article, High street hits back, goes into the phenomenon. It costs you $50 to try on that pair of Nikes or that pair of designer jeans that you know you can get for half the price online.

I suspect the difficulties in the fashion wholesale and retail sectors in Australia and the US are rooted in the same causes. Apart from the economic problems, I think the way that business is done in the fashion world is changing. The industry has done business the same way for a very long time. It was slow to pick up the technological advances of the digital revolution, and slow to appreciate and react to the effect of the new technologies on how fashion can be sold other than to a customer in a store or to a buyer from an agent.

My question, Where to from here?, still needs an answer.