Australia's Specialty to close a third of stores as Amazon debuts

By

Sandra Halliday

Published
Nov 23, 2017

Two major pieces of news this week have underlined the challenges facing the Australian retail sector in general and the fashion sector in particular. Amazon makes its official debut on Friday and the owner of Australian fashion chains Katies, Millers and Rivers is to close 300 stores.

The closures, which will happen before 2020, come as competition from huge international chains gets more intense (despite Topshop’s failure this year). It also comes as both cross-border and local e-shopping impact the Australian fashion retail scene and as consumer spending in general stays weak.

Specialty, which also owns City Chic, Crossroads and Autograph, is to cut its current store count of 1,019 to 700 over the next few years with most stores set to be axed during 2018, chairman Anne McDonald said this week.

She was speaking after news that longstanding CEO Gary Perlstein is to step down. But she gave no details about which chains would be hardest hit and which areas would be affected, although analysts said that over 1,000 jobs could be at risk. The company has already closed 76 stores in recent years.

McDonald said the action is intended to counter “subdued consumer confidence impacting discretionary expenditure and increasing competition, both from international and online retailers”.

The company’s losses widened to A$8.39 million in its latest fiscal year after writedowns linked to the closure of its US City Chic stores. But it was lossmaking before that and last month also warned of lower underlying earnings in the current period. This has sent its share downwards this year, even with talk of a potential takeover bid by the Qatari royal family’s investment firm earlier this year.

E-TAIL RISE AND AMAZON ARRIVAL

On the plus side, online dales at the firm have risen with e-sales now making up 10.4% of total revenue and rising at all of its brands.

That’s a good figure, as only 6% to 7% of retail sales currently happen online in Australia, compared with up to 16% in the US.

But while the firm is making the most of the opportunity that e-sales offer, it can’t rely on an easy e-tail marketplace with Amazon setting foot in Australia. 

Earlier this month, the American giant said its Australian launch was “very close” and there have been reports that suppliers have ben told it would formally start trading on Friday.

That debut could certainly rain on the parade of many local rivals with Black Friday deals likely to be a feature of its launch period.

But while Amazon has the resources to ensure it’s a success in Australia, it won’t have it all its own way in this particular market. Analysts expect it to have to delay the launch of its Prime subscription service that guarantees faster delivery until it has more distribution capacity given the huge size of the country. That could put it at a disadvantage to some other, better developed local players.

It also has to be careful of the new ‘effects test’ rules that have made it illegal to behave in a way that drives a competitor out of business – whether or not it’s intentional.