Global fashion chains UNIQLO, Zara and H&M; skimmed $600 million in sales from Australian apparel retailers in 2016, taking share from department stores and boutiques, but not all are turning a profit.
Accounts filed with the corporate regulator show that sales at UNIQLO Australia rose 47 per cent to $174.5 million in the 12 months ending August as the value retailer, part of the Tokyo-based Fast Retailing Group, opened new stores in Chadstone, Chatswood, Indooropilly and Queen St in Brisbane, taking its network to 12.
Sales at H&M; soared 139 per cent to $161.9 million in the 12 months ending November 2015, the last year for which accounts are available, and are believed to have exceeded $200 million in 2016 after new stores opened in Sydney's Broadway and Bondi Junction, Wollongong and Toowoomba in the last 12 months.
At Zara Australia, a partnership between Spain's Inditex and Peter Lew's International Brand Management, sales rose 24 per cent to $221.9 million in 2016 as store numbers reached 15.
Analysts believe UNIQLO, Zara and H&M; now account for about 2 per cent of Australian clothing, accessories and department store sales, five years after opening their first stores Down Under.
However, accounts lodged with the Australian Securities and Investments Commission suggest that some of the global chains have found the Australian market more lucrative than others.
Racked up losses
UNIQLO Australia, which is known overseas as the "department-store killer", has racked up losses of $15.9 million since opening its first store in Melbourne in 2014.
ASIC accounts show that losses at UNIQLO almost doubled from $3.04 million in 2015 to $5.8 million in the 12 months ending August 2016, despite strong growth in sales to $174.5 million (net of GST).
After taking into account changes in the fair value of cashflow hedges, UNIQLO's bottom line loss blew out to $7.05 million compared with a loss of $2.18 million in 2015.
In comparison, H&M; reported a net profit of $3.8 million in 2015 compared with a loss of $1.47 million in 2014 as strong sales growth offset a slight dip in gross margins from 70.4 per cent to 68.8 per cent.
Zara, the first of the global chains to arrive, is by far the most profitable, reporting a net profit of $15.3 million in 2016 compared with $10.2 million in 2015 and $16.5 million in 2014.
Analysts believe UNIQLO, known for its ultra-light down jackets and vests, cashmere sweaters, linen shirts and temperature-regulating "innerwear", was hit harder than its rivals by currency volatility, with gross margins slumping from 59 per cent to 53.4 per cent.
Macquarie analysts said sales per store declined from $28.8 million in 2015 to $19.4 million in 2016 as the group moved into less productive/prime locations and new stores cannibalised existing stores.
UNIQLO Australia's new chief executive, Taku Morikawa, who took the reins from Shoichi Miyasaka in October, declined to comment.
Continuing to expand
UNIQLO's founder, Tadashi Yanai, wants the 32-year-old chain to become the market leader in casual apparel in Australia and the global leader by 2020. This means UNIQLO's Australian sales would need to reach $1 billion, exceeding those at specialty retailers such as Country Road Group, Premier Investments' Just Jeans, Portmans, Dotti and Jay Jays brands and Specialty Fashion.
In a recent report, Macquarie Equities said that while the global chains accounted for less than 2 per cent of clothing and department store sales, their store networks would continue to expand, making it harder for chains such as Myer, BIG W and Target to achieve top-line sales growth and increasing pressure on margins.
Macquarie expects Zara's store numbers to rise from 15 to 20, H&M;'s stores from 18 to 40 (50 including H&M;'s more upmarket brand COS) and UNIQLO's stores from 12 to 30 over the next few years.
Topshop is also expected to open stores at a faster pace after Myer acquired a 25 per cent stake in Austradia, the local franchisee, in 2015. Myer's latest accounts suggest Austradia lost $2.4 million in 2016.
"Given the low price points (of the global chains), we expect continued market share loss and margin pressure (discounting) for the discount department store and specialty apparel sectors," Macquarie said.
