German supermarket chain Aldi is just one of a raft of foreign retail brands that has set up shop in Australia to challenge the local players.
Photo: Peter Braig
You may have missed last week’s announcement that controversial American burger brand Carl’s Jr will open 300 stores across Australia over the next decade. The story received very little coverage because a big brand entering Australia from overseas hardly makes the news any more. Barely a week passes, it seems, without at least one big foreign brand announcing that they will be opening for business in our fair country.
The Australian retail landscape is changing dramatically before our eyes. Step beck only a decade and the shopping centres of Australia were demonstratively of national origin. Back then most Australian executives had convinced themselves that Australia was too difficult a market for overseas brands to handle and that the local brands were strong enough to repeal any threat from foreign invaders. How wrong they all were.
First it was Aldi. Then Costco. In retail finance we saw advances from the likes of HSBC and ING. In fashion we saw a quick succession of entrants led by Zara, Topshop and Gap with H&M, UNIQLO and Abercrombie & Fitch all set to join them in 2013. As more and more of these retailers have arrived, thrived and expanded, the fallacy of Australian brand superiority has been exposed.
There are many reasons the foreign invaders have suddenly discovered Australian customers after so many decades of ignorance. Clearly, several economic factors play a role. Our economy and spending levels held up remarkably well versus our European and US cousins.Compared to the UK or Spain, Australia has proven to be a relative retail oasis. Our dollar of course also reached parity with the American dollar – an important psychological threshold for American firms who suddenly realised that Australia was effectively as attractive as Texas or New York in terms of potential sales.
But it is more than just the economy at work. Local consumers have played their part. Most Aussies have shown scant loyalty to local brands and have embraced foreign entrants. TheyThe young fashionistas interviewed as they lined up outside the first Topshop or Zara to open in their city always say the same thing. They cannot wait for more foreign brands to open in Australia and they find the current offerings of local fashion retailers to be boring and out of fashion. aren’t just welcomed, in many cases they are perceived to be superior.
And then there is the lack of competitive capabilities of our own brands. Until 2005, Australia was largely an oligopoly. Three or four companies usually enjoyed up to 80 per cent of the market in any category. Look at newspapers, supermarkets, banking, or fashion. The good news about operating in an oligopoly is you make superb profits on a consistent basis. The that if anyone breaks into the oligopoly the dominant brands struggle to respond. Yearsyears of dominance led to top brands being poor innovators. Our brands also lack differentiation and strong brand equity. Worst of all, these companies struggle to respond to competitive threats and change their operating model.
The executives who run Costco, Zara, Aldi and Topshop are hardened retailers – not arrogant or overconfident.
But perhaps the biggest reason we face an onslaught from abroad is Australia is soft. Our consumers are cashed up and ready to embrace new retailers and our brands are weak and ripe for the taking. The executives who run Costco, Zara, Aldi and Topshop are hardened retailers – not arrogant or overconfident. And yet when you ask about the challenges of growing businesses in Australia you encounter ill-disguised glee. Australia is big. It is relatively underserved. And Australia is easy.
Where does this leave our own domestic players? Well, if the new foreign legion does not kill them in the next few years it will certainly make them stronger. The revolution at Coles, for example, was partly driven by a new leadership team but the real catalyst for change was the encroaching threat from Aldi and Costco.
The final implication of being part of an oligopoly for so long is that our brands were loathe to leave such a lovely market and embrace international expansion. While it’s true that most of our retail brands have a small presence overseas, the reality is that most of our brands make most of their money in Australia. That’s doubly unfortunate with all the foreign brands now entering Australia because it would have been good to have had some overseas sales to off-set the domestic challenges now being felt and by competing more internationally our brands would have been stronger and more able to repel the foreign competition in the first place.
Mark Ritson is an associate professor at Melbourne Business School and a consultant to global brands