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Tapestry, the owner of brands including Coach and Kate Spade, agreed to acquire Versace and Michael Kors parent Capri Holdings in an $US8.5 billion ($13 billion) deal that shows the wave of consolidation in the luxury-goods sector is far from finished.

Tapestry and Capri separately built up their own stables of high-end brands in recent years, but they’ve been no match for the breadth and depth of European luxury houses LVMH and Kering. The continental giants own brands that touch on an array of sectors, including apparel, ready-to-wear, jewellery, watches and alcohol.

The Capri acquisition is an attempt to try to compete more effectively against luxury’s top players, particularly in handbags — strengths for both Coach and Michael Kors — and shoes. Tapestry owns the Stuart Weitzman footwear brand and Capri owns Jimmy Choo.

“By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach,” Capri chief executive officer John Idol said in the statement.

New York-based Tapestry is paying $US57 a share in cash, according to a statement, a 65 per cent premium over Capri’s last closing price. The $US8.5 billion enterprise value includes $US1.7 billion in net debt.

Capri shares surged as much as 58 per cent in New York trading, their biggest leap in the company’s nearly 12 years on the market. Tapestry shares fell as much as 10 per cent.

“Tapestry has made a good acquisition, paying a price that is in line with what we believed Capri was worth,” Citi analyst Paul Lejuez wrote in a research note.

The transaction is expected to close in 2024, subject to approval by regulators and Capri shareholders.

‘Powerful’ combination

The combination of the six brands “creates a new powerful global luxury house, unlocking a unique opportunity to drive enhanced value for” customers, employees and shareholders, Tapestry chief executive officer Joanne Crevoiserat said in the statement.

The combined businesses will be the fourth-largest luxury company in the world with a market share of around 5.1 per cent, according to GlobalData analyst Neil Saunders. In the Americas, it will be the second-largest player behind LVMH, he added.

The combined companies are likely to dominate the US handbag market. “The addition of Michael Kors cements Tapestry as the No. 1 player in the accessible luxury handbag market in the US by a wide margin,” Wells Fargo analyst Ike Boruchow wrote in a research note. The companies’ “accessible” luxury items are much less expensive than the highest-end brands, such as LVMH’s Louis Vuitton. The accessible-luxury sector has been challenged in recent quarters in the US, though, as aspirational shoppers there pull back on spending with the pandemic luxury boom waning.

China rollout

Tapestry, whose Coach brand has been in China for decades, will likely focus on accelerating the rollout of Michael Kors in the country, which could help compensate for more sluggish sales lately on the companies’ home turf in the US. Tapestry generates around 15 per cent of its revenue in China, while Capri makes around 6 per cent to 8 per cent of sales in the country.

By adding Versace to its brands, the acquisition gives Tapestry its first direct access to a European luxury marque. Capri bought Versace in 2018 and has focused on increasing the brand’s sale of handbags and other accessories, successfully boosting revenue.

The companies said there are no financing conditions attached to the deal. Tapestry has secured $US8 billion in fully committed bridge financing from Bank of America Corp. and Morgan Stanley. The company expects to fund the $US8.5 billion purchase price through a combination of senior notes, term loans and excess Tapestry cash, using a portion of it to pay down some of Capri’s debt.

Capri’s shares have tumbled recently as a pullback in spending by US consumers in department stores dented sales of the mass-market Michael Kors brand. The company shares had fallen around 31 per cent in the past 12 months.

Capri, also based in New York, had been scheduled to report fiscal first-quarter earnings on August 8.

Luxury giants have been snapping up smaller brands in the world of Big Fashion even as inflation has potentially darkened the outlook for discretionary spending. Cosmetics firm Estée Lauder Cos. took over Tom Ford in a $US2.8 billion deal announced last year and completed in April. Kering, which had held talks to buy Tom Ford before it was sold to Estée Lauder, agreed a deal last month for a 30 per cent stake in fashion house Valentino for around $US1.9 billion. Kering also agreed in June to acquire perfume maker Creed at an undisclosed valuation.

Meanwhile, Tapestry benefited from a stronger-than-expected rebound in China sales in the quarter ended April 1. The company expects mid-single-digit sales growth in China in its current fiscal year. Tapestry’s shares have climbed nearly 20 per cent in the past year, valuing the firm at about $US9.6 billion.

Tapestry said the acquisition will generate cost synergies of more than $US200 million within three years after the closing of the deal due to supply-chain and other operating efficiencies. The new company will employ more than 33,000 people globally.

Tapestry said it’s committed to an investment-grade rating and that it anticipates reaching a leverage ratio of below 2.5 times debt to earnings before interest, taxes, depreciation and amortisation within two years of the closing of the deal — a target that it will aim to maintain in the long term.

Tapestry will suspend its share buybacks to prioritise debt reduction after the acquisition. The deal will be immediately accretive to earnings per share, the company said.

Retail spending grew 2.3 per cent year-on-year in June as consumers spent more than $35.1 billion in stores and online, according to data from the Australian Bureau of Statistics (ABS).

The most “significant” sales increase was in cafes, restaurants and takeaway services at 8.6 per cent followed by food spending up 5.8 per cent.

However, all remaining categories registered a decline in spending when compared to last year.

Household goods registered the biggest decline of 4.4 per cent followed by department stores, down 2.1 per cent, clothing, footwear and accessories down 1.5 per cent, and ‘other retailing’ at 1.1 per cent.

Australian Retailers Association CEO Paul Zahra said sales growth for essentials like food “masked an overall decline” in retail spending.

“Food makes up more than a third of retail spending and its performance is being inflated by unavoidable price increases.

“Despite overall sales growth, the reality is that we’re very much in the grip of a discretionary spending slowdown.”

Zahra said it has become a “precarious environment” for retailers as they simultaneously feel the pinch of the spending slowdown and are left at the mercy of rising operating costs across the board.

“Shoppers have become far more spending-conscious due to the rising cost of living, and we’re seeing that reflected in these results,” said Zahra.

By state, ACT led growth by 6.2 per cent followed by South Australia at 5.4 per cent, WA at 5.4 per cent, NT at 4.5 per cent, Tasmania at 1.7 per cent, NSW at 1.5 per cent and Queensland at 0.1 per cent.

Ben Dorber, ABS head of retail statistics, said retail turnover fell due to “weaker than usual spending” on end-of-financial-year sales.

“There was extra discounting and promotional activity in May, leading up to mid-year sales events. This delivered a boost in turnover for retailers, but that proved to be temporary as consumers pulled back on spending in June.”

National Retail Association CEO Greg Griffith said the “lack of impact” from mid-year year sales shows how far consumer confidence has fallen.

“Consumers are only opening their wallets for non-discretionary spending, if not for special occasions.”

He advised other retailers to adopt sales tactics like the big retailers who have found consumer loyalty with their own branded products to ride out the economic storm

Australian-born online retailer Princess Polly is expanding its wholesale agreement with US retailer PacSun to 100 stores, as its parent company AKA Brands reports economic challenges in Australia.

Princess Polly signed the wholesale agreement in May this year, starting with 15 PacSun stores that would carry up to 50 Princess Polly styles. PacSun operates 350 stores across the US market.

The Australian fashion brand is also on track to open its first store in Los Angeles next month.

AKA Brands CFO and interim CEO Ciaran Long said Princess Polly’s wholesale growth marks part of an overall strategy.

“Importantly, we are increasing our total addressable market, particularly in the U.S., by introducing our brands to new customers through direct to consumer and omnichannel initiatives,” AKA Brands CFO and interim CEO Ciaran Long said.

“Looking ahead, we remain laser focused on chasing consumer demand, driving greater operational efficiencies and strengthening the balance sheet by paying down additional debt through the remainder of the year.

“We remain confident in the future of our brands and our business model and are committed to driving shareholder value.”

AKA Brands reported a net sales decrease of 14.2% to US$136 million for the second quarter ended June 30, 2023, compared to $158.5 million in the second quarter of 2022.

The decrease was driven by a decline in the number of orders and average order value during the quarter, AKA claimed, primarily driven by adverse macroeconomic conditions in Australia.

In the quarter, its Australian sales were down 28.4% to $48 million on the same period. Compared to the 2021 second quarter, Australian sales were down 31.1% from $69.7 million in Q2 2023.

AKA Brands’ US market saw a drop in sales of just 2.8% to $79.9 million in Q2 this year compared to last year.

The group’s overall net loss was $5 million and negative 3.7% of net sales in the second quarter of 2023, compared to a net loss of $4.2 million and negative 2.7% of net sales in the second quarter of 2022.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was $5.6 million, or 4.1% of net sales, compared to $5.9 million, or 3.7% of net sales in the second quarter of 2022.

“We continue to execute against our strategic initiatives and have made significant improvements in our operating efficiencies, which enabled us to deliver on our adjusted EBITDA and cash flow expectations for the second quarter,” Long said.

“I’m also pleased that we continued to strengthen our balance sheet by way of strategically reducing inventories, which were down 16% since the end of fiscal 2022, and we paid down $12.5 million of debt in the quarter.

“The U.S. performance was in line with our expectations, registering $80 million of net sales in the second quarter and delivering 12% growth on a two-year basis.

“Despite the inline performance in the U.S., our overall net sales were dampened by continued macro pressures and consumer challenges in Australia.”

Meanwhile, Australian-born brand Culture Kings, also under AKA, has struck recent partnerships with Rolling Loud music festival and the Ultimate Fighting Championship, and is reporting a strong performance in its Las Vegas flagship opened in November 2022.

Culture Kings operates seven stores in Australia, and one store in New Zealand.

AKA’s third Australian-born subsidiary, fashion retailer Petal & Pup, is exceeding expectations on the US Target marketplace according to the group, and is currently exploring additional omnichannel tests.

The fashion group also owns US fashion brand mnml, which AKA claims is a top 10 brand at Culture Kings and continues to leverage the Australian streetwear brand for new customer acquisition and marketing activations.

The boss of DIY giant Bunnings says the company’s push to simplify its back office should translate to a better experience for customers seeking bargains as its ongoing investment in technology starts to pay dividends.

The Wesfarmers-owned hardware chain restructured its senior management team this week, stripping out a layer of eight “regional manager” roles at the business.

Bunnings managing director Mike Schneider said while the changes are part of its stated strategy to streamline communication across its teams, the hardware giant was in no rush to cut its overall workforce down to size.

“Overall, our team continues to grow as we actively recruit roles across our store network to ensure we are offering customers the best experience,” Schneider said.

Less than 10 roles will be affected by the changes, with all affected staff offered the opportunity to be deployed to other roles.

The move comes as Bunnings doubles down on projects to boost efficiency and use tech to help staff spend less time on tasks like locating stock and refreshing price tickets.

“We’re continuing to work really hard to find innovative ways to boost productivity and efficiency across our business,” Schneider said.

“We’ve invested in a number of tech-based projects that are helping us achieve this, aimed at reducing the number of hours our team spend on task[s] and reinvesting them into customer service.”

“This investment, coupled with the small changes we’ve made to our operations team, all comes down to simplifying our business. Our goal is to help our store and support teams become more efficient, productive and streamlined, leading to an even better experience for customers.

“We know that simplicity can be a really powerful asset in retail, which is why it’s a real focus for us moving forward.”

Schneider gave some examples of the retailer’s investments in tech at Wesfarmers’ strategy day in May, when he told investors that the group had used technology to remove or redeploy 2.4 million hours of “task time” since 2020.

Bunnings has been trialling electronic shelf labels to save hours spent updating paper tickets, and has also recently run trials using robots in store to scan aisles overnight and work out what stock needs replenishing.

“What we’re aiming to do here is reduce team member hours spent locating hand stock to be filled or completing gap and price checks,” Schneider said in his presentation to the investor day.

Retail analysts have been optimistic that Wesfarmers’ stable of low-cost brands, which include Bunnings, Kmart and Target, will be well-placed to benefit from the trends of consumers trading down their purchases to budget varieties.

News last week of Wesfarmers’ plans to merge the back-end and technology processes of Kmart and Target into one system further suggests the retail giant is looking to streamline its operations as it looks to capture budget-focused shoppers.

Wesfarmers boss Rob Scott said back in May that the focus on essentials at Bunnings, Kmart and Target positioned the retailer well for tougher trading conditions.

The Australian luxury fragrance brand Goldfield & Banks has opened its first pop-up store, at Westfield Bondi Junction.

The store is located on Level 3, near Sephora and Myer, and is open until December 24.

At the store, customers can shop for Goldfield & Banks Native and Botanical collections and avail of a complimentary engraving on selected days.

Goldfield & Banks was launched in 2016 by French-Belgian Dimitri Weber who migrated to Australia after being captivated by its natural beauty. The brand is now available in 50 countries, including luxury department stores including Selfridges and Harrod’s in the UK and Bergdorf Goodman in the US.

Shares in Temple & Webster soared more than 14 per cent on Wednesday after the online-only furniture retailer said it was bucking a difficult environment and posted a massive increase in sales for the last five months.

The company said sales between July 1 and November 27 had risen 27 per cent compared to the same period last year, with revenues increasing even more strongly from October 1 – up 42 per cent. That sent shares to $7.41, up some 40 per cent in 12 months to give the company a $900 million valuation.

Temple & Webster chief executive Mark Coulter said the retailer had been cutting prices as shipping costs returned to the levels they had been before the COVID-19 pandemic. That, and better deals with offshore suppliers, had meant lower costs overall. “We’ve decreased our prices,” he said. 

Mr Coulter said Millennial shoppers were still spending at Temple & Webster despite more caution among consumers after the Reserve Bank increased interest rates for the 13th time since last May. The latest Australian Bureau of Statistics figures, released this week, showed a fall in retail spending in October compared to the previous month.

Those challenges, Morningstar equity research director Johannes Faul said earlier this week, would last into the first half of 2024 as consumers continued to limit spending. Some retailers, including Temple & Webster, offered Black Friday-themed discounts much earlier in 2023 compared to previous years, sometimes weeks before the official event on November 24.

You can’t apply for the role of muse in the fashion industry. It is never advertised and calling yourself one is tackier than a fake handbag. You simply know one when you see them.

Along with Jackie Kennedy, the Duchess of Windsor, socialite Babe Paley, performer Josephine Baker and actor Audrey Hepburn, Jane Birkin, who died on Sunday aged 76, was immediately recognisable as a muse.

She wore the title so well that even lending her name to the ultimate luxury handbag, the Hermès Birkin, failed to eclipse her style spirit.

“Having a Hermès bag named after you says it all,” says celebrity stylist Jess Pecoraro, who has worked with Jesinta Franklin and Pip Edwards. “My first thought when she died was that the bag is going to go up in price again. I have my eye on a vintage one and now I’ll never get it.”

The coveted handbag was created in the mid-eighties, after Birkin found herself upgraded on an Air France flight to a seat beside Jean-Louis Dumas, chief executive and artistic director of his family’s brand Hermès. After hearing how Birkin’s husband filmmaker Jacques Doillon had deliberately run over her signature wicker basket in his car, Dumas designed a practical, streamlined bag for the working mother.

Today, customers can pay thousands and wait years for a Birkin handbag in their preferred style to arrive at a Hermès boutique. A crocodile Birkin bag is currently available on luxury auction site 1stDibs for $US575,000 ($857,581).

In a statement on Sunday, Hermès paid tribute to Birkin’s influence. “We discovered and appreciated the extent to which Jane Birkin’s soft elegance revealed an artist in her own right, committed, open-minded, with a natural curiosity of the world and others.”

“She looked just as good carrying the bag as a basket,” says Naomi Smith, fashion director at Marie Claire.

For Smith, Birkin’s appeal stems from a commitment to simple pieces worn with a casual disregard for trends, labels and price tags.

“It helps that she was incredibly beautiful, but there are plenty of pretty women out there,” Smith says. “She had incredible style, and it was all her own.”

“When she was younger she wore provocative, sheer pieces with complete confidence that made them appealing rather than shocking. Girls today are still copying that look in sheer dresses, but she made it look so effortless.”

Muse was just one of Birkin’s titles. She first found fame as an actor in London and then Paris, where she became the epitome of French chic, after being paired professionally and romantically with controversial cultural figure Serge Gainsbourg.

“I think it’s fabulous that a British woman came to define French style,” says designer Bianca Spender. “She brought that British street style to Paris, which had been stuffy and done-up.”

“With her outfits, there was always a block heel that you could run in or a look that could go to a picnic or a nightclub.”

Birkin was also a singer, first recording the scandalous breathy duet Je T’Aime . . . Moi Non Plus with Gainsbourg in 1969. Despite (or because of) reported condemnation from the Pope, the song was an international hit with Abigail, from the groundbreaking television series Number 96, recording an Australian cover version in 1973.

Birkin’s daughters Charlotte Gainsbourg and Lou Doillon (her eldest daughter, photographer Kate Barry, died in 2013) continue her creative legacy, acting and singing.

“I saw Jane Birkin perform twice in concert,” says Rachel Wayman, fashion director at In Style. “She had the same magic on the stage and on the street.”

“I was at a café in Paris when I saw her walk past years ago. I had to get up from my seat just to watch her walk away. It was a moment,”

Of course, Wayman remembers the outfit: a T-shirt, military jacket, jeans and scuffed sneakers.

“Anyone could wear that outfit but no one could wear it like her. That’s what makes someone a fashion icon.”

Outdoor apparel retailer KMD Brands says all three brands contributed “strong sales growth” in the first three quarters of the financial year.

In a trading update, the company said group sales are expected to exceed $1 billion for the first time for the year to July 31. Underlying EBITDA is expected to be in the range of $105 million to $110 million.

A warmer-than-usual start to winter in Australia and dampening consumer sentiment have seen sales and retail footfall fall.

Despite slower winter trading, Kathmandu cycled its “best-ever” winter season performance last year.

Group CEO & MD, Michael Daly, said: “With three weeks of trade still to come, we remain focused on delivering our key Kathmandu winter and Rip Curl Northern Hemisphere summer results while continuing to moderate our cost base for the year ahead.”

For the fourth quarter, the business flagged trading continues will be more “challenging” as cost-of-living pressures and softening consumer sentiment persist.

Local investment firm Glow Capital Partners will acquire 51% of Australian uniform business Cargo Crew in a bid to grow the apparel brand globally.

Under the agreement, the Cargo Crew executive team will retain full management control and three members of Glow Capital Partners will join the board.

Launched in Melbourne in 2002, Cargo Crew is a major tailor predominately in the hospitality space. Founder Felicity Rodgers said the family-owned business is preparing for further global expansion.

“Our obsession with making the best product has led to strong international demand,” Rodgers said. “Already 25% of our online sales are from international customers who have sought us out and continued to buy.

“Last week we had a sale from South America with a note saying they couldn’t find another brand that brings together fashion and function like Cargo Crew.”

Rodgers said the partnership with Glow Capital was the natural next step for the business.

“We have an incredible growth opportunity ahead of us, so we welcome the expertise in scaling up and building a global brand that the Glow team brings,” Rodgers said. “Including Kate Morris, Justin Ryan and Alex Downie on to our board to guide us as we expand into other markets will be a huge asset and help us grow Cargo Crew to its full potential.

“Cargo Crew’s uniforms cater to hospitality, retail, transport, banking, health and government industries, and as our customers' businesses grow, their relationship with us deepens because we work with them to tailor a uniform fit for their changing needs.”

According to Glow co-founder Justin Ryan, it was a strategic decision to invest in Cargo Crew.

“Cargo Crew is a great Australian business with the opportunity to be a global brand,” Ryan said. “They have a proven track record with 21 years in business already and with an excellent founder and executive team, they are primed for growth that Glow can help accelerate.

“Having worked with the team for the last few months, we know we are values-aligned and have the same vision for the business's next phase of growth.”

Glow Capital Partners associate director Alex Downie said Cargo Crew plays a role for small and medium businesses across the country.

“In any service industry, the way your team presents themselves and moves about the space is a huge brand element,” Downie said.

Cargo Crew operates a 4,500 sqm headquarters in Bundoora, Melbourne, and ships uniforms to over 80 countries. It holds contracts with major local and international businesses includes Levi's, Stocklands, IGA and Birkenstock.

Australian apparel retailer Lowes has processed and recycled seven tonnes of old schoolwear through textile recovery organisation BlockTexx.

According to the brand’s Modern Slavery Statement 2023, Lowes committed nine tonnes of obsolete product to BlockTexx this year. Lowes confirmed 85% of its schoolwear items contain polyester cotton, which were deemed fit for resource, recycling and re-raw material handling.

Lowes head of product development and procurement manager Debra Vo has also reviewed the design and development process to prioritise highly recyclable materials. The first iteration looked at substituting nylon buttons for polyester buttons, with negotiations underway for sublimated polos to use recycled ranges moving forward.

BlockTexx owns proprietary technology that separates polyester and cotton materials such as clothes, sheets and towels of any colour of condition back into high-value raw materials of PET and Cellulose for reuse as new products across all industries.

According to Lowes’ statement, the brand is aiming to reduce resource waste associated with its schoolwear.

“Through this sustainable approach, Lowes is not only minimizing the environmental impact of discarded school uniforms but also promoting a circular economy by ensuring the resources are given a second life.”

Lowes is a family-owned apparel brand that operates 180 stores across Australia and has apparel contracts with 727 schools in the country. The company's annual turnover ranges between $230 million to $260 million with on average six million transactions per year.

Australian fashion spending surpassed other retail categories to grow 17.4% during the 'Click Frenzy' sales period, according to the latest research. 

Australia Post's latest quarterly Inside Australian Online Shopping Report showed online spend in May grew 9.7% month-on-month (MoM) and 0.6% year-on-year (YoY), with basket sizes for fashion hitting $151 on average.

This was despite an overall drop in average basket size in 2023 by 6% YoY to just $105.

During the end-of-financial-year (EOFY) sales event, fashion hit second place in overall popularity at 10.2%, behind home and garden at 12.4%. Overall, EOFY sales were up 4.3% on last year.

In the fourth quarter of FY23 online purchases in fashion were down 3% on the YoY, but up 9.5% QoQ, with an overall market share of 26%. Fashion is the second-highest category in market share behind variety stores at 36%, with that category up 18% YoY in Q4 FY23, and up 13% QoQ.

Despite the gains in fashion, the report found there is an overall softening overall in online purchases, with 9.4 million households (or 82% of the Australian population) making an online purchase during the 2023 financial year.

An average 5.5 million households made an online purchase each month in Q4 FY23 - an increase of 3.9% compared to the equivalent quarter last year. However, online spend is down 3.1% compared to last year.

With consumer buying confidence at low levels, Australia Post claimed consumers across the country, particularly younger generations, are becoming ‘strategic shoppers’ — looking for ways to maximise the value of their dollar and increasingly take advantage of key sales events.

Australia Post executive general manager of parcel, post and eCommerce services Gary Starr said that while an increasing number of households made an online purchase in the fourth quarter (compared to the last year), it’s clear that cost-of-living pressures are taking effect.

“Aussies are now more cautious and selective with where and when they spend their money, which is why online shopping carts are averaging smaller than last year,” Starr said. “Our love affair with online shopping hasn’t waned, however cost-of-living pressures are creating short-term headwinds.

“This is an opportunity for retailers to entice customers via sales events, subscriptions or other forms of rewards that create loyalty and repeat purchases.”

An Australia Post consumer survey conducted this year revealed that 85% of Australians aged 18-34 plan to shop (or have shopped) during dedicated sales events.

Meanwhile, customer loyalty programs and bundling services are proving popular with online shoppers, with 1 in 4 consumers turning to online retail subscriptions as part of their cost-saving practices.

Regional Australia saw a year-on-year (YoY) growth of 4.2% in the last quarter, compared to just 0.7% YoY in metro areas. The Northern Territory led in this last quarter, with an increase of 9.3 % YoY in online sales compared to last year.

BB Retail Capital (BBRC) has issued a compulsory acquisition notice in relation to its takeover bid for discount fashion retail brand Best & Less Group (BLG).

In an ASX announcement, BBRC advised BLG shareholders to accept the takeover offer at $1.89 per share and has extended the offer acceptance period until July 14.

“The bidder has advised that the compulsory acquisition will be on the same terms as the offer, including the offer price of $1.89 per BLG Share.”

In an effort to encourage a fast uptake, BBRC has told BLG shareholders that if they accept the offer now, they will be paid within seven days of their acceptance, but if they wait for the compulsory acquisition process, payment will be in at least six weeks’ time.

Meanwhile, BLG’s independent directors – Stephen Heath, Melinda Snowden and Colleen Callander – have all resigned.

BLG’s board has appointed Tim Dodd as a non-executive director of BLG with immediate effect. He is the global CFO of BBRC business across investments and operations.

Borrowers are gloomier than they have been since the global financial crisis and economists warn the pain will get even worse for households and retailers if interest rates keep rising as expected.

The Reserve Bank of Australia’s decision last week to keep the cash rate on hold at 4.1 per cent appears not to have improved the mood, with consumer sentiment falling 0.8 points over the past week, according to the latest ANZ-Roy Morgan survey, released on Tuesday.

The decline was driven by a deterioration in sentiment among people paying off their homes, which fell to its lowest level since the survey began in 2008.

The figures are the latest sign that households are feeling the heat from the most rapid interest rate tightening cycle in a generation as the RBA battles the most acute inflation outbreak in decades. The RBA has lifted its benchmark cash rate at 12 of its past 14 meetings.

Market pricing implies a 54 per cent chance the RBA will increase the cash rate to 4.35 per cent at its August 1 meeting, and puts the probability of an increase by September at 86 per cent.

The proportion of consumers who said now was a good time to buy a major household item was mired around the record low levels witnessed at the start of the COVID-19 pandemic, according to the survey.

The collapse in sentiment has translated to lower discretionary spending. Retail trade volumes declined in both the December and March quarters – the first back-to-back fall since 2011 – as consumers cut back on non-essential purchases such as appliances, clothes and electronics.

Spending on discretionary items fell by 0.6 per cent over the past 12 months, driven by a 4.8 per cent fall for furnishings and a 3.4 per cent drop for clothing, data released on Tuesday by the Australian Bureau of Statistics shows.

Non-discretionary spending, by contrast, increased by 6.9 per cent over the past year.

Commonwealth Bank economist Harry Ottley said consumers were trimming spending on items such as travel and entertainment, but spending more on childcare.

“We expect these trends to continue and for the consumer to further curtail spending over coming months as the fixed rate mortgage reset hits its peak,” Mr Ottley said.

Australians are spending on average almost $600 less online than they were a year ago, Airwallex’s digital economy index shows.

The data, released on Tuesday, is based on a representative sample of 1000 of the Australian fintech’s customers.

Airwallex director of strategy Amelia Hamer said Australians were easing up on non-essential spending.

“As interest rates have climbed and cost-of-living pressures have increased, it’s no surprise Australians are being more selective about where they spend online,” Ms Hamer said.

Retailers feel the heat

Sentiment among retailers has fallen sharply as a result of fewer sales, with the NAB business survey for June revealing conditions weakened further in the sector last month.

Confidence among retail businesses was weaker than any other industry, declining nine index points, according to data released on Tuesday.

Other consumer-exposed industries including wholesale trade and personal services also experienced falling confidence, meaning there were more pessimists than optimists.

JP Morgan economist Jack Stinson said the NAB survey indicated a near-term increase in the jobless rate was likely, after surveyed capacity utilisation fell to 83.5 per cent, its lowest level since April 2022.

“Capacity utilisation is a fairly good leading indicator of the unemployment rate, and the current level is consistent with a three-month ahead unemployment rate above 4 per cent,” Mr Stinson said.

“The metric has now declined in each month since January and like other leading indicators ... points to an increase in the jobless rate over the second half of the year.”

Consumers are also pessimistic about the outlook for jobs. The Westpac-Melbourne Institute sentiment survey, also released on Tuesday, showed household unemployment expectations up 32 per cent since the RBA started lifting interest rates in May 2022.

NAB head of market economics Tapas Strickland said the unemployment expectations index had correlated highly with the unemployment rate.

“Overall, that suggests a rising probability the unemployment rate could rise, though other signals such as job vacancies still suggest a tight labour market,” Mr Strickland said.

Australian consumer electronics giant JB Hi-Fi announced a major expansion of its New Zealand operations last week, unveiling plans to double its store count in the next three to five years. 

Managing director of JB Hi-Fi New Zealand Tim Edwards told Inside Retail that he plans to grow the business from 14 stores to 38 in the next few years, and has identified a total of 60 locations that could work as bricks-and-mortar sites. 

Whether JB Hi-Fi expands into all of these locations will depend on the success of Edwards’ five-year strategy for the business, which he has been honing since joining JB Hi-Fi New Zealand 12 months ago.

Based on his 14 years’ experience in New Zealand retail, including at Noel Leeming and The Warehouse Group, Edwards sees a massive opportunity for JB Hi-Fi to expand physically and digitally in the coming years. He revealed that JB Hi-Fi also plans to move its e-commerce site to the Shopify platform in the future.

“I’ve seen a lot of the nooks and crannies of the New Zealand market, and one of the things I always noticed [from the outside] was that JB Hi-Fi was underperforming on its potential,” Edwards told Inside Retail. 

“That always worried me as a competitor, but I joined the business just over a year ago and [now get to] help to realise that potential.”

That underperformance isn’t a reflection on the team, Edwards said, but rather, the lack of a clear strategy on how to take JB Hi-Fi New Zealand to the next level. This is something the business now has, and the team has rallied behind it.

Gut and experience

According to Edwards, the New Zealand business had been in a state of “hibernation” for the last five to seven years, as its Australian owner, JB Hi-Fi Group, tried to work out what to do with it.

The group eventually decided to “double down” on the New Zealand market, and invest in building it up as the broader retail market recovered. Edwards was brought on in 2022 after the former New Zealand MD Cherie Kerrison exited the business, and he immediately started working on the next phase of JB’s local growth.

According to Edwards, the New Zealand market could potentially handle double or triple the size of JB Hi-Fi’s current store network, but he is working hard to make sure that each store location is right. For reference, JB Hi-Fi currently has 14 stores across New Zealand, whereas Noel Leeming has closer to 90.

“We use multiple triangulations [to make those decisions], such as population density, and income per household, etcetera, but we also use a lot of gut and experience,” Edwards explained.

“We see a clear line to 38 stores, but the key is to make sure that we resist the temptation to just put stores wherever, whenever the sites become available. We want them in the right size, in the right location, and to complement what we’ve already got.”

Part of the expansion involves relocating at least two stores to more desirable locations. JB’s Hamilton store on New Zealand’s North Island, for example, has been relocated from the CBD to a shopping centre. It drew 15,000 customers through its doors on opening weekend. 

“This calendar year we’ll be launching on Moorhouse Avenue in Christchurch. It’s New Zealand’s second largest city, and we’ve only got one store there — that catchment can handle three, four, or five stores over time,” Edwards explained.

“Next after that will be Invercargill, at the very bottom of the South Island, which is a very high socio-economic growth area. And then the other two stores we’ll be launching before Christmas [2023] are in Christchurch and Auckland International Airport.”

As it stands, JB isn’t the biggest consumer electronics business in New Zealand, but one of its advantages is that it caters to multiple types of customers. 

Edwards noted that while JB’s consumer electronics customers – those coming in for televisions, monitors, laptops, and phones – shop on average 3.5 times a year, the retailer also caters to media customers, who shop for music, movies and video games around once a month.

Having a higher volume of customers – around 100,000 people a week – enables JB Hi-Fi to capture more spend than its competitors.

Retail at the end of the world

There are inherent difficulties in trading in New Zealand, however. The country is split across two major islands (although the country is technically made up of more than six hundred islands), and has just a few large cities, surrounded by smaller towns and rural areas. 

This can make getting stock into stores difficult. Getting it to customers can be even harder. 

“We’re at the end of the world here, so we’ve got to get stock here, and then get it to the right island, and then get it to the customer,” Edwards explained. 

“On the surface you think, ‘how the hell are you going to do it’, and it’s not without its challenges, but there’s a pretty tight infrastructure behind it, and our customers know that if they’re in a remote South or North Island town, they’re going to have to wait another day.”

Bigger sales and better discounts are on the way between now and Christmas, as retail experts predict brands will have to work harder to court shoppers as spending continues to slow.

National retail turnover jumped by 0.7 per cent in May, according to Australian Bureau of Statistics figures released last week, though much of that spending growth came from consumers taking advantage of larger-than-usual sales before the end of the financial year.

Spending on household goods peaked last November and has been in decline since, dropping by 4.4 per cent over the past year.

Industry experts say there are plenty more sales and promotional campaigns to come over the next few months as retailers fight for a shrinking pool of discretionary income.

Retailers say there is evidence consumers are “trading down” to more budget-friendly options in the face of surging inflation in essential categories such as food, while the 12 interest rate rises since May last year have left families grappling with rising mortgage repayments.

Australian Retailers Association chief executive Paul Zahra said he expected more promotional activity across the sector given the current conditions.

“You can expect, when sales are in decline, retailers will have to sharpen their pencils,” he said.

“It’s a good story for consumers ... It’s a great time for shoppers, if you’ve got the money.”

Pessimism about the outlook for non-essential spending grew further last week after consumer electronics giant Harvey Norman flagged a profit slump of as much as 25 per cent for the 2023 financial year.

Mid-market retailers including Best & Less, Baby Bunting and Michael Hill International have also updated the market over the past month to reveal that they are facing a softening spending environment.

The director of retail strategy consultancy Retail Oasis, Trent Rigby, said many retailers appeared to be preparing to ramp up discounting towards the latter half of this year.

“Smaller wallets mean that retailers have to work harder to take an increased share of this spend, which often results in a lot of short-term sales promotion activity,” he said.

This means shoppers can expect big sales well before the Christmas trading season, which these days kicks off as early as October.

Customer experience expert and founder of data consultancy Fifth Dimension, Lyndall Spooner, said the rising costs for business would also play a role in the frequency of sales for the rest of the 2023 calendar year.

“The cost of warehousing is increasing, so businesses are moving to try and reduce their stock volumes to cut expenses. As a result of ongoing and more regular sales, consumers know they can wait for a sale before they need to buy.”

Analysts believe that consumers’ increasing focus on price in these conditions could deliver further advantages to the company many believe is the biggest threat to legacy retailers: Amazon Australia.

In a note to clients on Harvey Norman’s sales update last week, Morningstar retail analyst Johannes Faul noted that electronics retailers were facing increasing competition on price from overseas competitors.

“Consumers show little distributor loyalty as they seek the lowest price. Over time, we think a few major online distributor channels, such as Amazon Australia, could take the largest share of the Australian online retail market,” he said.

Amazon is upbeat about the role of sales in the current environment and will kick off its Prime Day event for members later this month.

“Aussies are a bargain-oriented bunch,” Amazon Australia country manager Janet Menzies said in June. “That adrenaline feeling that you get from treating yourself to something at a price that you perhaps didn’t imagine is definitely part of making sure that people receive our offer as valuable.”

Household spending may be under serious pressure, but the boss of online retailer Pet Circle says consumers aren’t trading down when it comes to meeting the needs of their four-legged friends.

“With most of our customers, it looks like they try very hard not to downgrade the quality of food for their animals,” said Mike Frizell, the company’s co-founder and chief executive.

Pets are hot property in Australian retail, with giants like Bunnings and Woolworths making significant investments into pet supplies over the past year despite fears of a broader discretionary spending slowdown.

Woolworths made a $586 million investment to take a majority stake in Ballarat-founded pet supplies business PETStock last December, while Bunnings executed a major expansion of its pet goods category in March.

Frizell says it’s no surprise that the retail conglomerates want exposure to the sector, which was growing strongly even before the pandemic prompted a puppy boom.

“It’s a great sector. They are seeing the same macro dynamics that I do – it’s still early in its evolution,” he said.

Pet Circle, which was founded in Sydney in 2011, has started the new financial year with a fresh $75 million funding boost from existing investor, Prysm Capital, helping Pet Circle maintain its billion-dollar valuation.

Prysm’s co-founder and partner Matt Roberts says the Australian market is still in the early stages of the “humanisation of pets” trend.

“The investment and entry by other players are evidence of this trend and a signal of the health and growth potential of the pet vertical,” he said.

Frizell says two thirds of Pet Circle’s consumer base use its subscription model and have set up regular automatic deliveries of supplies for their animals. “They rely on us month in, month out,” he says.

Other pet services businesses have also been bullish over the past month. ASX-listed pet services firm Mad Paws has seen its shares jump by 11 per cent over the past five days after telling investors the company is edging towards profitability.

Mad Paws is expecting revenue growth of up to 147 per cent for the 2023 financial year. Chief executive Justus Hammer said the company was adding thousands of new customers every quarter, despite tough economic conditions.

Retail analysts are forecasting a further slowdown in spending over the next six months, but everyday household spending like groceries and pet goods are not predicted to be at the front of the firing line.

Instead, electronics, home goods and fashion are predicted to bear the brunt of the slowdown.

Frizell said Pet Circle has been able to perform strongly during periods of strong economic growth as well as during turbulent conditions.

“That is what makes the pet industry so attractive and why you’re seeing a lot of interest,” he said.

Pureplay books retailer Booktopia has raised $8.1 million in capital raising to fund the completion of its Next Gen customer fulfilment centre and enhance its capital position.

The raise comprises a $6.5 million two-tranche placement – which is subject to the board’s discretion – and a $1.6 million debt-to-equity conversion, subject to shareholder approval. The loan facility ($5 million) was secured from AFSG Asset Management.

Booktopia chairman Peter George said: “After two years of losses, completing the Next Gen CFC and with the other business improvement initiatives already announced will reset the cost base of the business.

“The raise will enable BKG to complete the Next Gen CFC by late August this year. With the benefits of these initiatives, we expect a return to EBITDA growth from the next financial year.”

In a trading update, the retailer said “challenging” trading conditions were observed throughout the second half of the financial year compounded by increased labour costs and other disruptions associated with the transition to the CFC.

“Looking ahead to FY24, with the annualising benefits of the initiatives previously announced, and the realisation of the operating efficiencies and increased capacities of the Next Gen CFC, BKG forecasts an underlying EBITDA profit of $13.5 million,” the business said in a statement.

For this financial year, the business expects an unaudited underlying loss of about $5 million.

Meanwhile, the company has advised that the short-term consultancy agreement between BKG and Tachyon Ventures, an entity associated with founder and former CEO Tony Nash, will end on August 31.

Nash will reman a non-executive director of Booktopia.

Sky News host Caleb Bond says that luxury retail sales in Australia, which have nearly doubled to $5.3 billion in the past ten years, could offer alternative strategies to curb inflation besides raising interest rates.

Bond highlighted that the contribution of the luxury retail sector to Australia’s GDP is growing at a faster pace than the overall economy, with the luxury market forecast to reach $6.1 billion by 2027/28.

In 2021, French Connection United Kingdom underwent an ownership change. Following that, Brandbank Group’s Australian distribution license with French Connection went up for renewal.

But Brandbank decided - after careful consideration - that it was going to end the agreement with the UK-based brand and reimagine the existing assets into a new vertical brand called ‘Unison’ - owned and operated in Australia.

As part of the rebrand, Brandbank will transition the same core team of 25 people who looked after French Connection Australia - across design, human resources and operations - and will refit its 11 standalone stores, 48 David Jones concessions and 57 Myer concessions into Unison. The website will also be updated to suit the new brand name.

Brandbank CEO Peter Halkett, who just joined the company two weeks ago, told Ragtrader that this large-scale brand launch was both timely and desired.

“[Brandbank] wanted to have something much more specific for the Australian market,” Halkett says. “Much more flexibility… So an Australian-focused brand with attributes that appeal to the Australian customer, and to really design a range that has all the products that we had in French Connection, but also has some more fashion products and slightly more premium.

“By reviewing and deciding to relaunch a new brand basically allowed the business to position it precisely and exactly how it wanted to rather than necessarily operate within the restrictions under a license agreement.”

French Connection first launched in Australia in 1998 through Brandbank, with Halkett saying the agreement originally involved shipping over all the product from the UK. Over time, Brandbank began overseeing and controlling the manufacturing and designing process in Australia

“In simple terms, controlling all facets of the brand from the manufacturer through to how it's presented at point of sale, flexibility is what it's all about now,” he says. “Distributing and licensing is quite different from being vertical. Brandbank made a very good decision by establishing its own brand now.

“It's been a successful business, but there are times when you've got to make a decision whether you want to continue. Because remember, when you have a license, a lot of the value of that business can be in the brand itself. We don't own brands. So when we have our own brand, we're creating more value by having that as our own brand name.”

As part of the transition, Unison will utilise the same sourcing channels that Brandbank uses for its other fashion brands, including Seed and Commonry. It will also continue producing many of the core product lines that were successful with French Connection Australia, while adding on new product styles.

“This is not like establishing a brand new business where we're starting with a blank piece of paper; we know what our customers like,” Halkett says. “When they go to the stores, and when they go to David Jones and Myer to our pads, our job is to set out exactly what Unison does compared to French Connection.

“We're hoping a lot of French Connection customers will like what we're doing with Unison, and, in many ways, we'll be designing many of exactly the same products with the same fabrics in the same fit and same style.”

Halkett says there will be no immediate changes to price points, with current lines averaging between $50 to $350, nor any major changes to its production output. French Connection Australia sold a core range with seasonal core and monthly drops. All of its styles will be designed in Australia, with manufacturing centred in Asia.

“What we're starting with is what we have today,” Halkett says. “There is definitely a lot of space for a lot more concept stores, because we only have a limited amount - compared to over 100 Seed stores, for example.

“In the future, once we transition customers, and we're satisfied that that's going well, we believe we can probably expand the size of the pads in time as we grow the range and as the brand gets more and more traction. Beyond that, I'm a New Zealander, so we'll have New Zealand in our sights at some point in time as well.”

Halket says when the brand does venture into New Zealand, it will likely open more owned stores than department store concessions.

Speaking on the entire Unison venture, Halkett says it will be the first large-scale launch of a new brand in Australia.

“It's a very unique situation,” Halkett says. “It's not for the faint-hearted. But one thing I appreciate about this business is they take a long-term view in their decision-making. This is definitely the right long-term decision.

“For me to join a new company and to immediately have such a significant brand launch is very exciting.”