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Can online sales save the fashion industry?

It was Yves Saint-Laurent who once flaunted the phrase “fashions fade, style is eternal”. And as sales growth slows for traditional bricks-and-mortar fashion stores, and online sales start to rocket upwards, it’s fair to wonder if the same wisdom applies to the traditional fashion business model.

Just how big the shift in the Australian fashion industry is has been outlined in a report by analysis company IBISWorld. The report notes that spending on fashion is set to drop by 1.7% in 2013 to $12.2 billion, before turning around with anticipated growth of just 1.1% over the next five years. Most of that growth will be dominated by high end fashion lines, sold by the likes of Oroton Group (ASX: ORL), and budget brands like those offered by Pacific Brands (ASX: PBG).

That’s bad news for the middle runners in the fashion game like Myer (ASX: MYR) and David Jones (ASX: DJS), who will also soon face the added pressure of extra competition when Swedish fashion major H&M launch in Australia in 2014.

The only serious growth opportunity for fashion though remains online.  Total retail sales are forecast to grow exponentially in the coming years, at 20% per annum, with fashion making up one of the biggest shares of that growth. The growth has spawned a new online business model for the fashion industry as websites like Asos.com and The Iconic set up with huge product ranges and reliable customer service giving unrivalled options for consumers.

Privately owned Sydney-based company The Iconic is a particular star performer. With around 150,000 visitors and 1000 orders a day, sales in 2012 were said to be around $10 million per month which would give the company annual revenues $120 million per year. The company has attracted plenty of true believers, with JP Morgan investing $19.2 million into the company last year, and another $25 million invested by US venture capital firm Summit Partners in January.

Foolish takeaway

With only limited growth being forecast for fashion spending and the comparatively high cost of selling items out of a physical store front, investors in the industry should start by looking at companies dedicating time and money to developing a significant online presence. Actress Bo Derek once declared “whoever said that money can’t buy happiness, simply didn’t know where to go shopping.” Well that place is now on the Internet, where more and more of the money is being directed.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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