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Clothing retailers – be afraid, very afraid!

A recent piece of research by investment bank Goldman Sachs, highlights the speed with which Spanish-based chain Zara has grabbed market share, from incumbents like Premier Investments’ (ASX: PMV) Portmans retail chain.

According to Goldman Sachs, in just 2 years Zara’s sales revenue already rivals that of the long established Portmans. What’s more, Zara has an estimated profit margin over twice that of Portmans is already generating far higher profits.

With Zara just one of a bevy of global retailers setting up shop in Australia, the battle for market share is only going get more intense. Local retailers at risk from the likes of Zara, American Apparel and Hollister also include Country Road (ASX: CTY) and department store Myer (ASX: MYR). The problem for incumbents is that the size of the apparel market is  increasing slowly, forcing them to divide the market ‘pie’ into more pieces.

Ironically (perhaps) it is actually some of the smaller, ‘less fashionable’ apparel retailers like Noni B (ASX: NBL) who are better placed to survive. Noni B has built itself a loyal customer base and its niche offering makes the retailer less prone to competition for offshore or start-up “fast-fashion” rivals.

Of course, all apparel and footwear retailers are also facing the threat of competition from online shopping. Recently launched sites such as The Iconic and ASOS have established significant presences in a short amount of time. The online threat makes the need for ‘bricks and mortar’ stores to offer a point of difference, such as personalised service all the more important. RCG Corporation (ASX: RCG), owner of The Athlete’s Foot franchise in Australia is one retailer who appears to be doing just that. Given how critically important it is to be fitted with the correct sports shoe, it appears customers are still prepared to pay for this service.

Foolish takeaway

Perusing the world’s rich list shows that a number of fortunes have been acquired through retailing. While some local retailers will continue to grow through store roll-outs programs, the fortunes made in retailing in the 21st century are unlikely to follow the path of those from the previous century.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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