Australia can boast one of the most stables economies in the world. Whilst its growth cannot be compared to the sky high figures of other countries in the Asian region, its economy remains impressive by European standards. Thanks to its high wealth per capita, coupled with a stable and transparent political system, Australia continues to attract more foreign investors and new businesses looking to expand their worldwide reach.
With such a long and respectable history of economic stability, a casual reader might be surprised to find out that some of Australia’s most famous international brands are being placed into liquidation. On Monday 29 June, the Australian swimwear brand Seafolly (https://www.seafolly.com/us) was placed into administration. This collapse follows two recent high profile insolvencies, one by swimwear brand Tigerlily (https://www.surfstitch.com/brand/tigerlily, the official website is offline), and the other by stationary brand Kikki-K (https://www.kikki-k.com/au/home). All of these brands will be put up for sale and are likely to attract significant interest from local and foreign investors alike.
Do these collapses signal the end of the Australian economic dream? Not really, but they do provide a useful indication of how the Australian retail market is developing. In fact, these latest administrations follow a series of stores reductions and insolvencies of major local and international brands that have started since 2019. The primary target of this crisis has been the high street retail sector, and in particular the fashion industry, which has come under increasing competition by online retailers and has been suffering decreased consumer confidence and household spending. As the effects of Covid hit the economy, the fashion retailers that were already on shaky grounds were given the final push.
What does this wave of insolvencies mean for foreign businesses looking to enter the Australian market? There are a few considerations that can be made. First, although the fashion industry has been the worst hit to date, one should not assume that other industries are out of danger, especially in the current pandemic. For long-sighted and pro-active investors, however, this could be an ideal period for strategic business acquisition in the Australian market at favourable valuations. Second, foreign businesses who want to enter Australia post-Covid should be make sure to have done their homework properly and have understood the local market and local sectors they wish to penetrate. This should always be the case but it is even more important in a dynamic market like Australia and in the fast changing economic times we live in.
Third, seasonality will be a key factor to consider. For many consumer facing businesses, one of the advantages of having a presence in a different hemisphere is to exploit higher spending seasons in one country whilst sales slow down in another. Whilst sales may be low in a cold European November, they may be high in its warm Australian counterpart. Due to Covid, however, seasonality has assumed a much more important significance for all industries. As Europe’s fight against the coronavirus is aided by the onset of warm summer temperatures, on the other side of the world Australia is facing the virus whilst going through its winter. Although Australia’s response to the pandemic has been exceptionally efficient, the number of cases and hotspots has been increasing in the last few weeks. Therefore, even for the most adventurous of investors it may be safer to wait until warmer seasons towards the end of the year to reassess the economic prospects in Australia, hopefully with the release of a vaccine already been announced.
In conclusion, whilst the global pandemic and increased competition have sent a few high profile brands tumbling, with others likely to follow, Australia will remain an attractive destination for international expansion if approached through careful planning and timing.
Piermario Porcheddu, Director at Kelmer Australia PTY Ltd
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