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What Do Department Stores & The Dollar Have In Common? Apart From The Letter ‘D’ That Is.

Everything in contemporary life exists within a context. Take Paris Hilton for example. If it weren’t for our current context of celebrity culture fuelled by Twitter, 24/7 cable television, Peres Hilton style websites, celebrity magazines et al, she would be an anonymous heiress eking out life on the meagre fixed income provided by her grandfather’s property and hotel legacy. Poor thing.

The Australian apparel industry is the same. It exists within a context where the activities of the department stores and the movement of the exchange rate of the dollar sets some of the critical inputs to tactical activity.

Right now the Australian dollar is at a cyclical high and likely to stay in a band around parity with the U.S. dollar for some time. While the Australian economy is underpinned by the greatest natural asset hoard in the world, some would argue that the exchange rate gain by the Aussie dollar has as much to do with the fact that the U.S. treasury just keeps printing paper. They’ve put ‘In God We Trust’ on their notes for a reason. Just like the Emperor’s New Clothes, if you don’t believe there’s anything there you’ll see it for what it is – paper with ink on it.

What parity means for the apparel industry though is better buy prices for global sourcing contracts that are almost always written in U.S. dollars. That means ability to sustain discounting is heightened.

According to ABS data, All Retail Sales are ticking over at around +3% on last year. Volumes are up more than double that. Discounting is alive and well as a tactic.

On the other ‘D’ front, Myer CEO Bernie Brookes recently acknowledged to the market that he is underpinning $500 million dollars in revenue growth from store rollout activity. Myer aims to take a bigger share of a pie that is struggling to grow – due to discounting – with a business model that relies on hi-lo discounting to drive sales.

So the ‘D’ Effect is being supported by the dollar, but impacted heavily by the activity of department stores. At a time when consumers are fed up with same old, same old and can’t buy in enough volume to offset the margin decline. Every other retail cost input is about to undergo upward movement from wages to rents.

So what happens when international sentiment changes and the U.S. dollar reverses the recent trend? The apparel industry is stuck. It has lost much of its ability to sell ideas and inspire customers with newness. It has become over-dependent on discount and allowed the department stores tactics to have too big an impact. They will grow share – ahead of category growth – through store rollout. That means someone else will lose share.

Enjoy the dollar gain while it lasts. But prepare your business to be ready to fight on the only battleground that matters. Exciting shoppers to spend more because they love your ideas. You’ll be glad you did.