The emergence of online retail has steadily broken down all physical and geographical limitations on consumption.  It has reinvented the concept of customer experience and provided a kaleidoscopic array of opportunities for consumers to access and experience goods and services at any time of day, in any location, and on an array of different viewing devices.

The emergence of online retail has steadily broken down all physical and geographical limitations on consumption.  It has reinvented the concept of customer experience and provided a kaleidoscopic array of opportunities for consumers to access and experience goods and services at any time of day, in any location, and on an array of different viewing devices.

While online is not a new phenomenon for Australian or overseas retailers, this rapidly evolving channel for customer access and experience presents numerous ongoing challenges.  The capacity for consumers to simultaneously view, review and compare a plethora of items from different retailers is rapidly enhancing consumer choice and industry competition.

How do retailers continue to adapt to this rapidly evolving and increasingly competitive online environment?

One leading example in Australia’s retail industry is e-tailer SurfStitch Group Limited with its global content strategy.  By leveraging content that is relevant to its online offering, SurfStitch has been able to appeal to an increasingly sophisticated consumer base.  It has also been able to innovate in, adapt to and evolve with an online environment that knows no limitations for the type of experience it can offer to consumers.

By acquiring surf weather site Magicseaweed.com, global online magazine Stab and, more recently, media and entertainment companies Garage Entertainment Aust Pty Ltd and TAG Media Pty Ltd, SurfStitch has created a full spectrum of media and online content.  Its site has become a destination for customers who seek to experience everything action sports and surfing related, including the surf and sports themed clothes and accessories that it sells.  The company’s global content strategy has been hugely successful.

For 2015, SurfStitch is on track to double full year’s earnings to between AU$15 million and AU$18 million, with revenue sitting at AU$199.4 million (a 30 percent rise).

Possible issues in the making of a fashion collection

There are few reported decisions concerning the relationship of a designer and his or her supplier with respect to the making of a clothing collection, in the absence of a clear agreement setting out the parties’ respective obligations.

In a recent judgment of the Court of Milan, an acclaimed Italian designer was condemned for breach of contract and damages in favor of his licensee.  The case arose because the designer contacted his clients to negotiate the final price of his products, which was a right exclusively granted to his licensee.

On the other hand, in the Court’s view, the licensee had not used its best endeavors to manufacture the designer’s line of clothing, producing poor-quality garments and thus harming the designer’s image.  In light of the above, the licensee was also ordered to pay damages for the harm caused to the designer’s image rights.

This decision stresses how important it is for fashion houses or suppliers to enter into detailed agreements with designers that set out the timing for devising a given clothing line and the relevant sketches, as well as clear quality criteria to verify whether the final products meet the luxury industry’s standards.  Rather than risking a court ruling as a result of a short memorandum of understanding between the designer and its supplier, drafted while waiting for a more comprehensive agreement, it would be best practice to set out the parties’ respective obligations up front, as well as the applicable penalties and the processes to quickly solve potential conflicts.

Private equity firm to buy major U.S.  department store for approximately US$3 billion

Belk, Inc., the largest family owned and operated department store in the United States, has announced that it has entered into a definitive merger agreement with Sycamore Partners LLC, a New York-based private equity firm.  Sycamore will acquire 100 percent of Belk shares for a total value of nearly US$3 billion.

Belk, Inc., a North Carolina based retailer, owns close to three hundred stores across more than a dozen Southern states in the US.  Established in 1888 by William Henry Belk, the retailer is in its third generation of Belk family leadership.  Sycamore is a private equity firm recognised for investing in consumer and retail companies.  Sycamore has stated its strategy is to partner with management teams to improve the operating profitability and strategic value of their businesses.  Sycamore’s other investments include Nine West, Stuart Weitzman and Aeropostale, Inc.

Under the terms of the agreement, announced in August 2015, Belk shareholders will receive US$68 per share in cash.  Further, Tim Belk, the current Chief Executive Officer, will remain in his position and the retailer will keep its headquarters in Charlotte, North Carolina.  Some experts are commenting that Belk was an attractive target for Sycamore as a way for it to increase profitability for the private equity firm by positioning some of its other investments in the retailer.

The deal is set to close in the fourth quarter of 2015, subject to customary conditions, including but not limited to regulatory and stockholder approval which, at the time of publication, are still underway.

Reform to the Australia’s low value threshold

Australia’s newly elected Prime Minister, Malcolm Turnbull, recently refreshed the nation’s tax reform debate with his first major speech on the state of the country’s tax system.  He took a somewhat kitchen sink approach to the discussion and among the numerous topics he covered was the contentious issue of Australia’s Goods and Services Tax (GST).

One issue relevant to Australia’s GST is the continued operation of the Low Value Threshold (LVT).  The LVT is an exemption that applies to imports entering Australia with a value of less than AU$1,000.  These goods are exempt from GST, customs duty, fees and charges, and the requirement to complete a full import declaration.

The operation of the LVT has long created a price distortion for products under AU$1,000 that favours international retailers.

A number of reviews on the utility of the LVT have indicated that its removal will have a very marginal negative effect on the Australian economy overall, but will benefit the retail sector.  The Australian retail industry has consistently supported the removal of this exemption as a way to reduce the price gap between domestic and overseas products, and to fend off job losses that are predicted as retail sales continue to go to overseas online providers.

Removing the LVT alone will not completely reduce the price gap between local and offshore prices.  Operating costs for local retailers are up to 40 percent higher than overseas and pure online retailers due to factors such as labour and occupancy costs.  A historical lack of competition intensity in Australia is also a reason for costs sitting at a higher level and a weak Australian dollar will continue to place upward pressure on pricing and downward pressure on retailer’s margins.