Apparel & Footwear
The local apparel market has been slowing down in value terms during the past few years. Leading apparel chains achieve growth by expanding to new brands but almost with no organic growth in existing brands, and profitability is damaged due to several reasons.
Online shopping for clothing, shoes and accessories has leaped during the past few years, with a vast impact on price competition in the local market. Israelis often purchase apparel from international players as they are generally cheaper and offer items that cannot be found locally. The development of e-commerce is accelerating price competition in the market, and threatening players that are not active in this channel.
In addition, consumers are travelling abroad more often, shopping more overseas – and less locally. This is especially true of strong, international brands which are usually more expensive locally than in Europe and the USA.
ore retail spaces
The second cause of decreasing profitability is the developing retail property market. Several large malls have opened, such as Gindi TLV in Tel Aviv, Ispro Planet in Beer Sheva, Big Fashion in Ashdod and more. More malls are planned to open soon, such as the Dead Sea mall and the new Azrieli Mall in Tel Aviv.
Large fashion chains seek presence in the new retail centers as they typically attract high traffic. In addition, if they do not open stores in these new malls – their competitors might. The massive opening of new malls leads to cannibalization between stores of the same chains, as well as larger rent expenses, and therefore we are now witnessing a decrease in the number of leading chains' stores in malls; Castro, for example, recently announced its exit from five Azrieli malls.
Constant development in the apparel market
The apparel market is becoming increasingly dynamic and players are forced to constantly adjust themselves to current trends, which increases ongoing expenses. Apparel collections in stores are replaced more often, and new items reach the stores every few weeks – far more frequently than the previous standard of four seasonal collections per year. In order to survive the competition players must also invest far more in marketing, positioning and brand maintenance in order to attract consumers and offer unique added value.
Considering all of the abovementioned factors, the damage to leading players' profitability is evident, as well small and medium players' difficulty to survive, both in terms of numbers of stores and the ability to pay high rental rates, as well as the players' ability to lower prices.
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