By: Mark Seavy

With Kmart and Target merging operations and Best & Less reducing its product mix, major changes are in store for the Australian retail landscape.

These changes come as the economy struggles with rising interest rates, inflation, and tighter consumer spending. As a result, retailers in the region are sharpening their focus on proven brands, leaving less room for emerging properties, industry executives said.

“The challenge is there are only a few players of scale so, realistically, from a wholesale perspective with the licensed brands, if you don’t get a significant buy in from one of those retailers you are struggling to get the brand off the ground,” said Nick Mills, Retail and Trend Director at licensing agency Merchantwise. “There has been a real shift back to proven brands and trying to present new brands to retailers right now is a challenge. Retailers are very sensitive about taking that risk.”

In the case of Target and Kmart (the latter’s Anko brand accounts for 85% of its merchandise), combining operations will leave less room for cross-category licensing. Kmart, which has 325 stores in the region, is expected to handle buying home goods and toys for the combined chain. Target, which has 124 locations, will focus on apparel, industry executives said. Target recently began selling the Anko brand, starting with plastic tubs, coat hangers, and other home goods.

Best & Less, which was acquired by Australian retail veterans Brett Blundy (Bras ‘N’ Things) and Ray Itaoui (music retailer Sanity Entertainment), is reducing its mix of licensed products by 60% as it revamps its eCommerce business and moves to a smaller number of stores.

The 177-store Big W and Cotton On, which has 1,500 stores globally under eight brands, will remain a major home for licensed products in Australia. Department store chains like David Jones (45 stores) and Myer (57 stores) largely carry licensed products on a seasonal basis so are less a factor in the business. But the changing landscape will likely require licensees to rely more heavily on specialty chains like Rock Your Baby, Rebel Sport, Kip&Co, and Culture Kings, and others.

Licensees will also likely target those retailers that haven’t carried licensed merchandise before, like 168-store DIY retailer Bunnings, which is owned by Kmart parent Wesfarmers. eCommerce platforms like sports and fashion retailer The Iconic, which operates an online marketplace, and DTC retailer Princess Polly are also expected to come into play.

The challenge will be fighting with other brands for shelf space in the region. And, in many ways, this new Australian retail landscape is disrupting a traditional feeder system where new brands would prove themselves at specialty retailers before moving into the mass market, industry executives said.

“There are retailers that are struggling because Australia has been having such a downturn since the cost of living and inflation is very high,” Merchantwise Managing Director Kerryn McCormack said. “It has challenged households on what they are willing to buy, which means that licensed merchandise is a bit further down the list from paying for electricity and a mortgage.”

As a result, some Australian retailers are expanding into international markets in a search for new consumers. Kmart, for example, is planning to open stores in Southeast Asia. It also recently struck an agreement with Mattel to use its supply network to source wooden toys that will be co-branded with Anko, Kmart Group Managing Director Ian Bailey said.

A.K.A Brands secured a wholesale agreement with Pacsun for its Princess Polly fashion brand, which launched with displays in 15 stores. Princess Polly also opened a store in Los Angeles. And A.K.A’s streetwear brand Culture Kings opened a store in Caesar’s Palace Forum Shops in Las Vegas.

“The overall Australian market will see minimal growth this year given the ongoing inflationary pressures consumers are facing and the impact on discretionary spending,” a licensing executive said, noting that spending on household goods declined 16% in December compared to 2022. “Consumers are looking for newness and value, and those retailers providing that are faring well. The market is normalizing and some categories that experienced significant growth during the pandemic will decline in the coming periods.”