Country Road Group owner says Australia in a ‘retail recession’

The South African owner of Country Road Group says Australia has been in a ‘retail recession’ for the past 18 months but analysts insist many retailers are thriving.

The owners of Country Road have warned Australia is in the grips of a ‘retail recession’. Picture: Britta Campion

The South African owner of troubled fashion house Country Road Group says Australia has been in a “retail recession” for the past 18 months. But analysts argue it is a case of “the haves and have nots” in the sector as some fashion chains thrive on newness while others wither under poor fashion choices, forced clearances and sinking profits.

Overnight on Wednesday Woolworths Holdings, the Johannesburg-listed retailer that once owned David Jones and still controls the Country Road Group fashion house, blamed its diving sales and 90 per cent-plus collapse in interim earnings on a “retail recession” in Australia that it claims has been running for almost two years and that has pushed more than 700 business in the Australian sector into bankruptcy in 2024, up 55 per cent.

Woolworths Holdings fin­ance director Zaid Manjra reported to analysts that real GDP growth in Australia was at 32-year lows, and persistent inflation and high interest rates were dampening consumer sentiment.

“A number of businesses including well known brands have been placed into administration or have filed for bankruptcy. Of course our business has been impacted by these market dynamics,” Mr Manjra said.

However, the most recent reporting season offered up many retailers in Australia that have not just survived, but thrived. This has been led by large national retailers across a range of retail categories, such as consumer electronics giants JB Hi-Fi and Harvey Norman, kitchen appliances maker Breville, Coles, general merchandise stores Target and Kmart, owned by Wesfarmers, fashion and apparel chain Universal Store, discount department store The Reject Shop and home furnishings online marketplace Temple & Webster.

“Australia has technically been in a per capita retail recession, in discretionary through last year,” Jarden analyst Ben Gilbert, who has conducted a deep dive into the just-completed ­reporting season and the performance of the retailers, told The Australian.

Universal Store CEO Alice Barbery. The fashion and apparel chain is thriving while others retailers wither. Picture: NCA NewsWire / John Gass

However, Mr Gilbert argued the actual response by individual retailers was more nuanced, with “winners and losers” emerging among those retailers that made a compelling offer to consumers and those that missed the target.

Many retailers would probably ask, “what retail recession?”

“We think the macro backdrop is the most positive it has been in recent years: rates are easing, income growth is lifting, house prices are rising and the inflation outlook is stabilising,” Mr Gilbert said. “Furthermore, there are secular tailwinds via population growth (albeit easing), high savings, a replacement cycle in electronics and under-build in housing. We believe 2025 and 2026 look set to be stronger years for spending.”

The early green shoots of this retail recovery, for some, was evident in the Black Friday sales.

“If we look at what happened from November last year around Black Friday and Cyber Monday, confidence started to improve, tax cuts came through and people started spending again,” Mr Gilbert said. “So Black Friday-Cyber Monday in aggregate looks like it was probably up somewhere around 6-7 per cent, that looks like it was up mid to high single digits, so it was strong.

“As consumer confidence has lifted, and retailers that give people a reason to spend, they’ve come out and spent, and we saw that again through December, with the bulk of retailers having pretty good results.

“The challenge, I think, if you then look by sub-sector, the trends are different. Household goods have generally been pretty good, with the exception of commercial hardware, and that’s a function of the fact again, reasons to spend, excitement, there’s newness. You’ve got new AI, iPhones phones, all this stuff, which has meant that that’s been pretty resilient.”

Where the gap between the “winners and losers” or “haves and have nots” becomes more gaping is in the fashion and apparel sector. While companies such as Country Road Group booked a 7.8 per cent drop in sales in the 26 weeks to December 29, accelerating to a sales slump of nearly 16 per cent for the first eight weeks of 2025, others such as youth-focused Universal Store saw a 16 per cent sales uplift in the first half, which doubled to more than 31 per cent sales growth for the start of 2025.

“Fashion has been much more mixed,” Mr Gilbert said. “You’ve had players like Universal Store that have done very well, again, focused on exclusives and newness, and really managed their promotional backdrop well. And then you’ve had others that might not have really hit with consumers, that have had a bigger impact.

“It is retail bifurcation, a case of the haves and have nots. And if you’re looking across sectors, you’ve got clearer gaps between winners and losers.

“The absolute numbers have been OK, and if you have got good product or are in a category that has newness or secular tailwinds you have performed pretty well.”

Jarden research has found that 55 per cent of retailers reported an acceleration in January and February trade against the first half, a good result in the context of moderating economic trends. By category, fashion, leisure and youth were better, while household goods and footwear were softer.

“The gap between the haves and have nots has widened … we see this as a function of successful retailers growing regardless of market trends,” Mr Gilbert said.

Meanwhile at Country Road Group, whose brands include Country Road, Mimco, Witchery, Trenery and Politix, the CEO of its Woolworths Holdings parent company, Roy Bagattini, said he believed the fashion and apparel business was “absolutely fixable” despite barely being profitable and crashing sales in January.

Mr Bagattini, addressing analysts and investors from Cape Town, also downplayed suggestions from analysts that it would sell Country Road Group, saying it had been a significant profit contributor to the company in the past and one poor year did not mean it couldn’t perform again and return to better margins.

Country Road’s flagship store is Sydney's CBD. Picture: Britta Campion

Country Road Group’s interim results reported earnings down almost 72 per cent at $14.2m, but adjusted profit before tax sunk 94 per cent to a wafer-thin $2.5m.

He said a restructure of Country Road Group was being accelerated and has seen four out of five roles outside its stores changed to better prepare the fashion house to perform amid tougher trading conditions and extra costs triggered by the separation from David Jones.

“This is absolutely fixable,” he told analysts as he detailed the restructure process.

“It is an unprecedented degree of change, and in fact the most change this business has experienced in its history. To give you a sense of the sheer extent of it, over 80 per cent of all roles outside of stores have been impacted in some shape or form, whether they have been streamlined and rationalised or whether they are changing scope or whether they are newly created as we invest in new capabilities.”

Country Road Group is being restructured amid a ‘retail recession’ in Australia and is carrying the extra costs of its separation from David Jones. Picture: Andrew Henshaw

When asked by analysts if Country Road Group still had a future within Woolworths Holdings, Mr Bagattini said it was not up for sale at this time.

“The question around selling an asset or selling Country Road Group in this case naturally does come when a business underperforms. It is important to remember that Country Road Group has been a significant profit contributor to our group for many years, and a bad year doesn’t detract from the long term potential we see in this business.”

Originally published as Country Road Group owner says Australia in a ‘retail recession’