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ECF3120 Consumer Economics

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  • Course Code: ECF3120
  • University: Monash University
  • Country: Australia

Question:

Details of Task:

Write an economic research essay on a real life consumer topic or issue, based on the research proposal.

Your application rational consumer choice ideas and theories to explain particular consumer outcomes you have observed. Demonstration of creativity, innovation and in-depth economic analysis will be highly regarded.

Essay's  structure:

- Title - Background, Relevance & Significance, - Aims & Objectives of Research Paper -Overview of Related Work/Data Collection/Trend Analysis - Consumer Choice Analysis & Discussion - Conclusions/Recommendations.

 

Answer:

Background of the study

The topic for the proposal is the apparel consumption in Australia. The rise in online apparel retailing is taking away the profits of the local retail apparel shops in Australia. The apparel retail comprise of the sale of women’s, men’s and infant’s wear. The revenue growth from the online retail business is about 15.1 percent which is a threat for the local retailers as customers are shifting towards online platforms from the traditional local retail shops (Alam et al., 2019). The apparel retail industry of Australia has been facing severe challenges in the last five years due to intense competition, rise in rent costs and cautious consumer spending. In the contrary, the rent prices are very high and the local retailers are facing problems in paying rents, especially when their profits has decreased due to intense competition from foreign or local online retailers.

According to reports, over 4.2 billion dollars are sent to overseas online retailers each year by people who are under 30 years of age.  This is significantly robbing the local bricks and mortar shops of business (Grimmer, 2019). Moreover, import of clothes from foreign countries has increased in Australia which is lowering the revenue of the local retailers. As per the data, over 19 billion dollars were spent by Australians on clothes in 2017, although the total revenue generated from the local Australian shops was 700 million dollars which proves that most of the revenues went to the foreign retailers and retailers using online platforms to sell their goods (Grimmer, 2019).

Technological innovations is improving the retail market in Australia and constantly extracting the shares of local retailers who source goods through traditional methods. More and more sellers are entering the market who use online platforms and modern technologies to source the goods. They have attracted large number of buyers as customers are satisfied with the product delivery and quality of the product in the most effective way. As more and more firms enter the retail industry through online platforms, the profits of the local retailers are constantly down. Local retailers are unable to fight with the updated online platforms which has extensive features to attract the customers. Under such circumstances there is need for government intervention to assist the local apparel market (Verma, 2018). Moreover, online retailers are also foreign firms such that there has a rise in imports for apparel in Australia which can create budget deficit. Under such cases there is need for government intervention so that the local retailers can get their share of profit and protect them from the foreign firms.

Aims and objectives of the paper 

The aim of the paper is to study the challenges faced in the apparel market in Australia and the choice of customers with respect to online or local retailing.  This will be studied through a range of objectives which uses economic principles and relevant data that can help to reach the aims of the paper in the most effective way.  The paper has the following objectives:

  • To find the causes of market failure and its relevance to the apparel consumption in Australia
  • To estimate the deadweight loss of efficiency in the apparel market
  • To measure the market loss of equity
 

Research Analysis

The revenue generated by the clothing industry is expected to contract by 0.2 percent in the coming year. This is due to an anticipated decline in revenue of about 12.2 percent in the current year due to the outbreak of COVID-19 which has stopped the operation of local shops in order to stop the spread of virus. The shopping activities has reduced and demand for apparel has decreased as they save money for necessity goods (Rudolph et al., 2018. Big online retailers are affecting the business of small retailers who provides service in most of the markets. Although business activities has reduced for local shop retailers, they still have to pay the rents which can added burden for them and the local market fail as they are inefficient in serving the goods in the most effective way to derive huge sales in the market.

The inefficiency of local retailers can be understood from figure 1 where SOR represents the supply of big online retailers and SLR is the supply of local shop retailers. The demand curve is downward sloping, represented by D. The price changed by local retailers is P1 which is higher than that offered by online retailers (Payne & Ferrero-Regis, 2019). On the other hand, the quantity given by local retailers is quite less than the online retailers which are Q1 and Q respectively. The low price is due to free shipping costs and other facilities provided through online platforms such that local retailers are unable to allocate apparel efficiently (De Vries & Thörnvall, 2018). This inefficiency is continuously lowering their profits and giving rise to equity problems.

The disposable income has decreased due to decrease in trade and business activities which has significantly lowered the demand for goods and services in the economy. Big retail companies has huge sales and profits who invest in new tools to upgrade the systems. They does not charge any shipping cost and provide apparel at low price as they directly buy from the manufacturers which has made it a popular trend to buy clothing from online sites.

According to business analysis, the service and online retail sector would significantly grow in the upcoming years as the most of the activities related to buying, selling, deals, sourcing would happen through online platforms due to its increased efficiency and lower the pandemic effect. This had made it necessary for the manufacturers to enhance the distribution of product through online platforms and adopt the latest technology. However, it is very challenging for the local retailers to shift their business from shop retailing to online platforms in such a short period of time.

 Small local retailers are unable to combat the growing challenges that is faced by them and there is loss of equity. Accordingly, about 7,000 stores were closed are they faced capital losses for the past five years. In comparison to this, 3,000 stores were opened in 2018 that operates through online platforms (Grimmer, 2019). The apparel industry is struggling to adapt itself with the competitive marketplace in correspondence with the foreign retailers. On the other hand consumers and workers are struggling to combat the situation of low wage that is arising due lack of employment opportunities that can drive the sector in the most effective way. Moreover, there has been a growing concern for job security that has reduced consumer demand and buying power for apparel (Roberts, Bruce, & MacGill, 2019).

The clothing industry had to lay off thousands of staff members due to equity losses. Several shops were already under great stress in the past few years as the profits did not grow extensively. The situation is worsened with the outbreak of global pandemic that has shut down activities of clothing retail shops in Australia. In the first few weeks of January, 2020 over 161 retail shops closed operations as they struggled to manage its rising debts and inventory payments (Stringer, Mortimer, & Payne, 2020). Customers highly prefer goods from online retailers as they offer arrange of facilities than just buying such as they have the flexibility to see the apparels anytime they want, they can simply add to the cartel without buying it, can cancel orders, return the good if they are not satisfied, free shipping and delivery with the provision of special discount offers for buying good after a certain range (Coates et al., 2020). In accordance the advanced technology, people highly prefer to buy goods through online platforms, although the current situation is bad with low demand.

Conclusion

Therefore, it can be said that online retailing activities has reduced the profits of the traditional clothing retailers in Australia who supply products through shops. Big foreign companies offer goods in bulk amount at low prices that has attracted customers and they have transitioned towards online buying processes. Local firms had less resources to fight with big firms and their prices were comparatively higher due to low supply. Moreover, they had to pay high rents which further led to equity losses and forced them to close their shops. The problem is intensified due to the outbreak of corona virus. People working in the industry lost jobs and government provided a package to some business to recover the losses. Rent system was transitioned and government is planning to expand work from opportunities. This requires online regulations. Government must support these businesses and provide online platforms through the installation of multiple online systems and guiding those ways of using it effectively.

 

References

Alam, M. S., Selvanathan, E. A., Selvanathan, S., & Hossain, M. (2019). The apparel industry in the post?Multifiber Arrangement environment: A review. Review of Development Economics, 23(1), 454-474.

Coates, B., Cowgill, M., Chen, T., & Mackey, W. (2020). Shutdown: estimating the COVID-19 employment shock.

De Vries, S., & Thörnvall, C. (2018). Technologies Enhancing the Customer Experience in Apparel Retail–A Future Study.

Grimmer, L. (2019). Karen Millen enters administration, becoming latest international retail casualty: Interview with Priscilla Pho.

Grimmer, L. (2019). Market snapshot: Australia: interview with Elias Jahshan.

Grimmer, L. (2019). Shopping in the City: Understanding Drivers and Barriers to City Shopping in Launceston, Tasmania.

Meinen, P., & Raff, H. (2018). International trade and retail market performance and structure: Theory and empirical evidence. Journal of International Economics, 115, 99-114.

Payne, A., & Ferrero-Regis, T. (2019). Sustainable fashion in Australia: Raw fibre, fast fashion and new localism. In Global Perspectives on Sustainable Fashion (pp. 180-190). Bloomsbury.

Roberts, M. B., Bruce, A., & MacGill, I. (2019). Opportunities and barriers for photovoltaics on multi-unit residential buildings: Reviewing the Australian experience. Renewable and Sustainable Energy Reviews, 104, 95-110.

Rudolph, L. T. B., Sutter, M. B., & Fouto, N. M. M. D. (2018). The emergence of ethical retailers in fashion and apparel industry. In CLAV 2018.

Stringer, T., Mortimer, G., & Payne, A. R. (2020). Do ethical concerns and personal values influence the purchase intention of fast-fashion clothing?. Journal of Fashion Marketing and Management: An International Journal.

Verma, A. (2018). The competitive dynamics of MNE market entry on host country incumbents: word/action responses to Amazon’s retail entry into the Australian retail sector (Doctoral dissertation, Auckland University of Technology).

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