International retailers such as Uniqlo, Zara and H&M are seeing lofty growth slip in Australia, along with margins, as they expand into smaller regional centres.

However, those expansion plans, along with the influx of offshore retailers will mean incumbents such as Myer may continue to lose market share, Macquarie Group analysts said in an investor note today.

The slowdown in sales per store is expected as the retailers expand away from prime city retail spots to less productive regional locations, the analysts say.

A weakening Australian dollar over the past few years, plus weak demand in winter and spring, all contributed to the fall in margins, according to Macquarie, which added that the Aussie’s strength against the pound in the wake of the UK’s move to exit the EU may increase the appeal for online retailers such as ASOS.

Australia has seen an influx of foreign retailers over the past three years, breaking years of dominance by the likes of Myer, David Jones, Wesfarmer’s Target and Woolworths Big W. The international retailers, ranging from Polo Ralph Lauren to Daiso, now have 492 stores across the country with targets to increase that to nearly 800 according to Macquarie. It comes as local retailers shrink store counts to cut cost. Zara and Uniqlo alone accounted for 6% of apparel sales growth in Australia in 2016. Meanwhile, the segment share for local retailers fell 2% to 13%.

While Uniqlo’s gross margins dropped 5.5% to 53.4% in 2015, it remained above the group average of 48.4%, Macquarie said. Part of the fall was attributed to the Australian dollar’s decline against the greenback given Uniqlo’s products are largely manufactured in China. The AUD was trading at around 75.51 US cents on Wednesday morning, compared with nearly US$1.11 in July 2011.

The Japanese firm doubled its store footprint to 12 and increased sales by 247% to $174.5 million, Macquarie said. Store numbers are projected to rise to 30, while local losses have reduced on EBIT (earnings before and interest and tax) from -17.6 in 2014 at -1.8% in 2016.

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