Oroton’s uncertain future
Luxury handbag retailer, OrotonGroup, has reported a disappointing if unsurprising end to FY17, with sales down 10 per cent from the previous year and an EBIT loss of $1.7 million. The company blamed its factory outlets and loss-making Gap stores for the downturn and said it has taken steps to rectify both issues in the months ahead.
After asking investment bank Moelis & Co earlier this year to conduct a strategic review, Oroton terminated its Gap franchise agreement in August and started the process of closing stores all six Gap stores by 31 January 2018. It also reached an agreement with major shareholder Will Vicars and Westpac to extend the maturity date of its $35 million bank facility to October 2018.
Chief executive Ross Lane said in a statement to investors on 29 September that the strategic review may ultimately include a sale, refinancing of debt facilities or recapitalisation of the company. He noted that the company is engaging with interested parties in the process, though there is no guarantee it will result in a proposal or transaction.
In a note released the same day, Citi analysts suggested all is not lost for Oroton, forecasting a return to positive EBIT in FY18, as it better aligns inventory and has a more planned promotional program in its factory outlets and completes its exit from the Gap brand.
The process is certain to be a painful one, with the total cost of exiting Gap expected to reach $11.3 million and the decision to reduce the reliance on discounting likely leading to lost sales from more price-sensitive customers.
But Oroton is not the only retailer facing a tough road ahead. Several Australian retailers, from Myer to Super Retail Group, reported declining sales in FY17. And like many of those retailers, Oroton has singled out e-commerce as an area of investment going forward, with the first phase of its plan, a global website refresh, launching last month.
Reasons for the recent surge in e-commerce investment vary. For some retailers, online was one of the few bright spots in an otherwise dismal year, and they’re eager to exploit it. Others, perhaps, have realised the need to bring their e-commerce business up to date, with Amazon about to launch its marketplace offering Down Under.
However, e-commerce still represents just seven per cent of the overall retail sector – though the number ranges from 8 per cent for Myer, to around 10 per cent for Oroton according to one analyst. Indeed, given the broad challenges retailers face, will investing in e-commerce really make a difference?
Melanie Grafton, head of e-commerce and client services at OrotonGroup, believes that it will. She tells IRW that it’s a mistake to think of e-commerce as a separate business to bricks-and-mortar retail.
“The person who shops online doesn’t only shop online, they shop in-store as well. Any updates we make to the online portion of the business helps all parts of the business,” she says.
Click and collect to come
That is the thinking behind the Oroton’s current investment in e-commerce, the first phase of which rolled out last month. It included replacing the multiple sites Oroton previously offered for users in each hemisphere with a single global site, which automatically detects the location and reflects the right currency and language of users.
Everything from the new website’s font and styling, through to functionality on mobile devices, was updated to improve the user experience. Oroton also automated the process of uploading new products to the website.
Grafton says these changes reflect the company’s commitment to delivering a world-class online experience.
“Whether that’s through the user experience, or offering new payment options like Afterpay, or enhanced search functionality with social media being integrated into the website, we’re putting significant investment into e-commerce,” she says.
Grafton says the company has already seen a “huge improvement” in conversions online, since the new website launched. “The bounce rate has significantly reduced, revenue as a result has been good,” she says.
This is just the first phase of Oroton’s e-commerce investment. Grafton says the company will be rolling out a number of new features in the near future, including the ability for customers to pick up online orders in-store.
“We haven’t yet launched click and collect, we’re working on that at the moment. It’s coming very very soon,” Grafton says, adding that it’s the next “natural progression” of the company’s e-commerce strategy.
Constrained by budget
Andrew Maver, the director and project manager of Now Solutions, which worked with Oroton on its website refresh, says he is surprised how many Australian retailers have not invested in e-commerce and the technology required to support online retail.
“Most businesses have over eighty per cent of their transactions still happening in-store, so I understand why retailers still need to invest in the store experience as much as anything else. But for the majority of customers, online is their first touchpoint. It might be social media, but that generally translates to online. Online is like the window [to the store],” he tells IRW.
Speaking about the retail sector as a whole, Maver says believes many heads of e-commerce would like to do more, but are constrained by their organisation’s budget and resources.
“You might turn to your boss and say, ‘We can do it better, but it will cost X amount of dollars.’ And the boss turns around says, ‘No, just work longer hours.’ I think it’s a cultural thing as much as anything,” he says.
Maver also suggests that many Australian retailers have been burned by disreputable developers, who over-promised and under-delivered.
“[Retailers] get bombarded with so much information, they don’t know what to believe. Part of the challenge is working out what’s relevant and what’s not. A lot of people have been hoodwinked and are gun-shy. There are heaps of stories out there,” he says.
When that happens, retailers may have no alternative but to live with it.
“It’s not an insignificant investment to rebuild your online store and redo integrations. If you make a mistake, it’s typically something you put up with three to five years and grit your teeth and move forward,” he says.
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