Oroton Group charges on with new focus

oroton windowOroton Group will turn its focus to revitalising its core Oroton brand after severing ties with US-based Brooks Brothers, just two years after securing the local licence that was expected to fill the gap of former partner, Ralph Lauren.

Access exclusive news, features, interviews and reports.

Subscribe now or login to access premium content.

Subscribe Log in

Oroton Group struck a deal with Brooks Brothers in 2013 after ending its partnership with Ralph Lauren, which had previously contributed around 45 per cent of the group’s sales. Oroton acquired a 51 per cent majority stake in the company, and following the announcement of the joint venture, Oroton predicted the deal would generate $3 million in sales in the first year and around $50 million by the fifth year of business.

The deal had an initial term of 10 years, with a five-year renewal option. However, two years into the deal, and still failing to gain major traction in the market, Oroton has now decided to sell back its stake, which includes 13 stores and an online store, to US-based parent company, Brooks Brothers Group for an undisclosed sum.

Since the first store opened last year, the bricks and mortar rollout has been aggressive, opening 13 locations − six freestanding stores and six David Jones concessions. Outlet stores, at Homebush in NSW and Essendon in Victoria, also quietly opened in 2014 as part of the expansion.

In May, CitiBank told Inside Retail PREMIUM it was predicting an exit of the business and attached a cost of $3 million for the potential exit as Oroton’s 2014/15 third quarter earnings fell by more than $2 million, partly due to sales and margins in Brooks Brothers and Gap falling below expectations. Oroton also announced in May that it expected full year earnings to be down 66 per cent on the prior year. As part of the sale, Oroton will provide Brooks Brothers with management and administration services for up to two years following the takeover, which is expected to be completed by July 25.

Speaking to Inside Retail PREMIUM, Craig Woolford, senior analyst, retail sector, Citi Research – Australia/New Zealand, said Brooks Brothers’ move to Australia was originally driven by strong online sales in Australia through its US site.

“They created a market for the brand based on those online sales,” Woolford said. “[Brooks Brothers] is clearly a high profile international brand and they have some high profile locations in Australia. But it still takes time for Australian consumers to respond to a new brand.

“There’s a lot of challenges bringing a new brand to Australia. Getting the right store locations can be time-consuming and adapting to the southern hemisphere to the seasonal difference is also a challenge. Some of the international brands have done that well and others have found that difficult.”

At the time of Brooks Brothers’ Martin Place flagship opening in September 2014, Andy Lew, MD of Asia Pacific, Brooks Brothers, told Inside Retail PREMIUM he saw scope for between 35 and 50 point of sale locations in total across all formats for the brand in Australia.

Mark Newman, CEO of Oroton Group, told Inside Retail PREMIUM this week that Brooks Brothers US remains committed to the Australian market and developing a strong local business.

“It was always part of the plan that they would take 100 per cent ownership of [Brooks Brothers] here,” Newman said. “We initially had a plan with an option for them to buy that stake within a couple of years, so we decided that it was now a good time for that to happen. They’re very committed to the market, and together we’ve achieved a lot in the past two years.”

Oroton now in focus
Newman said securing new brands in replacement of Brooks Brothers is on the back burner for now, flagging more investment into its core premium handbag and accessories brand, Oroton. Under its new strategy, Oroton has moved away from heavy clearance activity and ‘Friends and Family’ type sales that in the past it had become reliant on.

“Our strategy is very much to focus on our own brand ownership, rather than distribution agreements. It’s become harder and harder to make money out of distribution agreements in Australia,” Newman told Inside Retail PREMIUM.

“We’re a long way down the track in terms of repositioning Oroton. We’ve invested a lot of money in Oroton over the last 12 months and we have a lot of great things coming for this year too. Longer term, we are looking to add to the group, but it’s more likely to be in other brand ownership.”

In Australia, Oroton has around 50 stores, and over the past 12 months has rolled out a new store concept to around 30 per cent of its Australian footprint, with between 55 per cent and 60 per cent of its boutiques expected to be converted by the end of the 2016. Oroton also has one store in New Zealand, China, Singapore, and Dubai, and five in Malaysia. It closed a store in Hong Kong last year, and in the past four months has closed around three smaller stores in Australia.

“We’ve got a couple of new stores that we’re looking to open this year, but overall our total footprint is going to remain fairly constant. We’ve closed a few stores recently, so we’re not looking at growing our stores dramatically. It’s more around where the opportunities are and also taking the opportunity when stores come up for renewal to take bigger locations where we can present the full collection and we can ensure we have fitting rooms to sell our entire apparel range.”

Oroton has also invested significantly in marketing; product campaigns, currently fronted by Australian actress, Rose Byrne; and product development, including more limited edition items. Oroton also launched a new point of sale system this year and implemented new CRM software.

“We’ve had a very painful year in terms of reducing the level of very heavy clearance activity over the last 12 months, and we’ve really gone through a large part of the repositioning. We’re now on a like for like promotion plan from the beginning of August so we’re very much looking forward to growing [the Oroton] business.”

What’s in store for Gap?
Newman said Oroton Group will continue investing in US-based fashion retailer, Gap. Oroton Group took over the local licence from Busby Holdings in October 2013, just one month after securing Brooks Brothers.

Gap was one of the first major international apparel brands to enter Australia back in 2010 and has since been followed by Zara, Topshop, H&M, and Uniqlo. Under Busby Holdings, two Gap stores opened, Westfield Sydney and Chadstone, which are now operated by Oroton Group.

Since taking the reigns from Busby, Oroton has opened three additional Gap stores in Sydney, at Macquarie Centre, Westfield Miranda, and Westfield Parramatta (its largest in NSW). Newman said it is now considering a local online store as well.

“We’ll be investing more marketing dollars into [Gap] this year to really ensure the new stores we’ve opened are able to get to their full potential. We’re also looking at launching an online store here too, so that’s the focus at the moment.”

As part of the Gap deal, Oroton Group also has the rights to develop Gap Inc’s Banana Republic label in Australia, and the option to develop Old Navy. The group had previously made public its intentions to open Banana Republic stores by 2016, however, Newman said the company has since changed its strategy.

“We had the option to launch Banana Republic, but we decided to pass on that for the time being as we’ve got a lot of stuff going on within the group. [Banana Republic] is going through some changes in the US, so we felt the time wasn’t right. Old Navy is potentially an option for the future but it’s one that’s a good couple of years away.”

Comments

Comment Manually

I have read and agree to the Terms and Conditions and Privacy Policy.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inside Retail Polls

As FY19 draws to a close, how would you describe your company's full-year results??

Twitter

.@Wesfarmers to purchase @catch_au for $230 million, with @Kmart_Australia and @Targetaus to benefit from the marke… https://t.co/RNsoNC7H0R

2 weeks ago

Australian brand house #Gazal acquired by @PVHcorp in order to have greater control over its brands, such as… https://t.co/lHAdi7mKmg

3 weeks ago

Two thirds of Aussies are looking for discounts online says @PayPalAU, while retailers seek to slow price markdowns… https://t.co/54hjxgpGax

4 weeks ago
x

SUBSCRIBE
FREE NEWS BRIEFS Get breaking news delivered