Meet the boss | Mark Newman, CEO of Oroton

2014 was the beginning of a period of transformational investment for the Oroton Group as they completed their first year of the post Ralph Lauren era and successfully integrated the GAP and Brooks Brothers brands into the conglomerate. Next on the agenda: global growth. FELLT senior writer Patty Huntington met CEO Mark Newman.

Mark Newman

British-born Mark Newman took up the role of Oroton CEO in August 2014 after spending four and a half years heading up the company’s Ralph Lauren division. Prior to that, he spent 15 years in various roles at the Alfred Dunhill brand, which is owned by Switzerland’s Richemont, the world’s second-largest luxury conglomerate by market value after France’s LVMH.

Who
Mark Newman

What
CEO of Oroton Group

Where
Sydney, Australia


It’s been a good week for Australian fashion retail conglomerates.

On Wednesday, Premier Investments was the top stock on the ASX 200 after reporting its underlying FY 2014 profit was up 10.3percent to A$106.6million on group sales of $888.4million, up 6.2percent on 2013.

On Thursday it was Oroton Group’s turn to shine, after reporting a full year net profit of $8.3million after tax for the 2014 financial year, up 16percent on 2013, on sales from continuing operations of $124.9million, up 26percent on 2013.

Like for like sales were up eight percent at the company’s flagship 76 year-old Oroton brand – after falling four percent in 2013, in the face of increased international competition.

The Oroton International division experienced double digit sales growth in Asia, with five new international stores opening, bringing the international tally to 11: Malaysia (5), Singapore (3), China (2) and Dubai (one franchised store).

All up there are now 84 Oroton stores and thirteen stores between Gap and Brooks Brothers, the two new Oroton Group-managed brands that were introduced over the course of the year.

Shares surged as much as 16percent in morning trade on Thursday, before closing up 45cents or 12.33percent at $4.10, on a day the overall share market was lower.

Both stocks continued their dream runs on Friday, with Premier Investments closing up 35 cents or 3.35percent at $10.81 and Oroton Group, up 24 cents or 5.9percent at $4.34 – prompting the market to sit up and take notice according to IG Market Strategist Evan Lucas.

“It [the finance sector] has certainly looked differently at the apparel area” Lucas told FELLT. “The movements in Premier and Oroton are telling. You’re not just talking about one or two percent, you’re talking about big, big moves. Premier is up 3.35 percent, Oroton is up 5.9 percent. There are certainly players in the apparel space that do give you a reason to be excited, there’s no doubt about that”.

The bigger Oroton Group picture, of course, told a slightly different story.

Oroton Group’s 2014 net profit result was down 69.8 percent on the $27.45 million made in 2013, while 2014 group sales were down 33percent on 2013’s $186.2million.

The company declared a fully franked final dividend of 8 cents per share in 2014, down from 28 cents in 2013, taking the full-year pay out to 16 cents per share against 50 cents in 2013.

But Oroton Group in 2013 was a very different company to its 2014 incarnation.

Last year was a year of transformation for the company, following the expiration of its Ralph Lauren license in June 2013 after 24 years, a business that had previously accounted for 35 percent of net profits and 45percent of group sales.

“FY14 was the beginning of a period of transformational investment for the Group as we completed our first year of the post Ralph Lauren era and successfully integrated the GAP brand from November 2013 and launched our Brooks Brothers joint venture in February 2014” said chief executive officer Mark Newman in a statement to the Australian Securities Exchange yesterday.

British-born Newman only took up the role of CEO in August – a time when Oroton Group’s stock price had been trading above $7.00 – after spending four and a half years heading up the company’s just-axed Ralph Lauren division.

Prior to that, he spent 15 years in various roles at the Alfred Dunhill brand, which is owned by Switzerland’s Richemont, the world’s second-largest luxury conglomerate by market value after France’s LVMH. Coincidentally, Alfred Dunhill’s former CEO, Canadian Christopher Colfer, is the new CEO of Myer’s sass & bide brand.

Not surprisingly, Newman’s turnaround strategy for Oroton Group in the post Ralph Lauren era has involved not only replacing Polo Ralph Lauren with Gap and Brooks Brothers, but notably, repositioning Oroton as a luxury brand.

In July, the company unveiled a new flagship concept store design by London-based Universal Design Studio, a refresh of its website and a three year advertising contract with Australian actress Rose Byrne as the new face of Oroton.

To give you some further insight into Newman’s plans for the brand – which have also included raising prices and putting a stop to discounting – here is a chat we had with him in July, at the time the Rose Byrne campaign was unveiled.

Patty Huntington

What made you gravitate towards Rose Byrne as your new face?

Mark Newman

For us it was very important to find somebody who was Australian. I think that’s really important for us as a brand. Even if it’s something that we don’t necessarily talk about that much as we take our business abroad, we wanted to have an Australian. But we also wanted to have an Australian who was successful on the global stage. Rose is beautiful, she’s got a great sense of style, she’s elegant and sophisticated. Those are all qualities that we wanted in a face for the brand and those are all qualities that obviously resonate and talk to the brand positioning and where we want to take the brand.

You have used other international models obviously, notably Canadian Daria Werbowy

We did use supermodels in the past. For me, I think it was important that we were able to use a face who people could connect with and somebody that we could have a multi-year relationship with, which is often difficult to do with pure supermodels.

So it’s a multi-year relationship?

Yes it is. For me that was something that was important. This is a longterm repositioning that we’re going through at the moment and I think it’s important that those relationships last for more than just one season. We have a three year deal with an option after that. We were keen to have something that we could really build on. Because it does take time for people to recognise [a brand face/campaign] and for it start to start working together successfully. So we were keen to have a reasonably long term relationship, as was Rose.

We did use supermodels in the past. For me, I think it was important that we were able to use a face who people could connect with and somebody that we could have a multi-year relationship with, which is often difficult to do with pure supermodels.

 

It’s quite a major revamp that Oroton is undergoing at the moment. You’ve unveiled a new look for the flagship stores, the website has been refreshed and now there is a new face. And all obviously part of the broader restructuring of the company, post Ralph Lauren – a division that you previously headed up in fact

That’s what I came down here for. We’ve obviously gone through a significant change in the group over the last 12-18 months. We obviously became aware that the Ralph Lauren license was going to end and we had some time to prepare for that, but having said that, it’s not as easy as just turning around and saying, ‘Well OK, let’s just sign another agreement with another company’. That Ralph Lauren business was incredibly successful for the Oroton Group. It was a license agreement that started 24 years ago and was incredibly profitable towards the end, because the brand had been built over that period of time. We had good distribution across both freestanding stores, department store shop-in-shops and factory outlets. And it was something that was reasonably challenging to try and just replace overnight. We worked on a number of other opportunities. We had a lot of companies and brands contact us to manage their distribution here. But we chose the two companies that we ended up moving forward with, The Gap and the Brooks Brothers joint venture, very carefully. We felt that both of those brands were a good fit with the culture of our organisation and our skill set, in terms of being good retailers here in Australia. And also both of those brands have a good fit with our customer database across both the Oroton brand and across the previous database that we had for the Ralph Lauren brand. So we felt that we were able to leverage that. But in addition to that, clearly the Oroton brand itself was starting to face some reasonable headwinds, with the amount of international competition sniffing our space. Brands like Coach, Michael Kors, Kate Spade etc coming into the market. Plus obviously the explosion of the availability of brands online.

And yet Oroton actually managed to weather the GFC

Yes absolutely. But again, we weathered it at what cost? One of the ways that we did weather it was through increased levels of discounting and promotion. On the one hand, in terms of driving the business here domestically, given what was happening in the marketplace, we were becoming increasingly promotion-driven. And then on the other hand, we were investing a lot of our resources and our money overseas, in terms of building the business in Asia. So what was happening for the brand here domestically is that we were investing an increasingly smaller amount in building the brand and maintaining the brand here in the local market. And that’s really what we’ve addressed and that’s what we are doing, going forward – starting to reinvest in the brand here in the local market. We’ve got huge brand loyalty here and huge brand awareness, but again, with everything, once you’ve got new brands coming in, our customers, quite rightly, are experiencing and experimenting with those brands too. So it’s important for us that we were able to stack up and compete with those international brands head-to-head. And there were a number of things that we felt we needed to do in order to get us back into that space. One of those was a new store concept that is more elevated and more international in terms of its presentation. The Rose campaign will also help us to do that. But it also shows that we’re investing more marketing dollars in building the brand here over the next few years.

Can you give me an idea of the marketing investment?

I can’t, because we haven’t released any of that information to the market yet. But obviously we are increasing the amount of money that we are spending on the brand here domestically. It doesn’t necessarily mean that we’ll be spending a much larger amount in marketing for the brand in total. It’s more about how we direct that marketing spend and perhaps we’ll be investing a little bit less in other areas. Another area where we have spent a lot of money in investment over the last few years is on our online business, which is more than 10percent of our sales and still very successful for us. So there are areas where we can divert the money from to a certain extent.

How important is digital?

Very important. It’s all part of the same space now. We need to talk to our customers and connect with our customers and give our customers the opportunity to shop across any channel that they want to and therefore it’s important to be in all of those places. Being more than 10percent of our sales, it’s a really important channel for us. It’s a place that our customers go to even if they come and shop in store, they still go to the site. That’s why we’re relaunching the site with the same look and feel as the new store concept, with the Rose campaign, because that’s as much a face of the brand as any of our flagship stores.

Raising prices has also been part of your revitalisation strategy

We’re not expecting to compete in the first tier luxury space but certainly within the attainable luxury space. That’s very much where we sit. But we have started to increase prices. Prior to my time, we started to cut some of our prices on our main line of handbags. We reduced prices by about $100. That was in response to brands like Michael Kors, who came in with very similar bags, which are $100 cheaper. We were at $595, the average price point for our womens’ handbags. We reduced a part of the range down to about $495. I think in hindsight, we may have overreacted to that threat. As we’ve gone through the end of the winter season and as we’ve gone into the spring season, we’ve looked at increasing our prices back up to that $595 level. Which has proved to be very successful for us. Our best-selling handbag in the autumn/winter season was a handbag that sells at $595 – the Alpine Chain, a soft, pebble leather tote with a chain and leather handle. It happens to be a great bag as well, of course. But I think the key thing for us is, our customers don’t have an issue spending that much money on a bag. What they were getting fed up with was coming in and spending $595 on a great bag and then finding out that two weeks later it was at 50percent off at a friend and family sale. That’s something that we are going to be moving away from.

We need to talk to our customers and connect with our customers and give our customers the opportunity to shop across any channel that they want to

 

Internationals often seem gobsmacked by the amount of discontinuing they see happening in Australian fashion retail

I think that’s right. For us, it’s about competing head-to-head with great product, great levels of service in our stores and beautiful store concepts. That QVB store, since we opened it a week ago… it’s only been a week but we’ve been doing great numbers in there. That’s really what we’re focussing on, rather than trying to compete with people on price. We’ve got huge brand awareness here in Australia, far greater than Michael Kors has at the moment and we should be taking advantage of that.

But why not try to compete with Prada? Why not introduce a small capsule collection that does sit at that true luxury level?

We are sort of doing that. One of the other things that we’ve looked at is our price architecture. Across not just that sweet spot of $595, but also opening price points and making sure that we have all of the price zones filled in. Smaller cross-body bags have become popular over the last few years and because they’re smaller, you’re able to introduce products at slightly lower price points. But we were missing some of the price points in between. And likewise, at the top end of the range. Customers who shop the Oroton brand do also shop Prada and Gucci and LV etc and have the ability and propensity to spend at that higher price point. We just need to provide them with a product that justifies that price point. So that is also something that we are doing. But it’s a step-by-step process and the focus is really on that, what we would regard, attainable luxury space for the time being. But certainly we recognise that there’s the ability for us to be able to trade up as time moves forward.

Earlier in the year you revealed that you were looking for a Chinese distribution partner to roll up to 30 stores there over the next three-five years. How is that progressing?

We’re in discussions with a company at the moment. We haven’t finalised anything. We’ve been down this road before, so I don’t want to talk about anything until it’s a done deal. But we are in discussions with a potential partner at the moment. They happen to be one of the larger department store groups in China, so there’s an opportunity for us to roll out shop-in-shops across their department store chain.

Not freestanding stores?

Well we opened one freestanding store in Shanghai and we’re very pleased with how that’s operating. In fact this interest from the department store group has come from them having seen the store there. Opening up shop-in-shops gives us an opportunity to build brand awareness in the market and at the same time, then we can start increasing the amount of freestanding stores we have in conjunction with opening those shop-in-shops.

The newlook store concept – will that be rolled out eventually to all the stores?

Yes, absolutely. Obviously with any new concept, there’s some testing that needs to be done. But on the first indications, it seems to be performing reasonably well. It’s turned out absolutely as we wanted. We wanted to create an environment which clearly signified a change. For me it was important that we had a concept that stacked up in terms of international standards, from a design and quality and materials point of view. And I think what we’ve created there and Ana [Maria Escobar, Oroton general manager and creative director] has obviously worked very closely with the design house in London. They’ve really reinterpreted what we were looking for, in terms of having something that draws upon colours and textures from the Australian outback, but also architectural features from the Opera House and that sort of thing. They pulled all that together into a concept that really works as a retail environment. It feels warm. It feels comfortable. It feels more elevated, which is again, something that we were looking for. We’re really happy with how it’s turned out and yes we are planning to roll it out. We’ve got a number of stores that we are doing over the course of the next 12 months. Probably about six in this concept. We’re opening at Emporium down in Melbourne and that store’s a new store, so it will be that concept. And then we have a number of other stores that are either relocating and therefore, we’re taking the opportunity to convert them. Our store at Chatswood will be converted into the new concept. I think we’ve got about six on the plan for this year. Probably a further six-10 the year after and then ultimately, the idea is that we convert all of our network to the concept.

What is the five year plan? How big a brand could Oroton become?

When we look at the brand, obviously we are reasonably well-penetrated in the market here in Australia, so any growth that we get out of the business is going to be like for like growth. I believe that we can continue to do that as we position the brand where we believe it should be. Obviously our online business continues to grow and there’s an opportunity for us to continue with that. But international is going to be a large part of our growth as well. We’re very happy with our business in Malaysia at the moment. We’ve got five stores there, we’re getting some good traction, we’ve built a great local customer base. So we’ll continue to get growth out of that. Singapore is now starting to come together for us, with some good department store shop-in-shop locations. And if we get a decent partner in China, then that will move that business forward. We haven’t communicated anything to the market in terms of growth plans from a sales point of view, but the process that we’re going through at the moment is one that all brands have to go through every five to seven years. We need to always be continually reinventing ourselves and that’s a process we’re going through right now.

Oroton introduced womenswear in 2012. What percentage of the business does that currently account for?

It’s still very small for us – around three percent of sales. Apparel is a category for us that we are really focussed on. Both Ana and I believe that it’s very important that we have apparel in our stores. It helps to soften up the store environment. It’s always great for us to be able to have our apparel on our mannequins and also clearly our apparel on Rose when we shoot her. Fundamentally, we will always position ourselves as a luxury accessories brand, but we do believe that apparel has an increasing place to play in our store environment. I think that we are working on making sure that the apparel now connects with the accessories and looks like it comes from the same place. And I think we’re getting to that stage now.

What do international sales account for?

Our international business is around about eight percent [of sales].

What is the fastest-growing international market?

At the moment, Malaysia. We’ve got a great mix of locations in both A grade downtown shopping malls like KLCC and Pavilion [Kuala Lumpur]. But also we’ve got some good locations in the suburban malls at The Gardens Mall in Mid Valley City and 1 Utama [Bandar Utama Damansara]. And I think it’s because we’ve connected with the local customer there. Sixty-five percent of our customers in Malaysia are Malaysian. They’re not Aussie expats or tourists. The brand is really starting to resonate. We’ve been there for three years now, so we’re now starting to get some traction.

Who is your biggest competition in that market?

The same usual set. Coach are pretty strong in Malaysia, they’ve been there for quite some time. All of our key competitors are there – Tory Burch is there, Kate Spade is there, Michael Kors is clearly in there as well.

What’s your take on the retail climate right now? There has been a lot going on in Australia over the past three years, with the onslaught of internationals who have been doing a roaring trade, while many locals have complained about some of the toughest retail conditions in years

I’ve been here for four years. I arrived here in the early part of 2010 and I think it was pretty tough at that point in time and it’s been like that ever since. For me, I’ve never known it any differently. We don’t complain about the market. At the end of the day, the market is what it is and consumer sentiment is what it is and it’s driven by many different factors. It’s about us just making sure that we do what we do really well, making sure that we adapt our promotion plan to the market and that we’ve got a strong brand and we continue to do what we need to do to grow the business. For sure, there have been a few ups and downs over the last few years and for sure the reaction to the budget was relatively negative. But again, it’s about being nimble and managing your business in a way that you make the most of it.

You experienced “The Kate Effect” in April, when The Duchess of Cambridge was photographed carrying one of your bags in Australia. How big a sales kick did that ultimately prove to be?

It was [laughs] an interesting little distraction I suppose at the time. It’s wonderful to have that kind of endorsement. It wasn’t something that we knew was even happening. As you know with these things, she would have had a stylist over here a couple of weeks beforehand to pick up lots of different pieces and she would have walked in the night beforehand and said, ‘OK, I’ll wear that outfit with that bag”. So it was a great opportunity for us to use that communication on social media etc and we sold a few more of those bags. We had pretty much sold out of that bag before that happened. We managed to place a few additional orders and did some pre-orders on it. In terms of our total business, it wasn’t something that was particularly important, but that was a bag that we typically might have sold… I think we had sold 300 of them in the season up until that point. As a result of that happening, we placed a reorder and sold another 350 or something.

It’s interesting times in Australian retail, with the biggest influx of international brand managers and creative directors that certainly I can recall steering Australian fashion assets in this new global environment, in which many locals continue to struggle. Woolworths South Africa now owns David Jones. You are British. Ana Maria was born in Australia but grew up in Columbia. Jigsaw’s new creative director is British-Australian Tonia Bastyan. Sass & Bide’s new creative director is Brit Anthony Cuthbertson and CEO is Canadian Christopher Colfer, the former CEO of Richemont’s Alfred Dunhill division, where you spent 15 years. Presumably worked with Colfer there?

Yes I did. I’ve only been here four years or so and I think the market was one that was…. without saying it was easy, I think the market had been growing for quite some time and I think it was 15-20 years of year-on-year GDP growth. So the market was growing, consumers were feeling more and more wealthy, there was more consumer spending and there was very little competition at the time. And all of those things have changed. It’s now more competitive. But I think that’s great. More competition makes us better at what we do and it pushes us further on and we’ll continue to plug away. We’ve got great brands and there’s no reason why we can’t make them work.