Oroton moves into luxury handbag market to revitalise brand after sales drop - The Age

Oroton is going for the high ground. Photo: Tamara Voninski

Accessories retailer OrotonGroup plans to take on global brands such as Burberry, Gucci and Chloe in the luxury handbag market as part of a plan to revitalise the 75-year-old label.

Oroton's leather totes and handbags sell for about $500, but new chief executive Mark Newman wants to broaden the range, selling smaller bags for as little as $200 and hand-tooled bags from exotic skins with $1000 to $1500 price tags.

"There's an opportunity to develop our price architecture," Mr Newman told Fairfax Media after the retailer's annual meeting on Friday.

"I believe we have customers who are looking to spend $1000 to $1500, but there's also demand for smaller bags at $195."

Oroton is one of Australia's few international luxury brands, but the business is facing increased competition from rivals such as Marc Jacobs, Kate Spade and Michael Kors.

Oroton's same-store sales fell in the second half of 2013 for the first time in many years and earnings dropped 33 per cent. While same-store sales so far this year have risen 2 per cent, margins are down because of widespread discounting and promotional pressure.

"2013 was not the best year for our Oroton brand," Mr Newman told shareholders. "It is clear that in an increasingly competitive environment everything we do as a brand has to be world class and we need to constantly innovate and adapt to changes in the market."

Oroton needed to improve brand clarity, store environments, its product offer, price positioning and customer engagement.

"I think it is fair to say that we may not have been looking over our shoulder as closely as we could have been and have had to react to the competitive challenge a little too late," he said. "As a result, we are working on a revised brand statement that is consistent with our strategy to reinforce our luxury positioning."

The downturn in the Oroton brand could not have come at a worse time for the group, which lost its 23-year-old licence agreement with Polo Ralph Lauren in June.

Mr Newman, who previously ran the Polo business before taking the helm from Sally MacDonald, has moved fast to plug the $23 million hole in earnings, signing a joint venture agreement with leading US brand Brooks Brothers in August and with Gap last month.

He believes the Gap and Banana Republic businesses could become significantly larger than the Polo Ralph Lauren division, with scope for 20 Gap stores and up to 10 Banana Republic stores in 10 years.

However, Gap and Brooks Brothers are not expected to contribute to profits until 2015. Chairman John Schmoll said 2014 would be another "transition" year as the group opened eight Brooks Brothers stores, took control of the Gap franchise and continued Oroton's overseas expansion.

Oroton expects to earn $13 million to $15 million before interest and tax this year. This compares with EBIT from continuing businesses of $11.9 million in 2013, down from $17.7 million in 2012.

Moelis analyst Todd Guyot downgraded his forecasts by 8 per cent.

Oroton narrowly avoided incurring a second strike against its remuneration report after tweaking executive pay and liaising with proxy advisers and fund managers. About 22 per cent of shares voted were against the report, down from a 51.5 per cent protest vote last year. More than 30 per cent of the shares are held by management and directors and cannot be voted.