Building on the strength of core brands (Oroton and Polo Ralph Lauren) while making the tough decision “to put the other kids in foster home” was big part of the turnaround tactic for the troubled Oroton Group, its CEO Sally Macdonald told delegates to the recent Retail Expo Forum in Sydney.
Divesting non-core business (clothing labels Marcs and Morrissey, plus shoe shop Aldo) was part of simplification process that also involved halving head office staff, flattening the management structure and putting ‘creative’ at the heart of the business. Outlining what was wrong with the business when she took the helm in 2006, Macdonald said the structure had become too complex.
“Too much time was spent in lower profitability aspects of the business; corporate overheads were blooming, there were too many layers of management and splintered focus – it was too siloed and too functional.”
What the company had going for it, however, were two very strong brands, long brand heritage, willing and supportive board, some highly motivated people and strong consumer loyalty, said Macdonald.
“There’s lot of love for the Oroton brand in Australia.”
The restructure was based on “a lot of cost accounting”, tough decision making and immediate action. Never under-estimate the magic of cost accounting, Macdonald said. “You need to understand what makes money and where the costs sit. It’s not inspirational but it’s vital.”
Macdonald came to the group with an MBA from Harvard and extensive experience in retail and consumer goods – much of it as consultant with the Boston Consulting Group in New York and Melbourne. It was in the latter capacity that she first got involved with Oroton – noticing then how powerful buyers were over design.
“I felt design should be at the core and elevated the creative team – separating them from buying and making them direct report to the CEO.”
While underperforming stores were shut, others were opened, including new flagship store in Sydney and an online store. There was stronger focus on the Polo relationship and on global strategy. Incentives were increased at all levels to help create more performance-oriented organisation, said Macdonald.
“Incentives work and we have policy of rewarding people for good performance – and not just at the gross margins. We wanted them to think of the whole business – to think about EBIT [earnings before interest and tax] which is unusual for retail.”
Direct incentives now include generous monthly store team bonus and prize for top performance of an overseas trip. But, adds Macdonald, it’s not all about money and rewards may include opportunities for growth and development. With focus on building the team, her policy is to promote internally – advancing the “drivers and doers” – often from store operations.
And while Macdonald focused on expanding and strengthening the design team, the HR department was reduced from nine personnel to just two and set about building more open channels of communication throughout the business. Redesigning the head office into one-level, open-plan space was part of that – as was implementing 360-degree review process that allowed staff to provide feedback about the strengths and weaknesses of their bosses and leaders.
“It give workers sense of power and was important to culture change. It’s not for everyone but it’s more honest, more direct.”
Another change that impacted on organisational culture was the blurring of departmental distinctions that occurred pretty much by accident.
“But I do hate silos and wanted solutions, not people telling me that’s not their job. We now have co-leaders on specific projects. In hindsight, creating more blurriness in the structure might be my management style. I don’t always plan – there’s always room for blue sky floaters.”
What Macdonald does keep close eye on is financial controls.
“We have strong marketing budget reviews and very clear financials – I think that’s the right focus when you’re turning around business.”
It is, she says, still work in progress. The company now has 600 staff and 60 stores in Australia and New Zealand turning over sales revenue of A$20 million. Last month Oroton shares rose more than six percent as the group said it expected to significantly exceed last year’s earnings by delivering net profit between A$15.5 million and A$17.5 million.
Macdonald reiterated the importance of strong brands.
“Everything is the brand and making its strengths competitive. You have to listen and be true to the brand. We’re still learning – but it’s great challenge.”
Retail Trends
Economic gloom aside, retail faces its fair share of challenges – from rising costs to shrinking employee pool, from wider web-based shopping to an explosion of eco-retailing, as the recent Retail Expo and accompanying Forum in Sydney highlighted.
If the bright twinkle of energy efficient LED shop display stands in special ‘eco-retailer’ space at Retail Expo Australasia didn’t highlight it enough, speakers at the accompanying Retail Forum did. Green is in.
Climate change is coming; costly emissions trading regime is heading down the regulatory pipeline, affecting small businesses as well as big emitters; consumers increasingly want to buy green or, in new spirit of ‘enough-ness’, to just buy less. How they buy is also undergoing major shift – with predictions that the internet will influence more than half of all retail purchases by 2010. Meanwhile the retail sector is already feeling the pinch of dropping consumer confidence and retailers, big or small, are facing staffing squeeze.
Add growing green consumer push to an approaching regulatory shove and retailers will have to respond to the dictates of more carbon constrained world – the question is how far and how fast? Scientific consultant Graeme Pearman told delegates that climate change impacts are already being felt and avoiding dangerous extremes is possible only if we can overcome inertia and deal with the complexity of adjustment.
Other speakers noted that retailers like Walmart – with its green supply chain policies, and Tesco with its carbon labelling – are already pushing green practice into the sector.
Moves to greener products and packaging may cost more but they attract eco-conscious consumers. And it’s fast-moving space – those that don’t start the green journey risk being overtaken both by regulatory coercion and consumer sentiment. But balancing price point with consumer desire for green product isn’t easy.
Another fast-moving trend is the shift to online shopping with 2009 promising to be watershed year for internet take-up. Already 50 percent of Australian shoppers research online before visiting store and the advice from Expo speakers is that retailers need to make online part of their communications package. Advice from aussieBum founder Sean Ashby, whose A$35 million export business is run entirely via the web, is that the internet is serious selling medium but you have to understand it. Practising on sales sites like eBay or TradeMe could be good start.
Attracting and retaining skilled staff is problem that various speakers addressed, emphasising the need for upskilling and provision of career paths so people see retailing as profession rather than stop-gap job. Tactics included promoting from within, introducing incentives (lifestyle options as well as financial perks), strong learning and development programmes and online training.
Vicki Jayne is 3media Group’s editor at large.
