OrotonGroup’s CEO Sally Macdonald is one of the best leaders in the retail game, few would dispute. She is going to need to all her skill to guide the luxury retailer through its current challenges.
The end of a 23-year-long license deal between Oroton (ASX:ORL), which is best known for its designer handbags, and the premium clothes brand, Ralph Lauren, will cost a lot. The agreement between the two companies ends on June 30, 2013.
Macdonald was upfront about the full impact of the impending loss at yesterday’s full-year results announcement. The Polo Ralph Lauren brand contributed:
- 31% of Oroton’s earnings before interest and tax (EBIT) in 2011-12
- 47% of the group’s total revenue, which was $184.7 million, up 12% from the previous financial year.
Oroton’s net profit was up just .5% to $24.9 million.
About 18 months ago, Ralph Lauren started taking back licenses throughout Asia Pacific, says Credit Suisse analyst, Samantha Carleton. “Ralph Lauren wanted to take back control of their licences in Asia Pacific – most likely to improve performance and present a consistent offering across regions and distribution platforms. Given Oroton were doing an extremely good job at managing the license and Australia was geographically further away and a small contribution to Ralph Lauren, we were surprised to see Oroton lose the licence.”
It seems as if management was surprised too. The deal between the two companies was last signed in 2010. Sales consultant, Sue Barrett, says that the relationship appears to have failed a critical test: “The test of any relationship is whether you can ask a tricky question. Can you say, ‘You don’t have to answer, but I would like to ask you something?’ That is the test of a real relationship.”
The Ralph Lauren license had proved to be a great business for Oroton. When Macdonald ascended to the CEO role in 2006, after having done some consulting work to the group at the end of a difficult trading period, Ralph Lauren was the biggest brand in the business.