Bagging a winner

From the 60s to today – Oroton’s gold mesh accessories have stood the test of time. But despite its on-shelf success, the company’s financials haven’t always had such shine – a few years ago, Oroton faced a $9.4 million loss. So how did CEO Sally Macdonald save the brand and pull a $9.8 million profit out of the bag?

Oroton, the Australian manufacturer of fashion accessories, particularly women’s handbags, has been in operation since 1938. However, by 2006, it had hit a retail snag – waning sales and enormous debt. Enter Sally Macdonald.

“I started as a consultant with the group to help them with a strategy and it just emerged. It was luck and timing,” she says. “Ross Lane, who was managing director at the time, stepped aside and welcomed me to the role and gave me the space to get the job done.”

Within her first year of leadership, shares in the company had almost tripled, while four years later, Macdonald managed to deliver a 24 per cent increase in Oroton’s interim net profit.

Embracing change

Despite her great success, Macdonald insists the key to resurrecting the brand was simple.

“It’s not rocket science. It’s a lot of little things,” she says. “I think it was obviously taking costs out of the business pretty quickly but then rejuvenating the design and the bag, the consumer product, the store experience.”

The key to strategy development was seeing the brand through new eyes – that of the consumer.

“It’s an advantage that I had as a consumer in the stores,” she says. “I wanted to be excited as a consumer, [so I had to] take off the CEO hat.”

She also credits a change in personnel as responsible for the brand’s resurgence.

“We hired a new designer, a creative director, who’s very, very talented and has rejuvenated the design, with a strong team behind her.

“Then rejuvenating the stores and really getting closer to the product and the consumer, and listening, getting out into stores a lot,” she says.

Macdonald is grateful to be head of a brand with such history.

“It’s the heritage,” she says of the brand’s popularity in Australia. “The beauty of the brand that we are working with. It has warmth. There are so few brands with intellectual content like that in Australia that are part of our history.

“It’s a democratic brand as well. We’re not elitist… I think it’s just innovating the brand so that there’s more and more coming in… so we’re catering a little bit for everybody and not just getting stuck with the model that works.”

The `key`, says Macdonald, is “forcing change”.

“We did do a lot,” she says. “We moved head office, we moved out of our own logistics operation to an outsource environment and saved a lot of money, we let go of the workforce – which was difficult but it was pre-GFC so there were other jobs to go to at that time – rejuvenated the design team… and changed the culture of the firm.”

Incredible growth

Roger Montgomery, independent investment expert, says that Macdonald is modest and that praise for her business management skills should be high.

“Sally is one of the future retailing legends in the country, if she wants to be. She’s a rising star now,” he says.

“Retailing is a business where there’s no barriers to entry. People can open up a shop next door and sell purses and handbags so to get the sort of returns on equity that Sally’s achieving now, 80 per cent returns on equity, in retailing that is unbelievable.

“That’s not a fluke. For the five years before Sally joined, the company was averaging 20 to 30 per cent returns on equity and since then it’s been 50 per cent tight returns on equity, with the latest being around 80 per cent.”

So what’s driving these big numbers?

“Strong growth margin, cost discipline in the business, fantastic cash flow, really strict financial hurdles for any investment, or new stores or refurbishments we undertake,” says Macdonald.

“It’s also just having a constant open learning mind and coming from a turnaround or a negative profitability situation, you never take anything for granted so the team is fired up and there’s a lot more to come. It’s not as good as it can be yet.”

Friday, February 24, 2012
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