The Orotongroup is an Australian company established in 1938 by Boyd Lane in Sidney, Australia. It is a premium retailer for fashions accessories, apparel, footwear, bags, wallets and jewelry, with its flagship brand being Oroton. The vision of the Orotongroup is to provide “affordable luxury” all over the world (The Orotongroup, 2016). This is the brand that the Orotongroup seeks to reflect in its product and service offering in its more than 80 stores in New Zealand, Australia, Malaysia, Dubai, and Hong Kong, as well as through the internet. Its mission is “to provide a world class shopping experience for the customer and partners with integrity and innovation as well”. The Orotongroup strategy is to focus on brand development.
Oroton Group Past Performance
Orotongroup has reported a strong business performance in its operations over the past 5 years (Oliver, 2015) reporting annual growth in sales of up to 25%. This is despite the presence of challenges such as the withdrawal of the Ralph Brand license from their Australian operations which resulted in a more than 50% fall in their share price over the period (Mitchell, 2015), and entrance of new international brands such as Moncler, Agent Provocateurand AllSaints. The company’s performance over the past five years has been good, with the years 2013, 2014, and 2015 being it’s best performing, registering revenue growths of up to 25% and increases in net profits up by 16% (Orotongroup Financial Reports, 2016). The groups’ expansion into the Asia market has also been underway during the five year period resulting in the opening of more than 10 stores over the period(The Orotongroup, 2016). The good performance has been attributed to various favorable macroeconomic factors present in both Australia and the global economy.
Australia Economic Forecast
According to The Australia Trade and Investment Commission(2016) Australia’s economy will realize a GDP annual growth of 2.9% between 2016 and 2020. The commission further projects that the non-mining sectors will continue to grow, driven by a depreciated Australian dollar, rise in household average income and demand. According to a report by Gros, Alcidi, & the Centre for European Policy Studies,(2015) Australia’s unemployment rate will average 5.9% to 2020 and inflation rate will increase to an average of 3.8% until 2020. The report also forecasts that Interests rates will rise to 3.5% by 2020. These economic indicators are expected to have different effects on Orotongroup. The manufacturing and allied sector is expected to make a modest growth contributing more and more to the GDP.
Industry Analysis of the Oroton Group
Mitchell (2015) states that Orotongroup is one of the most recognized brand name in Australia. This is notwithstanding that the country’s fashion accessories and apparels industry is crowded with major global fashion brands operating in Australia. However, various factors within the environment can affect the success of a business operating in the industry. In the fashion accessories and apparels industry, Porters Five forces influence the competitive position of a business. They include Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution, and Threat of New Entry. A five forces industry analysis provides an avenue for analysing the company, and identification of potential avenues for growth over the coming years.
Supplier Power: Suppliers have a low bargaining power in the fashion apparels and accessories industry. This is because of the many suppliers of the raw materials needed in the manufacture and fabrication of fashion apparels and accessories. Their many numbers denies them any undue advantage in influencing the prices of raw materials, products and services.
Buyer Power: Buyers have a high bargaining power in the amusement park industry. This is because there are many famous international fashion brands such as Ralph operating in the fashion apparels and accessories industry offering many alternatives from which Customers can choose. Therefore, for any future growth in performance, Orotongroup needs to maintain favorable pricing and differentiate their product and service offerings by continuing to focus on their vision to provide “affordable luxury” to their market niche.
Competitive Rivalry: There is extreme rivalry and callous competition among players in the accessories and apparels industry, for example, from Ralph, Moncler, Paul Shark, Rag & Bone, and AllSaints. The presence of many strong competitors, forces firms to strive to set themselves apart through continuously innovation and improvement of the customer experience through product innovation and improvement. This competition has forced and influenced Orotongroup marketing plans and strategy to undertake expansion to diverse into new market.
Threat of Substitution: The threat of substitution is strong. There are many alternative brands available for customers. Therefore, Orotongroup has to ensure that they constantly come up with new product offerings to improve the customer experience to keep the customers interested with their update.
Threat of New Entry: The high-end luxury fashion apparels and accessories industry involves high investment in terms of financial and capital outlay, as well as in legal requirement in terms government regulations. It also requires a strong brand name with high customer loyalty. These preconditions act as barriers to entry and exit from the industry. This therefore makes the threat of new entrants very low.
StrategicBusiness Forecast of the Orotongroup
The Orotongroup business performance is expected to grow in the coming five years. This is because of the projected positive growth of the Australian economy, favorable market conditions such as low interest rates, low inflation, lower rates of unemployment and better Australian government incentives to invest in non-mining sectors(Australian Trade and Investment Commission, 2016).
First, it is projected that the group will continue to employ its expansion strategy into new markets and economies. Due to the expected better performance of the global economy (The World Bank, 2016), the expansion strategy is expected to improve Orotongroup’s bottom-line and increase their share of the global fashion accessories and apparels market. The group is also expected to introduce new brands. With the withdrawal of the Ralph brand license and ensuingintroduction of the Gap and Brooks Brothers brands that have performed well, the group is projected to introduce new brands into their product offering. Consumer take-up of these stores and Positive performance of these stores is projected to entice the management of Orotongroup to further expand into other markets and open new stores in already established markets.
Thirdly, Australia’s projected positive economic growth is expected to spur consumer demand presenting a ready market for Orotongroup products. This will further be boosted by other favorable market conditions in the Australian economy such as favorable interest rates (2% projected), low inflation (2.3% projected), lower rates of unemployment (6% projected) (Gros, Alcidi, & Centre for European Policy Studies, 2015), and better Australian government incentives to invest in non-mining sectors in their economic diversification strategy (Kent, 2014).
Lastly, Australia’s main trading partners have been forecasted to perform well. This is expected to boost their economic performance and further positively affect the Australia’s economy. For example New Zealand, Thailand, Singapore, and the United States have been forecasted to have favorable economic growths.
In general, it has been forecasted that by 2020, the performance and profit margins of Orotongroup will double, even the most pessimistic market estimate steady increases in earnings.
Australian Trade and Investment Commission. (2016). Invest in Australia: Why Australia. Retrieved from Australian Trade and Investment Commission: https://www.austrade.gov.au/International/Invest/Why-Australia/Growth
Gros, D., Alcidi, C., & Centre for European Policy Studies. (2015). The Global Economy in 2030: Strategies and Trends for Europe. Brussels: Centre for European Policy Studies.
Kent, C. (2014, September 16). RBA Assistant Governor Address to the Bloomberg Economic Summit: “Non-Mining Business Investment – Where to from here?”. Retrieved from Reserve Bank of Australia: http://www.rba.gov.au/speeches/2014/sp-ag-160914.html
McDonald, T., & Morling, S. (2011). Economic Roundup Issue 2: The Australian economy and the global downturn Part 1: Reasons for resilience. The Treasury. Australian Government.
Mitchell, S. (2015, March 19). OrotonGroup Slashes Dividend after Profit Falls by 57%. Retrieved from The Sydney Morning Herald: http://www.smh.com.au/business/orotongroup-slashes-dividend-after-profit-falls-57-20150318-1m2fnj.html
Oliver, M. (2015). OrotonGroup looks set to take on Gap – but is it the right move in a tough retail market? Retrieved from Smart Company: http://www.smartcompany.com.au/finance/economy/34186-orotongroup-looks-set-to-take-on-gap-but-is-it-the-right-move-in-a-tough-retail-market/
Orotongroup Financial Reports. (2016). Annual Reports: Oroton Annual Reports & Auditors Statements dating back to 2003. Retrieved from OrotonGroup: http://www.orotongroup.com/investor-relations/annual-reports
Shapiro, J. (2016, May 16). RBA lowers inflation forecasts, ready to cut rates again. Retrieved from The Sydney Morning Herald: http://www.smh.com.au/business/the-economy/rba-lowers-inflation-forecasts-ready-to-cut-rates-again-20160505-gonp7b.html
The Orotongroup. (2016). Company Profile. Retrieved from Oroton Group Website: http://www.orotongroup.com/about-us
The World Bank. (2016, August). Global Economic Prospect: Divergences and Risks. Retrieved from The World Bank: http://www.worldbank.org/en/publication/global-economic-prospects
The World Bank. (2016). Tariff rate, applied, weighted mean, all products (%). Retrieved from The World Bank: http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS?locations=AU