Quality control in the bag

March 12, 2010

Oroton Group chief executive Sally Macdonald: "It's retailing, so work is never complete and you can never rest on your laurels." Photo: Jon Reid

A funny thing happened during the nail-biting depths of the global financial crisis: women shifted their gaze to even more expensive handbags and fashion accessories, happily paying well over the average weekly wage for something to carry their lippy and car keys in.

This extravagance was good news for Sally Macdonald, chief executive of the once struggling but now thriving upmarket fashion house Oroton Group, whose company sells a portfolio of pricey pouches, including the top-of-the-range bella crystal clutch evening bag, which retails for $1500.

''It sold well during the global financial crisis and, in fact, we found that the higher-priced items did better during the so-called downturn in Australia,'' Ms Macdonald said.

''The average price point (of sales) of our bags actually went up quite considerably in 2008 and 2009 as well … customers were buying more expensive products, they were still buying bags and there wasn't a slowdown for us.''

If anyone has the right to gloat about surviving the biggest downturn since the Great Depression, it is Ms Macdonald. When she walked into Oroton in September 2006, the company had just booked $9.4 million in losses - due to bloated costs, underperforming brands and a string of dud acquisition deals under the leadership of controlling shareholders the Lane family.

Yesterday Oroton posted a net profit of $15.4 million for the six months to January 23, an increase of 24 per cent on the previous corresponding period.

Group revenue lifted 9.8 per cent to $81.6 million as like-for-like store sales increased 6.3 per cent. It was the company's best sales performance in more than five years.

Unlike her peers at mining companies, Ms Macdonald didn't have booming commodity prices to cover up any mistakes or embellish the bottom line. She did, however, face tough competition from retailers, including a resurgent Myer, and the general economic malaise.

It was also her first stint as a company CEO following a successful career as a consultant working for Boston Consulting Group.

Ms Macdonald, who once worked the floor at David Jones and Sportsgirl during high school to make extra pocket money, refused to take the business or its two flagship brands, Oroton and Polo Ralph Lauren, downmarket. A risky strategy that paid off.

''I think we are in an affordable luxury segment, which is much more value than a luxury European brand but much, much better quality than the High Street, cheaper, alternative brands.''

The first-half result was a direct consequence of work done in the initial few months of Ms Macdonald's accession to the CEO role. She applied shock treatment to the company, selling three brands, closing inferior stores, cutting staff by half and taking an axe to head-office costs to reinvest capital in the Oroton and Polo brands.

Although the Polo division suffered a 6.1 per cent sales decline, this was in line with market conditions and due to its high exposure to apparel, Ms Macdonald said.

Oroton, with its mix of handbags, wallets, shoes and accessories, performed much better, recording interim sales growth of 18.5 per cent.

Bolstering the company's margins was its focus on controlling as much of the creative and manufacturing process as possible.

''Everything is designed from scratch; everything is original: we are Australia's No.1 design house - that is how we think of ourselves,'' she said.

Ms Macdonald spent much of her day yesterday racing from meeting to meeting, criss-crossing Sydney's financial centre to spruik the newer, stronger, hipper Oroton.

''It's retailing, so work is never complete and you can never rest on your laurels because consumers are always wanting more, wanting to be excited or delighted by our products,'' she said. ''So unfortunately the work is never done but that's sort of why we love our jobs as well - we like that constant change in dynamics.''