The following article by Adrian Ezquerro featured in Eureka Report and Switzer, January 2011.
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PORTFOLIO POINT: The retail and brand management group continues to perform strongly while the retail sector struggles.
The challenges facing Australian retailers have been widely publicised. The strong Australian dollar, higher interest rates and an explosion in online retailing are all frequently trotted out as reasons for the sector’s underperformance.
For years when conditions were favourable for retailers, investors would look to established big-ticket department stores such as Harvey Norman (HVN), David Jones (DJS), Myer (MYR) and JB Hi-Fi (JBH). But as the perfect storm of conditions has descended on Australia, so too have the share prices of these household names with high levels of fixed costs.
Despite these challenges, the business model of the listed “brand managers” continued to thrive and should offer retail investors with an alternative to traditional retailers and the pitfalls they face.
Three well-known Australian “brand managers” include Pacific Brands Limited (PBG), Premier Investments Limited (PMV) and OrotonGroup Limited (ORL).
While it is hard to justify Pacific Brands and Premier Investments as a possible investment due to their high levels of intangibles, mediocre levels of profitability and uncertainty regarding their strategic response to the changing retail landscape, Oroton is showing qualities that should help it wade through the challenges currently being faced by the sector.
As with any new trends, there will be winners and losers. Flexible, adaptable, forward-thinking managers will seize the opportunity and grow value for shareholders, while those with a “hold the fort” mentality may well be left behind. With a well-articulated strategy encompassing brand management and enhancement, effective product positioning, measured Asian expansion, strict financial controls and an impressive online platform, Oroton is my preferred retail exposure.
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Continues with excerpt from MyClime Company Reports: OrotonGroup Limited.
