Luxury goods retailer OrotonGroup Limited (ASX: ORL) today announced that it had agreed to end its involvement with iconic US premium brand retailer Brooks Brothers, less than two years after announcing the partnership.
In 2013, after ending its partnership with Ralph Lauren, Oroton signed a 10-year joint venture with Brooks Brothers in what now appears to be a sign of desperation. Now, Oroton and Brooks have signed a contract to sell its stake in the joint venture company to Brooks Brothers International LLC, just 23 months since it was announced.
Claudio Del Vecchio, Chairman and CEO of Brooks Brothers Group said today,"OrotonGroup has been an outstanding partner and we thank them for introducing us to the Australian market. We look forward to further expanding Brooks Brothers in Australia, as we take 100% ownership of our business there."
A cynic might suggest that Brooks Brothers has the foothold in Australia it wanted, and now no longer needs OrotonGroup, although the termination does appear mutual.
At the time of the partnership announcement in August 2013, OrotonGroup's newly appointed CEO Mark Newman remarked, "The partnership is an endorsement of our skills and expertise in managing premium international brands in our home country."
I wonder what he thinks now, particularly given the relative disappointment in Brooks Brothers' sales and margins in Australia.
Surprisingly, OrotonGroup shares are actually up 1.4%, despite the contract collapse. Clearly, termination of a 10-year contract barely two years in suggests it wasn't working as originally planned. The termination will have no negative impact on 2015 financials (year end is December 2015), and OrotonGroup may well be glad to be rid of Brooks Brothers given the brand wasn't meeting expectations.
OrotonGroup had flagged back in May this year that it was in discussions with Brooks Brothers on 'how best to manage the brand in future'. Oroton's other joint venture brand, The Gap is expected to continue reducing losses.
Given this result and the profit downgrade in May suggests one retailer still has plenty of work to do on getting its strategy right.
