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Luxury retailer goes shopping for acquisitions

You might say that luxury retailer Oroton Group (ASX: ORL) is in need of a little retail therapy. In June this year, the company’s deal with Polo Ralph Lauren will end. This will see Oroton flush with $30 million in cash — as Polo Ralph Lauren pays up for associated inventory and assets — but leave a hole in its results to the tune of 30%.

Thus an acquisition looks to be on the cards, with chief executive Sally MacDonald under pressure to find another brand to add breadth, depth and most of all, sales, to Oroton’s classically flavoured accessories and base of company stores. According to The Australian Financial Review, MacDonald favours an outright acquisition or joint venture over a licensing deal.

So why not look online?

If that’s the case, maybe it’s time to acquire an online-only retailer. A certain website — the burgeoning ASOS of Australia — could represent a particularly bold, even iconic, move.

As of September, The Iconic was believed to have some 150,000 visitors a day and about $10 million in sales each month. Its combination of party dresses, trendy top and pants for men and women, and fast, free shipping (just a couple of hours in Sydney!) looks to be a winning formula. Unfortunately, the company may not be for sale. The online-only retailer, based  out of Sydney, took on $20 million in funding from JPMorgan in a cash-for-equity deal in September 2012 after locals declined to invest.

This may represent a missed opportunity for Australian brick-and-mortar retailers — not only Oroton, but the usual suspects from Specialty Fashion Group (ASX: SFH), which generates only about 4% of its sales online as of its most recent half year report, to Premier Investments (ASX: PMV), with its near $300 million war chest. RCG Corporation (ASX: RCG), a deft operator of a portfolio of shoe stores and brands, comes to mind as well.

O what a bit of news could do

Oroton Group will release its half year results next week, and management may announce news of a deal. If not, MacDonald may choose to distribute part of the $30 million Ralph Lauren payout to shareholders. Such an announcement could boost the share performance, which has significantly lagged the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the last twelve months. At least in the short term, shareholders might be just as pleased with a special dividend as an acquisition.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

 

 

 

 

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