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Luxury goods sales data may not bode well for Oroton

The Financial Times highlighted last week that recent company results from luxury brand owners showed declining sales growth. Privately owned Italian fashion house Prada, saw its growth slow from 48% to 14% in the first quarter of 2013, while London-based Mulberry Group (LON: MUL) last week reported a 28% drop in profits. The most telling factor from these reports was that there was a sharp slowdown in Asia.

OrotonGroup (ASX: ORL) which lost the Ralph Lauren Polo license last year, currently has two potential growth engines; expansion into Asia and expansion of the product range. The lacklustre Australian retail market, coupled with the now clear decline in Asian appetite for luxury purchases, explains Oroton’s flat half yearly results. Indeed it wasn’t a bad result, given the circumstances.

Oroton is still primarily domestically focussed with 64 stores in Australia and New Zealand and just 7 stores in Asia. Management has stated that the aim is to grow Oroton internationally into Asia and the Middle East. Two more China stores are committed to be opened by September 2013. This is likely the right strategy; however it wouldn’t be great timing if it corresponded with this latest reported downturn in Asian demand.

Foolish takeaway

Whether it is the brand owners, or the re-sellers such as Myer (ASX: MYR) and David Jones (ASX: DJS), retail sales growth is definitely hard to come by at the moment. The current situation probably won’t last forever, with Oroton selling products which are desired and sought after and department stores still receive a lot of foot traffic. Investors alert to temporary as opposed to permanent changes, might soon have the opportunity to purchase some good retailers at very reasonable prices.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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