Forget Myer Holdings Ltd; Premier Investments Limited Should Buy OrotonGroup Limited, Instead

It’s been a tough few years for investors in leather handbags, as the OrotonGroup Limited (ASX:ORL) share price has headed south.

From a high of almost $7.80 in February 2013, shares in the company behind the iconic leather goods languish around $1, as downgrade after downgrade sap investor confidence. The company is now selling for just $45 million.

And it’s time for Premier Investments Limited (ASX:PMV) to step in and add Oroton to its stable, not long after taking an 11% stake in Myer Holdings Ltd (ASX:MYR).

OrotonGroup was once the posterchild for quality fashion retailers. Its marketing was doing well, sales were growing, and profits were on the up.

And then…

Long-time partner Polo Ralph Lauren had used OrotonGroup as its Australian distributor for almost two decades. But it decided back in 2012 to go its own way. And just as growing scale can be a boon for profits (you only need one CEO and one Finance Department, even as your sales double, for example), falling scale can destroy the bottom line.

And when Ralph Lauren left OrotonGroup, that’s exactly the fate that befell the latter.

OrotonGroup tried — desperately — to find a new partner. It did deals with US fashion companies GAP and Brooks Brothers in a bid to find something to stem the bleeding.

The problem was that neither deal solved the problem.

Add to that the growing global ambitions of handbag brands Coach, Michael Kors and others, and Oroton’s remaining eponymous business started to struggle.

Oroton is a quality brand. Run well, it has a good future. But OrotonGroup needs to realise that its time as a standalone company is almost certainly over.

And retail conglomerate Premier Investments, run by ‘billionaire rag trader’ Solomon Lew and ex David Jones head honcho Mark McInnes is the natural home. A conglomerate gives each brand the opportunity to wax and wane (as happens almost inevitably in retail) while other brands take up the slack — just as Ralph Lauren and Oroton had done when they were together.

And Solly Lew has form — and the funds — to make Oroton a success again. OrotonGroup is closely held, and its shareholders would need to realise that they need help to succeed. For the company — and it’s brand — I hope they do.

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Motley Fool contributor Scott Phillips (TMFGilla) has no position in any stocks mentioned. The Motley Fool Australia owns shares of Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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